Grant Thornton New Zealand 2012
Doing business in New Zealand
Contents 3 Foreword
4 Country profile 6 Regulatory environment 8 Finance and banking 9 Imports 10 Business entities 12 Labour 15 Financial reporting and audit 18 Tax
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Foreword
If you are planning on doing business in New Zealand knowledge of the investment environment and information on the legal, accounting and taxation framework are essential to keep you on the right track… New Zealand is a relatively small trading market in world terms. It welcomes foreign investment and is a relatively easy country in which to do business. Nevertheless, it is essential that prospective investors obtain advice concerning regulatory, legal and cultural issues arising from the conduct of business in New Zealand. Grant Thornton has prepared this guide to assist those interested in doing business in New Zealand. It includes legislation in force as of 1 August 2012. The guide does not cover the subject exhaustively but is intended to answer some of the important, broad questions that may arise. When specific problems occur in practice, it will often be necessary to refer to the laws and regulations of New Zealand and to obtain appropriate accounting and legal advice. If you require any further information, please do not hesitate to contact your nearest Grant Thornton New Zeland office, details of which are noted on the back cover.
Grant Thornton International
Grant Thornton International is one of the world’s leading organisations of independently owned and managed accounting and consulting firms, providing assurance, tax and specialist advice to privately held businesses and public interest entities. Member firms focus on helping businesses reach their commercial goals by providing practical, customised solutions and identifying and pursuing business opportunities domestically and internationally. They share a commitment to providing the same high quality service to their clients wherever they choose to do business. Grant Thornton International and member firms are not a worldwide partnership. Services are delivered independently by member firms within Grant Thornton International, a non-practicing, international umbrella organisation that does not deliver services in it own name.
the global accounting profession. Our policy is to provide a high quality and partner-led service that is tailored to the client’s needs wherever the client operates. Our client service teams comprise professionals with the requisite skills to deliver practical and cost effective business solutions. Our range of services includes: • Accounting and business advisory • Assurance and internal audit • Business risk services • Business transformation • Corporate finance • Government advisory • Recovery and reorganisation • Tax compliance and advice • Transaction services • Wealth management • Other specialist services such as litigation support, forensic accounting and independent reports
Grant Thornton New Zealand
Grant Thornton New Zealand is a major firm of chartered accountants with offices in the three main centres of Auckland, Wellington and Christchurch. As a member firm of Grant Thornton International we are able to combine the knowledge and experience of our local marketplace with the technologies, methodologies and specialist resources of a professional services organisation at the forefront of
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Country profile
Geography and population
New Zealand is situated in the South Pacific Ocean, approximately 1,500 kilometres east of Australia. It covers an area of 270,000 sq km (similar in size to the British Isles) and comprises two main islands, the North Island and South Island. The landscape is varied and often spectacular, which makes New Zealand a popular tourist destination. New Zealand’s population is around 4.4 million. About three-quarters of New Zealanders live in the North Island and about half live in the four largest cities of Auckland, Christchurch, Wellington, and Hamilton. New Zealand is a multi-ethnic country, comprising around 68% of people of European descent, 15% Maori (tangata whenua, the indigenous people), 10% Asian and 7% Pacific peoples. This ethnic diversity is projected to increase, with the Asian population in particular increasing to 14% over the next 15 years. Political system
New Zealand is a constitutional monarchy with Queen Elizabeth II as its sovereign head of state. New Zealand does not have a constitution that is embodied in a single document or Act of Parliament, but rather the constitutional law is contained in a mixture of legislation, the Treaty of Waitangi, case law and unwritten conventions having their origins in English law.
Constitutional power is vested in the Crown, represented by the GovernorGeneral. All legislation that is approved by Parliament must receive Royal Assent from the Governor-General in order to be given legal effect. Legislative power is vested in a parliamentary system with representatives (Members of Parliament) elected every three years to one central government. Since 1996, New Zealand has used the mixed member proportional (MMP) representation voting system. The National Party leads the present Government, with support from ACT, United Future, and the Maori Party. Executive power is exercised by the Cabinet, formed by the party that controls the majority of votes in Parliament. Cabinet is led by the Prime Minister (currently John Key), who is traditionally the leader of the governing party or coalition. Legal system
The legal system is based upon common law and statute. New Zealand’s common law has developed from and is reliant upon English law principles. However, many common law principles have been codified by statute. The court system is hierarchical. Trials are conducted in either the District Court (the lower jurisdiction) or the High Court. Appeals may be made to the Court of Appeal and, with leave, to the Supreme Court. A Disputes Tribunal is available as a low-
cost alternative for settling small claims. Language
English is one of New Zealand’s two official languages, and is universally spoken. The other official language is Maori (Te Reo). Business hours/time zone
Normal business hours are 8.30am to 5.00pm Monday to Friday. Many retailers are also open on weekends and one or more evenings. Trading is permitted on all days, with the exception of Good Friday, Easter Sunday, Christmas Day and until 1.00pm on Anzac Day (25 April). Certain businesses are exempt from these restrictions. Banking hours are normally 9.00am to 4.30pm Monday to Friday, but retail branches are open in the weekends in all large retail shopping centres. New Zealand’s time zone is GMT +12 hours and +18 hours US Eastern Standard Time. New Zealand adopts daylight saving during the summer months, from the last Sunday in September until the first Sunday in April. Public holidays
New Zealand public holidays are as follows: • New Year - 1 and 2 January • Waitangi Day - 6 February • Good Friday • Easter Monday • Anzac Day - 25 April
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• Queen’s Birthday - 1st Monday in June • Labour Day - 4th Monday in October • Christmas – 25 & 26 December • Provincial Anniversary Day - varies between provinces across the country
Imports: • Australia • China • USA • Japan • Europe • Southeast Asia
Economy
New Zealand is a proponent of free trade and is an active member of the World Trade Organisation (WTO). It has completed free trade agreements with ASEAN/Australia, China and Malaysia, and is presently negotiating agreements with India, Russia-BelarusKazakhstan, the Gulf Cooperation Council and Korea. It has special trading relationships with Australia (CER), Hong Kong (CEP), Thailand (CEP) and Singapore (CEP), and is a member of the Trans-Pacific Strategic Economic Partnership (P4).
