New Zealand Corporate Taxation

Taxes in New Zealand are collected by the Inland revenue department (IRD) on the behalf of the Government of New Zealand. Taxes are imposed on the basis of the personal and business income, supply of goods and services. There is no capital gains tax, although certain “gains” like the  profits on the sale of patent rights are deemed to be income – income tax does apply to property transactions in certain circumstances, particularly speculation.  Some of the goods and services carry a specific tax, referred to as an Excise or duty, like the alcohol excise or gaming duty. These are collected by a range of government agencies such as the New Zealand Customs Services. There is no social security (payroll) tax. New Zealand had undergone a major program of tax reform in the 1980s. The top marginal rate of income tax was reduced from 66% to 33% (changed to 39% in April 2000, 38% in April 2009 and 33% on 1 October 2010) and the corporate income tax rate from 48% to 28% (changed to 30% in 2008 and to 28% on 1 October 2010). Goods and services tax was introduced, initially at a rate of 10% (then 12.5% and now 15%, as of 1 October 2010). Lan taxes were abolished in the year 1992.

Contents:

  • Corporate Structure
  • Permanent Establishments (PE)
  • Goods and Services Tax (GST)
  • Residential land withholding tax (RLWT)
  • Non-Resident Contractors Tax
  • New Zealand India Treaty

Corporate Structure

Businesses and organisations pay the income tax on their profit (their income, minus any expenses). Generally, the businesses and the organisations file their income tax returns by the end of their first year of business and pay their tax in a lump sum at the end of the year. After the first year, they pay in instalments which is called provisional tax during the year. Provisional tax payments are usually combined with the GST payments. Self employed people are taxed as individuals. [1]

Business TypeRate
Self Employedthe tax rate for individual
Most Companies28.00%
Māori authorities17.50%
Non-profit organisations registered and incorporated under the Incorporated Societies Act 190828%
Unincorporated organisationsthe tax rate for individual
Trusts and trustees – the initial amount of money put into a trust0%
Trusts and trustees – any income the trust earns33%

Permanent Establishments (PE)

Generally, Domestic Traffic Area(DTAs) to which New Zealand is a party, define a PE as a permanent place for business from where the company’s business is carried on. A PE can also exist without a fixed place of business if the employees from the overseas company regularly exercise an authority to finish contracts, or habitually play the major role which leads to the conclusion of the contracts that are regularly concluded without any material modification by the enterprise, in the country (New Zealand). Further, a PE may be created where services are provided in New Zealand for a period of time.

The term ‘permanent establishment’ is also defined in the domestic legislation. In the first instance, New Zealand’s domestic legislation will honour the PE definition included in the relevant DTA. However, in the case where the relevant DTA has not been amended to incorporate Article 12(1) of the MLI (Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting), ( a domestic PE avoidance rule may be applied under certain circumstances for the large multinational groups.There is also a new domestic law definition for PE (incorporating the Organization for Economic Cooperation and Development’s new PE definition) according to which if there is no relevant DTA, along with an associated amendment to New Zealand’s source rules that will deem the income to have a source in New Zealand where it is attributable to a PE in the country (New Zealand). [2]

Goods and Services Tax (GST)

Good and Services Tax (GST)

GST is a form of value-added tax (VAT) that applies to most of the supplies of goods and services, which includes the services and intangibles supplied remotely by an offshore supplier to New Zealand resident consumers. The narrow category of exempt supplies includes the financial services. The current rate on the supplies is 15% or 0%.

The 0% rate applies to a few of the supplies, which includes the exports and financial services which are supplied to the other registered businesses. The 0% rate is also applied to a supply that includes an interest in land between two GST-registered parties if the purchaser acquires the land with the intention of using it to make taxable supplies and the land is not intended to be used as a place of residence for the purchaser or an associate, or in relation to the sale of a business.