New Zealand has a relatively deregulated and open economy. It is consistently ranked as one of the easiest countries in which to do business, one of the least corrupt, and having one of the highest levels of economic freedom. Major industries include agriculture, forestry, fishing, horticulture, manufactured goods (including food processing). Major imports include mineral fuels, mechanical and electrical machinery, vehicles, pharmaceuticals, textiles, and plastics. Major exports include dairy products, meat, wood, mineral fuels, machinery, fruit and nuts, wine, fish, wool, horticultural produce, manufactured goods and tourism. Principal trading partner
Exports: • Australia • China • USA • Japan • Korea • Europe • Southeast Asia
Cost of living
One of the greatest attractions of New Zealand is the lifestyle it has to offer. Not only do Kiwis seem to enjoy a more relaxed living philosophy but compared with many countries, an enjoyable lifestyle seems to be more obtainable. Auckland and Wellington generally rank high on international livability measures but the cost of living has also increased. The cost of living varies within New Zealand, particularly the cost of housing. Auckland is a more expensive city in which to live and, following the
earthquakes in Christchurch, there is a housing shortage in that city. Visas
Visitors from many countries do not require a visa for visits of less than three months to New Zealand. Generally, visitors are not allowed to work here. However, visas or work permits are available under various categories for people wishing to work in New Zealand either on a temporary or permanent basis. Australian citizens and permanent residents do not need a work visa to work in New Zealand. Long-term visas are available for migrants bringing valuable skills or qualifications, setting up a business, or making a financial investment in New Zealand. There are also opportunities for family reunification by allowing residents and citizens to sponsor family members for residence. For more information visit: www.immigration.govt.nz
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Regulatory environment
Restrictions on foreign ownership
Competition rules
New Zealand encourages foreign investment; nevertheless, consent is required for certain categories of investment in New Zealand by overseas persons. This process is administered by the Overseas Investment Office (OIO) on behalf of the government. The general categories for which OIO consent is required are investment in: • ‘sensitive’ land • business assets worth more than $100 million • fishing quota.
The Commerce Commission is New Zealand’s primary competition enforcement and regulatory agency. It is an independent Crown entity established by the Commerce Act 1986 and its role is to monitor commercial activity in New Zealand in order to ensure a competitive commercial environment. The Commerce Act 1986 aims to promote competition in New Zealand markets. It prohibits conduct that restricts competition (restrictive trade practices) and the purchase of a business’s shares or assets if that purchase is likely to lead to a substantial lessening of competition in that market. Practices specifically prohibited include: • Arrangements having a purpose or likely effect of lessening market competition (including price fixing and resale price maintenance) • Taking advantage of a substantial degree of market power to restrict entry to that market, or eliminate or deter other market competitors
For these purposes, overseas persons comprise individuals who are not New Zealand citizens and are not ordinarily resident in New Zealand, and companies that are either incorporated outside New Zealand or have 25% or more foreign ownership. For more information visit: www.linz.govt.nz/overseas-investment Government approvals and registration
Most businesses require no Government approval. Overseas companies carrying on business in New Zealand and large1 New Zealand companies that have 25% or greater foreign ownership must register and file audited accounts with the Registrar of Companies. These financial statements are filed on public record and can be viewed at: www.business.govt.nz
The Act also provides for the imposition of control, including pricing control over goods and services supplied in non-competitive markets. Consumer protection
The Fair Trading Act 1986 was developed with the Commerce Act to encourage competition and to protect
consumers from misleading and deceptive conduct and unfair trading practices. The Act applies to all aspects of the promotion and sale of goods and services – from advertising and pricing to sales techniques and finance agreements. Other consumer protection legislation includes: • The Consumer Guarantees Act 1993 This Act sets out minimum guarantees that goods and services must meet when sold in trade. For goods, this includes guarantees as to title, quality and fitness for any particular purpose that the consumer communicates. For services, this includes guarantees as to the exercise of reasonable care and skill, fitness for the particular purpose of which the services are sought, and that services are provided within a reasonable time and at a reasonable price. • The Sale of Goods Act 1908 This Act governs rights, obligations and remedies of parties to contracts for the sale of goods and addresses a number of aspects of such contracts that may result in dispute, including the transfer of title and risk, and rights and remedies of the parties in the event of non-performance.
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• The Credit Contracts and Consumer Finance Act 2003
This Act is intended to prevent oppressive lending arrangements and conduct by lenders and requires that lending terms and funding costs are adequately disclosed to borrowers. Import and export controls
The importation and exportation of goods may be subject to prohibition and control. Generally, the importation or exportation of weapons, endangered species, live animals, insects, meat, plants vegetables and drugs is prohibited without authorisation and is subject to strict controls. Price controls
The Commerce Commission can impose price controls on goods and services where there is a lack of market competition, there is scope for the exercise of substantial market power, and the benefits of price regulation will exceed the costs. Industries subject to specific regulation include electricity lines services, telecommunications, dairy, gas pipelines, airport services, and financial services. Use of land
The use of land is closely regulated. The Resource Management Act 1991 governs the use of land, water, minerals, the coastline, air and other physical resources. A number of consents may
be required before a particular project can proceed. Local authorities administer controls on development, generally through various regional and district plans. Exchange control
• New Zealand Trade and Enterprise (NZTE) offer a range of programmes to help businesses develop and succeed globally. For more information visit: www.nzte.govt.nz/find-fundingassistance
There are no exchange controls for the transfer of funds into or out of New Zealand. However, cash of NZD$10,000 or the equivalent in foreign currency being brought into or taken out of New Zealand must be declared.
• The New Zealand Venture Investment Fund invests into venture capital funds and partners with angel investor groups to drive investment into exciting young New Zealand companies with high-growth potential. For more information visit:
Government incentives
• Investment New Zealand aims to help link high-growth New Zealand businesses and international investors. For more information visit: www.investmentnz.govt.nz
www.nzvif.com
There are very few fiscal or financial incentives provided by the Government to assist the development of business. The Government is nonetheless keen to promote investment into New Zealand and the development and global expansion of New Zealand businesses, and assistance is available in various forms from a number of Government agencies, including: • The Science and Innovation Group within the Ministry of Business, Innovation and Employment administers a number of initiatives designed to drive the science and innovation sector. These include TechNZ investments, the Technology Development Grant and Technology Transfer Voucher, and PreSeed Funding. For more information visit: www.msi.govt.nz
1 Large is currently defined as entities that have two of the following three criteria: total revenue greater than $20 million; total assets greater than $10 million; and more than 50 full time equivalent employees
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Finance and banking
Banking system
Capital markets
New Zealand’s central bank is the Reserve Bank of New Zealand. Its prime function is to use monetary policy to control inflation and keep it within a specific target band, currently 1 to 3%. The Reserve Bank implements monetary policy by setting the Official Cash Rate (OCR), which is reviewed eight times a year. The Reserve Bank also has other important functions including the issuing of notes and coins, managing New Zealand’s foreign exchange reserves, and the registration and prudential supervision of banks. New Zealand’s banking industry is substantially deregulated. This has created a very competitive banking environment; however, it has also led to the situation where about 90% of banking assets are now controlled by Australian-owned banks. There are presently 21 registered banks, the largest include ANZ National Bank, the Bank of New Zealand, ASB Bank, Westpac, TSB Bank and Kiwibank. Banks offer the usual full range of lending, cash management and investment services. Foreign currency accounts may be operated in New Zealand. Money laundering rules are strictly enforced and banks require evidence of identity to open an account. No tax identification number is needed, although failure to provide a tax number will result in a higher rate of withholding tax being imposed on interest earned.
Finance can be raised through New Zealand’s capital markets. New Zealand has one authorised stock exchange, the NZX, which operates three securities markets, namely the New Zealand Stock Market (NZSX), the Alternative Market (NZAX), and the Debt Market (NZDX). The NZSX and NZAX are New Zealand’s equities markets. The NZSX is the premier market with 167 listed securities and total market capitalisation of around $58 billion, while the NZAX is a lower cost market designed for small to medium sized, high-growth companies and non-traditional entities such as co-operatives. The NZDX is the market for the trading of debt securities, including corporate and government bonds and fixed income securities. The NZX also launched a derivatives market in 2010, which supports the trading of dairy product futures and options. Other sources of finance
Debt and equity can also be raised through the issue of securities directly to the public. Such public offerings are regulated by the Securities Act 1978 and other securities legislation and generally require the issue of a prospectus and investment statement. This Act is about to be replaced by another more comprehensive piece of legislation which is currently known as the Financial Markets Conduct Bill.
Raising capital from private equity firms is a further option, although the venture and seed capital markets in New Zealand are very limited by international standards. Aside from trading banks, a range of other financial institutions also exist including finance companies, merchant banks, building societies, credit unions, friendly societies, and insurance companies. They generally provide deposit-taking and lending services but usually to particular niche markets. Financial Markets Authority
The Financial Markets Authority (FMA) is a new Crown entity established in 2011 to promote the development of fair, efficient and transparent financial markets, with the objective of restoring investor confidence in the markets. It took over the functions of the Securities Commission and Government Actuary, and consolidated other regulatory functions from the Ministry of Economic Development. The FMA is responsible for overseeing and enforcing securities, financial reporting, and company law as they apply to financial services and securities markets. It also regulates securities exchanges, financial advisers, financial service providers, trustees and auditors.
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Imports
Import restrictions
There are a number of restrictions on the goods that may be imported into New Zealand. These restrictions relate primarily to consumer safety issues, as well as illegal substances and firearms. New Zealand tightly monitors imports, especially in relation to food and agricultural produce, in order to prevent the introduction of pests. Other goods are restricted for environmental reasons and because of United Nations sanctions. Customs duties
Import licensing no longer exists but there are tariffs in some circumstances, although more than 80% of the total value of imported goods are tariff-free. Tariff rates vary from item to item and also depend on the country of origin, with some countries such as Australia, Canada, Malaysia, Singapore, Thailand, China, and Pacific Forum countries having preferential rates. Generally, import tariffs of 5% apply to textiles and a range of other imported products that are also made in New Zealand, such as processed foods, machinery, steel, and plastic products. Tariffs of 10% apply mainly to clothing, footwear, and carpet. Goods and services tax (GST) is payable to Customs for goods imported into New Zealand, and is generally recoverable by GST-registered persons.
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Business entities
Summary
• Foreign investors may operate in New Zealand through whatever entity they choose • The most common entities used by foreign investors are locally incorporated companies or a branch of the foreign entity
shareholder and one director. A director must be an actual person and may also be the sole shareholder. There is no requirement to have a New Zealand resident director or shareholder, nor is there a requirement to appoint a company secretary. Minimum capital/capital maintenance
Subsidiary company Formation
Incorporating a company is an online process undertaken via the New Zealand Companies Office website. It is a relatively simple, speedy and low cost procedure. Grant Thornton can arrange this for you. The first step in incorporating a company is to reserve the company’s name. Once this is done, an incorporation application is filed containing particulars of company addresses, shares, shareholders and directors. The final step is the lodging of signed director and shareholder consent forms. It is not mandatory to lodge a formal constitution. In the absence of a formal constitution, a company is regulated by the constitutional provisions of the Companies Act 1993. A formal constitution may add to or vary those Companies Act provisions and accordingly, that option should be considered having regard to the company’s particular circumstances. Management and officers
A company incorporated in New Zealand must have at least one
There is no restriction on the size of a company’s capital. The shares of companies incorporated in New Zealand do not have a par value. At the time of any issue of shares, the director(s) must be satisfied that the consideration for and terms of issue of the shares are fair, and pass a resolution and sign a certificate to that effect. Filing requirements
The Registrar of Companies maintains a file for each company registered in New Zealand. This records addresses, shareholders, directors and certain other information in relation to the company. This information must be updated annually, is available publicly and can be accessed online. A “large” company incorporated in New Zealand that is 25% or more controlled by non-residents must file audited financial statements with the Registrar of Companies. There is no requirement to file the financial statements of an overseas parent company unless there is a branch of that overseas company operating in New Zealand. Generally, the financial statements must be filed within six
months of the company’s balance date. This may be extended in limited circumstances. Dissolution and insolvency
A solvent company may be removed from the company register by a process known as a “members voluntary liquidation”. This requires the shareholders to appoint a liquidator, generally a suitably qualified accountant, who takes control of the company, discharges its liabilities and distributes the surplus to shareholders. A strike-off mechanism is available whereby the directors or shareholders may simply request the Registrar of Companies to remove the company from the company register. However, such a mechanism should only be employed after obtaining appropriate professional advice due to the issues that arise, including residual exposure to creditors. A company is not allowed to trade while it is insolvent (liabilities exceed assets). The directors of an insolvent company should seek advice from an insolvency practitioner or a lawyer regarding their options. These include: • Receivership • Creditors compromise, being a legally binding agreement entered into by all of the company’s creditors • Voluntary administration • Liquidation
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Branch in New Zealand Registration
An overseas company must register with the Registrar of Companies within 10 working days of commencing to carry on business in New Zealand. This process, which is undertaken online, involves reserving the company’s name and then filing a registration application containing: • particulars of its directors and principal place of business in New Zealand • evidence of its incorporation and a copy of its constitution • details of the person in New Zealand authorised to accept service of documents on its behalf. For Australian companies, most of this information is automatically provided due to information sharing between the New Zealand Companies Office and The Australian Securities and Investment Commission.