A ‘reverse charge’ mechanism is also there which requires the self-assessment of GST on the value of certain services imported by GST-registered persons. GST is further imposed on the remote services provided by non-residents to New Zealand private consumers. There is a ‘remote services’ which is broad and includes streamed and downloaded digital products (which involves music, movie, and game downloads, e-books, e-magazines) as well as remotely provided webinars, software, web design and publishing, insurance,, consulting, IT, and professional services. Non-residents who do not make taxable supplies in New Zealand can register for GST, if they meet a certain criteria, which allows them to claim a refund for their input GST costs.

It is a requirement, from 1 December 2019 onwards, for the offshore sellers to account and register for GST at 15% on the supplies which have Low-Value Imported Goods (LVIGs) if sales to New Zealand private consumers in a 12-month period is more than NZD 60,000. The NZD 60,000 threshold is the same GST registration threshold that applies to domestic businesses and offshore suppliers of cross-border remote services. [3]

Residential land withholding tax (RLWT)

RLWT refers to the sale of residential land in New Zealand by an ‘RLWT offshore person’. RLWT applies where the land was acquired on or after 1 October, 2015 through 28 March 2018 and owned for less than two years before being sold, or where the land was acquired on or after 29 March 2018 and owned for less than five years before it was sold.

An ‘RLWT offshore person’ are all non-New Zealand citizens and non-permanent residents. It also includes the citizens of New Zealand who are currently living overseas and if they have been overseas for the last three years. A holder of a New Zealand residence class visa may be an offshore person if they are outside New Zealand and have not been in New Zealand within the last 12 months. New Zealand trusts and companies may also be ‘offshore persons’ if there are significant offshore interests in them.

The amount of RLWT to be deducted is the lessor of-

  • 10% of the sale
  • the gain on sale x the RLWT rate (28% for companies, incorporated clubs, and societies: 33% for individuals, all other non-individuals, and companies acting as trustees of a trust), or
  • the sale price less outstanding local authority rates or less security discharged amount, depending on which party is withholding the tax.[4]

Non-Resident Contractor’s Tax (NRCT)

New Zealand imposes a compulsion to deduct NRCT on those who are making contract payments to non-residents in relation to the certain contract based activities which are undertaken in the country. Contract activities generally relate to services and also include the granting of a right to use property in New Zealand. The NRCT rate is generally 15% (or 45% for individuals and for companies, 20%, if the proper paperwork is not provided). Some contractors are eligible to apply for a certificate of exemption or a certificate for reduced rates. NRCT is not required to be withheld if the non-resident has full relief from tax under a DTA and is present in New Zealand for less than 92 days in a 12-month period.

Payments for contract based work amounting to less than NZD 15,000 in a 12-month period are also exempted from the NRCT. In such cases, contractors themselves are responsible for paying any New Zealand tax owed at the end of the year (provided there is no relief from tax under a DTA). [5]

New Zealand-India Treaty

In a move that will help curb tax evasion and tax avoidance between India and New Zealand, the Government of India has notified the third protocol between India and New Zealand which will avoid  double taxation and prevent fiscal evasion with respect to taxes on income. The taxman of New Zealand and India – Inland Revenue Department (IRD) and Income Tax Department respectively, will be sharing the information to prevent issues of double taxation. The convention between the two countries came into force in December 1986 and was amended by a first protocol in 1997 and the second protocol in 2000. India has proposed to amend the convention through a third protocol further to update the exchange of information article as per the international standard and include an article on assistance in the collection of taxes. The protocol entered came into force in India on September 7, 2017, and has been notified in the Official Gazette on November 2, 2017.

Reference:

  1. https://www.newzealandnow.govt.nz/living-in-nz/money-tax/nz-tax-system
  2. https://tradingeconomics.com/new-zealand/corporate-tax-rate
  3. https://www.ird.govt.nz/international-tax/business
  4. https://treasury.govt.nz/sites/default/files/2018-10/2018-tertiary-challenge-first-runnerup-sam-wynands_1.pdf
  5. https://www.newzealandnow.govt.nz/living-in-nz/money-tax/nz-tax-system#section–4

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