Filing requirements
An overseas company that operates a New Zealand branch must file separate audited financial statements for both the entity itself and the New Zealand branch operations within six months of balance date. Other New Zealand trading alternatives
Other means of carrying on business in New Zealand include: • Individual (sole trader) • Trust • Partnership or joint venture, although in the case of partners or joint venture parties that are companies incorporated overseas, this would ordinarily require registration in the manner previously described • Limited partnership • Look-through company (LTC) - (see Look-through companies, p24)
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Labour
Summary
Social welfare costs
• New Zealand has traditionally had a workforce skilled in construction and production but there has been a long-standing shift towards employment in the services sector • A state-operated social welfare system provides benefits during sickness, unemployment, disability and retirement and is funded by general taxation • New Zealand enforces minimum wage legislation
There are no mandatory contributions made by employers or employees to fund social security. New Zealand’s comprehensive social welfare benefits are funded through general taxation.
Wages
The average weekly earnings for fulltime salary and wage earners is around NZD$898 (as at June 2011). Minimum wage
From 1 April 2012, the adult minimum wage rate (before tax) for employees aged 16 or over is $13.50 per hour ($540 for a 40-hour week). The rate applying to new entrants (employees aged 16 and 17 who are new to the workforce) and employees on the training minimum wage, is $10.80 per hour ($432 for a 40-hour week). By law, employers must pay at least the minimum wage - even if an employee is paid by commission or by piece rate. The minimum wage applies to all workers aged 16 years or older, including home workers, casuals, and temporary and part-time workers.
Pensions
There are no compulsory superannuation savings schemes in New Zealand, although the voluntary KiwiSaver superannuation regime requires a compulsory contribution from employers of 2% of the employee’s gross salary or wage where the employee is a registered member of a KiwiSaver scheme. Outside of KiwiSaver, many employers pay pension contributions for their employees. Employer and employee contributions are usually paid into a superannuation or pension fund, the assets of which are kept separate from the assets of the employer. Employer contributions are generally subject to employer superannuation contribution tax (ESCT) at the employee’s marginal tax rate. Fringe benefits
Non-cash benefits are subject to fringe benefit tax (FBT), which is borne by the employer and not the employee. Examples of benefits subject to FBT include motor vehicles provided by the employer that are available for private
use, the provision of private healthcare, loans at concessional rates of interest, and free, subsidised or discounted goods and services. Holidays and leave Holiday pay
Under the Holidays Act 2003, employees are entitled to a minimum of four weeks annual leave after the first year of employment. Payment for annual leave is at the employee’s average weekly earnings over the 12-month period before the leave is taken. Employees can ask (in writing) to cash-up up to one week of their annual holidays each year. There are also 11 statutory public holidays each year – see country profile, p4. Sick leave
For most employees, there is a minimum provision of five days paid sick leave after the first six months of continuous employment. An additional five days paid sick leave accrues from that point on, after each subsequent 12-month period. Employment agreements can provide for more generous sick leave provisions. The relevant daily pay must be used to calculate payment for sick leave. It reflects what the employee would have been paid if they had worked on the day in question.
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Paid parental leave
Paid parental leave funded by the Government was introduced in New Zealand in 2002. This provides payment for up to 14 weeks leave upon the birth of a child or adoption of a child under six. Payment is capped at a maximum of NZD$475.16 a week before tax. The payment can be taken by one parent, or shared between two eligible parents. Under the Parental Leave and Employment Protection Act 1987 provision also exists for unpaid leave. For more information visit: www.dol.govt.nz/er. Accident compensation
The Accident Compensation Act 1982 removed the right to sue in the New Zealand Courts for damages for death or injury by accident in New Zealand. In place of such prior rights, the legislation introduced a comprehensive no-fault accident insurance scheme covering all personal injury by way of accident and occupational disease (see workplace accident compensation under other taxes, p27). The compensation scheme is funded by payroll levies imposed on employers and employees. Healthcare
Healthcare is provided on a subsidised basis to individuals who are on a low income and have a community services card or to individuals with a
medical condition necessitating high use of health services. Entitlement to healthcare does not depend on insurance, although private insurance is available. Employment protection legislation
A number of statutes provide protection to employees. The primary statute is the Employment Relations Act 2000. This governs the negotiation, content and enforcement of employment agreements, and contains a number of protections for employees. Objectives of this legislation include: • The promotion of good faith dealings and negotiations between employers, and employees and their unions • The promotion of collective bargaining and protection of individual choice • The promotion of mediation in dispute resolution in preference to judicial intervention • Observance of the principles underlying International Labour Organisation conventions on freedom of association and the right to organise and bargain collectively
Other legislation governing employment includes the: • Holidays Act 2003 • Parental Leave and Employment Protection Act 1987 • Minimum Wage Act 1983 • Wages Protection Act 1983 • Equal Pay Act 1972 • Health and Safety in Employment Act 1992 • Human Rights Act 1993.
The Employment Relations Act also allows employers and employees to agree to trial periods of 90 days or less. This is aimed at encouraging employers to take on new staff.
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Unions
Trade union membership is voluntary. Employees may negotiate individual employment agreements with their employers. Only members of a registered union can be party to a collective employment agreement. The Employment Relations Act 2000 provides unions with workplace access. Personnel limitations: foreigners/ nationals
A visa or work permit is required for a person to work in New Zealand unless they are: • a New Zealand citizen or holder of a New Zealand resident or permanent resident visa • an Australian citizen or Australian permanent resident • exempt from the requirement to hold a permit to be in New Zealand.
Key employees of a business that wants to relocate its operations to New Zealand may be eligible for a work visa and, later, for residence under the Employees of Relocating Businesses Category. Employers in New Zealand who wish to recruit from overseas must provide evidence that there are no suitable New Zealand applicants for the job. For more information visit: www.immigration.govt.nz
Work visas are available under various categories for people wishing to work in New Zealand either on a temporary basis or permanently. A person may qualify for a temporary work visa if: • they have a job offer from a New Zealand employer • there is a specific purpose or event for which they need to come to New Zealand to work • they are a student or trainee who wants to work in New Zealand • they wish to join a partner in New Zealand and work • certain other criteria are met.
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Financial reporting and audit
Domestic requirements
Presently, all companies registered in New Zealand, whether or not they are incorporated in New Zealand, must prepare financial statements that comply with the requirements of the Companies Act 1993 and the Financial Reporting Act 1993. The Financial Reporting Act 1993 requires compliance with generally accepted accounting practice in New Zealand (NZ GAAP). For most companies this necessitates compliance with applicable financial reporting standards (ie, accounting standards that have the force of law behind them, which means that if they are breached significant fines and/or imprisonment can result) or, where there is no applicable reporting standard, accounting policies that are appropriate to the entity’s circumstances and that have authoritative support within the accounting profession in New Zealand. It should be noted that significant amendments are likely to be made to this legislation within the next 12 months so please consult our website for the latest details: www.grantthornton.co.nz/Services/ Audit/IFRS/financial-reportingchanges.html.
There is currently a category of companies called “exempt” companies and their financial reporting requirements are outlined in legislation. They are companies that have total assets and turnover not exceeding NZD$450,000 and NZD$1,000,000
respectively, are not subsidiaries of other companies and have no subsidiaries of their own, and have up to nine months after balance date within which to complete financial statements. The Government has indicated that it intends to modify the Financial Reporting Act 1993 and remove this type of company. It will be replaced by a reporting regime where a company or a group of companies with common ownership that have total assets below $60 million or revenues less than $30 million per year will no longer be required to produce general purpose financial statements in accordance with NZ GAAP.
are not consistent with NZ GAAP because there is a concessional framework for small companies provided by the Financial Reporting Order 1994 (a regulation stemming from the Financial Reporting Act 1993) • Entities that meet the criteria for differential reporting (see differential reporting, p16) have the option to exempt themselves from complying with certain financial reporting standards, including the requirement to prepare a statement of cash flows and segment reporting
Accounting standards
New Zealand equivalents of International Financial Reporting Standards (IFRS)
NZ GAAP currently differs from US GAAP and International Financial Reporting Standards (IFRS) in a number of respects: • The Financial Reporting Act 1993 does not permit standards to be overridden where compliance with NZ GAAP would not give a true and fair view. Instead, the applicable standards must always be followed and, if they do not present a true and fair view, then the directors must cite why this is the case and present the financial statements in a way that they believe does present a true and fair view. The auditor then needs to determine whether they concur with the directors’ point of view or not • “Exempt” companies may elect to prepare financial statements that
NZ GAAP is presently undergoing a transition. Currently, all entities must report under New Zealand equivalents of International Financial Reporting Standards (NZ IFRS) or New Zealand Financial Reporting Standards (FRS). However, going forward, the External Reporting Board (the body that creates applicable financial reporting standards) in April 2011 signalled that public sector entities will for periods commencing on or after 1 July 2014 be required to report under New Zealand equivalents of International Public Sector Accounting Standards (NZ IPSAS). Not for Profit organisations will have a modified form of NZ IPSAS and the operative date for these types of entities is likely to be for periods commencing on or after 1 April 2015.
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NZ IFRS is an adaptation of IFRS to provide financial reporting guidance for not only profit oriented entities, but also for entities that operate in the public and Not for Profit sectors. For listed companies, NZ IFRS is now virtually identical to Australian equivalents of IFRS. The difference between these two bodies of standards and those issued directly by the International Accounting Standards Board is that some additional disclosures are required (eg, disclosure of audit fees). Further details can be found in New Zealand Financial Reporting Standard 44 Additional Disclosures. Companies which satisfy all of the following three criteria are permitted to continue to apply “old NZ GAAP” and, therefore, are not required to apply NZ IFRS until further notice: 1 The company is not an issuer, as defined by the Financial Reporting Act 1993 (the Act), in either the current or preceding accounting period 2 The company is not required by section 19 of the Act to file its financial statements with the Registrar of Companies 3 The company is not “large”, as defined by section 19A of the Act (which also aligns with the size criteria for differential reporting)
practice in New Zealand (ie, companies that are not “exempt”) and meet the three criteria will continue to have a choice between two sets of accounting standards, the existing “old NZ GAAP” and NZ IFRS. Audit requirements
The financial statements of all companies must be audited, except where shareholders unanimously resolve that no auditor be appointed. That exception does not apply to: • subsidiaries of foreign companies (if there is a New Zealand holding company, and then subsidiaries below that, then only the parent and consolidated financial statements of the New Zealand holding company need be audited) • companies controlled by overseas persons who hold more than 25% of the voting shares, whether directly or indirectly held • entities that raise funds from the public or are listed on New Zealand’s stock exchange (issuers) • branches of foreign companies.
Differential reporting
An entity qualifies for differential reporting exemptions (ie, it is a qualifying entity) when it does not have public accountability and: • at balance date, all of its owners are members of the entity’s governing body • the entity is not “large”. A company is considered “large” where it exceeds any two of the following thresholds: • Total income of $20 million • Total assets of $10 million • 50 employees
On the New Zealand Companies Office website there is a financial reporting calculator where you can check whether or not there is a need for an audit (www. business.govt.nz/companies/learnabout/updating-company-details/ financial-reporting).
Companies that are required to prepare financial statements in accordance with generally accepted accounting
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From 2013 onward the criteria for determining “large” will be increased. The External Reporting Board, an entity put in place as a result of the Financial Reporting Act 1993, is responsible for determining what the size criteria should be and at this stage has signalled that it will either be total revenue greater than $30 million or total assets greater than $60 million. For public benefit entities (ie, the public and Not for Profit sectors) “large” will be if annual expenditure exceeds $30 million. In contrast to companies, there are no asset or revenue thresholds for public benefit entities. It should be noted that the differential reporting regime that sits behind NZ IFRS is likely to be replaced with a reduced disclosure regime (RDR) similar to that currently in place in Australia. The fundamental difference between the two regimes is that RDR only reduces disclosure; it does not modify any of the recognition and measurement principles present in IFRS. Differential reporting is largely based on IFRS, but it does provide some alternative methods for recognising assets, liabilities, revenue and expenses to reduce compliance costs.
completion. All companies required to file financial statements must complete these within five months of balance date, so effectively filing is required within six months of balance date. Penalties for non-compliance
The Financial Reporting Act 1993 provides for substantial penalties for the company and each of its directors for non-compliance with: • applicable financial reporting standards (NZ GAAP) • filing requirements with the New Zealand Companies Office.
Filing requirements
All issuers and foreign owned companies as detailed are required to file their audited financial statements with the New Zealand Companies Office within 20 working days of
Doing business in New Zealand 17
Tax
Summary
The principles summarised in this general outline are relevant to New Zealand tax residents generally and to non-residents who derive income from New Zealand. The criteria for determining tax residence are outlined in the sections dealing with companies (see residence criteria: companies, p22) and individuals (see residence criteria: individuals p25). Residence and source
New Zealand taxes: • Residents on world-wide income • Non-residents on income that is derived from New Zealand. Calculation of taxable income
Income tax is calculated on gross income less allowable deductions. Taxable income may differ from accounting income as a result of both permanent and temporary differences in the basis of income recognition and matching of expenses. For example, temporary differences can arise due to differences in tax and accounting depreciation rates, or the time at which income from certain financial arrangements is recognised, and the non-deductibility for income tax purposes of general accruals and provisions. New Zealand has not enacted capital gains tax legislation as such, although some capital receipts may be taxable in certain circumstances (including profits from certain real property disposals
and profits arising from the disposal of financial instruments). Expenses of a revenue nature that are incurred in deriving gross income or conducting a business are generally deductible in calculating taxable income. There are exceptions to this general rule. Examples include certain entertainment expenditure that is limited to 50% deductibility and the denial of tax deductions to employees for employment-related expenditure (although such expenditure may be reimbursed by employers free of tax). Tax depreciation
Depreciation of capital assets (excluding land) that decline in value when used is deductible at rates determined by the New Zealand Inland Revenue Department. Tax depreciation is generally calculated on a straight line or diminishing value basis at the taxpayer’s option. Certain intangible property (excluding goodwill) is depreciable on a straight line basis over the term of its legal life. From the start of the 2011/12 income year, no depreciation can be claimed on buildings which have an estimated useful life of 50 years or greater. Asset purchases costing $500 or less, subject to certain criteria, can generally be expensed at the time of acquisition as opposed to being capitalised and depreciated. Gains on the disposal of depreciable assets are taxable to the extent of any excess of the sale price over tax written-
down value. However, any gain in excess of original cost is generally not taxable. Loss carry forward
Taxpayers may carry forward net tax losses arising in any year to subsequent years for offset against future income. Special loss carry forward rules apply to companies (see use of losses, p23). Treatment of foreign income Foreign income earned directly
Foreign income of New Zealand residents that is earned directly from overseas is generally taxed in accordance with the principles applicable to the calculation of taxable income and at the tax rate applicable to the taxpayer concerned. Foreign taxes paid on that income may be credited against the New Zealand tax liability, but only to the extent of the New Zealand tax payable on that income. Foreign income may be taxable irrespective of whether the income in question is remitted to New Zealand. For example, income arising from foreign bank accounts is taxable even though it may be capitalised or reinvested. Foreign income derived by an individual may not be subject to New Zealand tax if the person is considered a transitional resident of New Zealand (see transitional resident, p25).
Doing business in New Zealand 18
Attributed foreign income
New Zealand’s international tax regime taxes residents holding interests in overseas entities (including companies, investment funds, superannuation funds, and certain life insurance policies), in respect of their effective proportionate interests in the underlying income of such entities or funds. For these purposes, New Zealand recognises two categories of foreign investment: • Controlled foreign companies (CFC) • Foreign investment funds (FIF) CFC rules
A CFC is a foreign company, including a unit trust, in which: • five or fewer New Zealand residents hold an aggregate interest exceeding 50% • a single New Zealand resident holds an interest of 40% or more and a non-resident does not hold an equivalent or greater interest. The CFC rules were substantially revised with effect from income years starting on or after 1 July 2009. Under the new rules, a person with an income interest in a CFC of greater than 10% is not required to attribute CFC income or losses if one of the following exemptions applies: • The active income test is met (essentially, less than 5% of the CFC’s total income is ‘passive’) • The CFC is resident in Australia and meets certain other criteria
If these exemptions do not apply, then only the CFC’s passive income is attributed and subject to tax. FIF rules
The FIF rules apply to interests in: • foreign companies and unit trusts that are not CFCs • foreign superannuation schemes (schemes established outside New Zealand) • life insurance policies issued by foreign insurers that are not offered or entered into in New Zealand. Various methods are available to calculate FIF income. The default method for less than 10% interests is the fair dividend rate (FDR) method, which taxes 5% of the opening market value of the interest at the start of the tax year. There are specific exclusions from the FIF rules for: • interests of 10% or more in a CFC, which are subject to the CFC rules • interests in certain Australian listed companies • interests held by individuals where the total cost of all such overseas interests does not exceed NZD$50,000 • interests in certain superannuation schemes where no contributions are made whilst resident • interests held by transitional residents.
Recent changes to the tax legislation, applying to income years beginning on or after 1 July 2011, extend the active income exemption applying to CFCs to investors holding non-portfolio interests (10% or greater) in FIFs. Such investors in non-portfolio FIFs can also choose to apply the portfolio FIF methods such as FDR. Income of overseas trusts
New Zealand resident settlors of overseas trusts may be taxed on income that is not distributed by the trusts as beneficiary income. Tax year end
The New Zealand tax year ends on 31 March and the standard balance date for tax purposes coincides with that date. An alternative balance date can be obtained in limited circumstances, including the alignment of the balance date with that of an overseas parent company or to a recognised industry balance date. An alternative tax balance date cannot be obtained merely because such a date coincides with the anniversary of the commencement of business.
Doing business in New Zealand 19
Annual tax return and assessment
New Zealand operates a self-assessment regime whereby taxpayers file an annual tax return and self assess the tax liability for the year. In preparing the return, the taxpayer calculates the amount of any tax payment outstanding (see terminal tax below) after credits in respect of taxes deducted at source, provisional tax and foreign taxes paid. The taxpayer also calculates any provisional tax obligations in the subsequent tax year. The filing date for a company’s tax return is 7 July following balance date for taxpayers with balance dates from 1 October to 31 March. Taxpayers with balance dates from 1 April to 30 September must file returns by the 7th day of the 4th month following balance date. For example, a 30 June balance date taxpayer must file its return by the following 7 October. In all cases, this may be extended to 31 March following the normal due date where the taxpayer has an automatic extension of time by virtue of being on the Inland Revenue agency listing with a recognised tax agent (such as a Chartered Accountant). Tax payment obligations and timing Taxes deducted at source
In general, there are five broad categories of income that are taxed at source: 1 Non-resident passive income, being dividends, interest and royalties derived from New Zealand by nonresidents and that are subject to nonresident withholding tax (NRWT)
2 Resident passive income, being dividends and interest that is derived by residents and subject to resident withholding tax (RWT) 3 Income from employment (salaries, wages and taxable allowances) that is subject to ‘pay as you earn’ (PAYE) deductions 4 Income from the performance of various specified personal services, including sales commissions, directors fees, entertainment fees and labour only contracts, that is subject to withholding tax 5 Income from work undertaken in New Zealand by non-residents that is subject to non-resident contractor’s tax (NRCT) The obligation to deduct is imposed on the payer who must account to Inland Revenue for the tax deducted. Terminal tax
Annual tax liabilities in excess of provisional tax paid and taxes deducted at source (PAYE, RWT, NRCT and other withholding taxes) give rise to terminal tax obligations. The due date for payment of terminal tax is dependent on the taxpayer’s balance date and whether they file their own returns or use a tax agent (eg, external accountant) who has an extension of time arrangement with Inland Revenue. For taxpayers with the standard balance date of 31 March, terminal tax is due by:
• 7 February of the following calendar year, if the taxpayer is not linked to a tax agent or does not have an extension of time • 7 April of the following calendar year, if the taxpayer is linked to a tax agent and has an extension of time to file the relevant tax return. Provisional tax
Provisional tax is not a separate tax but a way of paying income tax progressively as the income is received through the year. Generally, three instalments of provisional tax are paid (two during the year and the final instalment shortly after year end), based either on an uplift of the prior year tax liability or a forecast of the current year tax liability. The amount of provisional tax paid is then deducted from the final tax liability for the year as determined in the tax return. Provisional tax is payable if the prior year tax liability exceeds $2,500. Where provisional tax is underpaid or overpaid having regard to the actual tax liability for the year, taxpayers are generally exposed to use of money interest (UOMI) payable either to or by Inland Revenue. UOMI is calculated based on the under or overpayment at each provisional tax due date and accrues until the balance is either paid or refunded. The present rates of UOMI are 1.75% on overpayments and 8.4% on underpayments. UOMI is generally assessable or deductible.
Doing business in New Zealand 20
Non-residents Non-resident withholding tax
Dividends, interest and royalties that are derived from New Zealand and paid to non-residents are subject to nonresident withholding tax (NRWT). The payer must deduct the NRWT at source and pay it to Inland Revenue by the 20th of the following month. NRWT is generally a final tax. The rate of NRWT is set by domestic legislation but is often subject to limitation under a double tax treaty (see below). The domestic NRWT rates are: • Dividends: 0 - 30% (typically reducing to 5% or 15% under a tax treaty) • Interest: 15% (typically reducing to 10% under a tax treaty) • Royalties: 15% (typically reducing to 5% or 10% under a tax treaty) A 0% NRWT rate applies to fully imputed dividends paid to either a non-resident shareholder with a 10% or greater direct voting interest or to a non-resident shareholder holding less than 10% and where the NRWT treaty rate would otherwise be less than 15%. A 0% NRWT rate also applies to fully imputed non-cash dividends. New Zealand borrowers that are not related to the overseas lender can effectively elect to pay a tax-deductible Approved Issuer Levy (AIL) of 2%, in which case no NRWT is payable in respect of interest paid. A 0% AIL rate applies to interest paid on or after 7 May 2012 on certain retail bonds.
Double tax agreements
New Zealand has presently entered into 37 double taxation agreements. The agreements provide a basis for relieving double taxation of residents of the respective jurisdictions where they enter into commercial arrangements with parties resident in the other jurisdiction or are deemed resident in the other jurisdiction. The agreements provide rules for determining which jurisdiction has the priority right of taxation and limit or eliminate double tax exposures that would otherwise arise under the domestic laws of the respective jurisdictions. Countries that are currently party to double tax agreements with New Zealand are:
Australia Austria Belgium Canada Chile China Czech Republic Denmark Fiji Finland France Germany Hong Kong India Indonesia Ireland Italy Japan Korea
Malaysia Mexico Netherlands Norway Philippines Poland Russia Singapore South Africa Spain Sweden Switzerland Taiwan Thailand Turkey United Arab Emirates United Kingdom USA
A renegotiated treaty with Canada is pending. Negotiations are also in progress for new or amended tax treaties with Japan, Netherlands, Papua New Guinea, Vietnam and the United Kingdom. The tax rate limitations that generally apply under the tax treaties to passive income are as follows: • Dividends: 0 - 15% (dependent on number of shares held) • Interest: 10% • Royalties: 5% or 10% However, both the rates and the scope of any limitation should be confirmed in each case by reference to the terms of the relevant tax treaty. New treaties being entered into or those being renegotiated or amended (presently Australia, Chile, Hong Kong, Mexico, Singapore, Turkey and the United States) are introducing lower withholding tax rates.
Doing business in New Zealand 21
Non-residents that are resident in a jurisdiction with which New Zealand has a tax treaty are generally exempt from New Zealand tax for business profits derived from New Zealand, provided there is no permanent establishment (branch or fixed place of business) here. However, that exemption may not be available where the income is connected with the exploitation of natural resources in New Zealand, and in some other circumstances. The exact nature of any exemption available should be confirmed by reference to the terms of the relevant tax treaty. Non-resident employees: treaty tax exemption
Non-resident employees who are resident in a jurisdiction with which New Zealand has a tax treaty and who undertake work in New Zealand will generally be exempt from New Zealand tax provided: • they are not present in New Zealand for more than 183 days in total in any 12 month period • their employer is not resident in New Zealand or operating through a permanent establishment in New Zealand. Foreign investor tax credit
Previously, the foreign investor tax credit (FITC) mechanism ensured that non-resident shareholders receiving dividends from New Zealand companies only bore a total effective
underlying tax cost of 30% (28% from the 2011/12 income year), being the New Zealand company tax rate. However, given that the majority of NRWT rates have been reduced to nil for most fully imputed dividends, the FITC regime is generally no longer required. From 1 February 2010, the FITC regime only applies to fully imputed dividends paid to shareholders who hold a less than 10% stake in the company and for which NRWT rates of at least 15% apply. Non-resident contractors’ tax
Payments made to non-residents who perform services in New Zealand under contract, or who lease or rent equipment for use in New Zealand, may be subject to the deduction of non-resident contractors’ tax (NRCT) at source. The rate of NRCT is 15% (or 20% for companies and 30% for individuals who do not supply a completed tax code declaration). Contract payments are exempt from NRCT where: • total payments are $15,000 or less in a 12 month period • the contractor is eligible for full relief under a double tax agreement and is present in New Zealand for 92 days or less in a 12-month period • the contractor has provided a current certificate of exemption to the payer.
Companies Liability to tax
New Zealand tax resident companies are subject to New Zealand income tax on worldwide income. Non-resident companies are liable for New Zealand tax on income that is derived from New Zealand. Residence criteria: companies
A company will be tax resident under New Zealand domestic law if: • it is incorporated in New Zealand • it has its head office in New Zealand • it has its centre of management in New Zealand • control of the company by its directors is exercised in New Zealand, regardless of whether decision-making by directors is confined to New Zealand. Tax rates
Companies pay income tax at a flat rate of 28% (effective from the 2011/12 income year). The 28% tax rate also applies to the New Zealand income of non-resident companies that are subject to annual assessment here, as distinct from companies subject only to NRWT as a final tax. Trading income of New Zealand resident companies is taxed at the same rate as investment income. Non-resident companies can be taxed at different rates for certain passive investment income (dividends, interest and royalties).
Doing business in New Zealand 22
Groups
Each company in a group files its own tax return and is responsible for its own taxes. However, two or more companies that are part of a 100% owned group of companies can elect to be treated as a consolidated group and be taxed as if they were one company. A consolidated group files a single tax return and is assessed and pays tax accordingly. A single company in the consolidated group is nominated as the group’s representative for these purposes. The ability to ignore or defer the income tax consequences of transactions between consolidated group members is a significant advantage arising from the formation of a consolidated group. However, taxation consequences can arise when a member withdraws from the consolidated group (for example, where that member company is sold) or assets are subsequently transferred outside the consolidated group. Disadvantages include joint and several liability of each company for the group’s income tax and the potential for adverse tax consequences to arise where a company withdraws from the consolidated group. Use of losses
A company may carry forward tax losses indefinitely to subsequent years for offset against future earnings, provided there is at least 49% continuity of shareholding from the start of the year of loss to the end of the year of loss utilisation. There is
no requirement to meet a continuity of business test. There is no ability to carry back losses to prior tax years. Two or more companies that have at least 66% commonality of shareholding may offset losses by election. Loss offset is achieved by either: • the profit company deducting the losses of the loss company from its net income • the profit company making a tax-deductible payment to the loss company of an amount that is equivalent to the loss to be utilised (a “subvention payment”). Ownership percentages are calculated with regard to direct shareholdings and indirect shareholdings that may be held through interposed companies. Concessions exist that may exclude the effect of changes in shareholdings for interests of less than 10% in calculating continuity and commonality of shareholding. However, for most practical purposes, these concessions will not apply to closely held companies. Dividends
Dividend income is generally considered to be gross income of the receiver. If a New Zealand company receives a dividend from another New Zealand company, that dividend is subject to tax except if the dividend is paid between 100% wholly owned companies. Dividends received from a foreign company are exempt income.
New Zealand resident companies must deduct resident withholding tax (RWT) from dividends paid to New Zealand resident shareholders. RWT is a deduction on account of the tax liability of the shareholder. The withholding tax rate on dividend income is 33%, however, the deduction is reduced to the extent of any imputation credits that are attached to the dividend (refer to dividend imputation below). As a result recent reductions in the company tax rate (firstly from 33% to 30%, and then to 28% effective from the 2011/12 income year), a dividend fully imputed at 28% will be subject to an effective deduction of 5% RWT. Dividend imputation
New Zealand operates a dividend imputation system whereby tax paid at the company level can effectively be credited against shareholder tax liabilities in respect of dividend distributions. Companies maintain an imputation credit account to record New Zealand tax paid at the company level and imputation credits allocated at the time that dividends are paid. The effect of allocating imputation credits is to reduce the shareholder’s tax liability by an amount reflecting underlying tax paid on the dividend received. Imputation credits also reduce the amount of RWT to be deducted at the time the dividend is paid. The extent to which a dividend is imputed is at the discretion of the payer company. It is not necessary that the
Doing business in New Zealand 23
full amount of underlying company tax of any dividend be allocated as an imputation credit (ie, dividends need not be fully imputed). However, rules govern the ability of the payer company to vary the ratio of imputation credits allocated to dividends within any year. Transfer pricing
New Zealand’s transfer pricing regime seeks to protect the integrity of the New Zealand tax base by ensuring that all cross-border transactions with associated persons are priced, for tax purposes, on an arm’s-length basis. There are various methods available for determining the arm’s-length amount of consideration. Generally, New Zealand’s rules follow OECD guidelines. Thin capitalisation
New Zealand has thin capitalisation rules applying to both inbound investment (where a single non-resident controls a New Zealand taxpayer, including branches of non-residents) and to outbound investment (where New Zealand companies controlled by New Zealand residents have interests in CFCs or non-portfolio FIFs). These rules aim to ensure that New Zealand taxpayers do not deduct a disproportionately high amount of the worldwide group interest expense. Interest deductions are denied to the extent that interest-bearing debt is greater than: • 75% of total assets of the New
Zealand taxpayer (reduced to 60% from the 2011/12 income year for inbound investment) • 110% of the worldwide debt percentage for the group. There are certain minimum thresholds that have to be met for outbound investors prior to these rules applying. Qualifying companies
From the 2011/12 income year, the Qualifying Company (QC) regime is closed for new entrants. Any existing QCs have the option to continue under this regime or, alternatively, transition into a new entity including a new “look-through company” vehicle (see below). Previously, a New Zealand resident company that had five or fewer shareholders and derived minimal overseas income could elect Qualifying Company status. The effect of QC status is that although the QC is a taxpaying entity in its own right, capital gains can generally be distributed taxfree without the necessity of liquidation as is ordinarily required. A QC could then elect Loss Attributing Qualifying Company (LAQC) status, so that losses of the LAQC could flow through to shareholders in proportion to their shareholdings. For income years starting from 1 April 2011, losses can no longer be attributed to shareholders so the LAQC rules are effectively redundant.
Look-through companies
A new tax vehicle, the “look-through company” (LTC), was introduced with effect from the 2011/12 income year. It is a flow-through vehicle and is treated like a partnership for income tax purposes. All income, expenses, tax credits and losses flow through each year to shareholders in proportion to their shareholding, subject to the application of a loss limitation rule (which effectively seeks to limit the losses allocated to a shareholder to the extent of their investment in the LTC). An LTC will still be treated as a company for company law purposes. Portfolio investment entities
A portfolio investment entity (PIE) is a collective investment vehicle (eg, listed company, managed fund or KiwiSaver scheme) which has elected to become a PIE subject to the various eligibility requirements being met. A PIE is taxed on its investment income at the prescribed investor rates elected by its investors. From 1 October 2010, these rates are 0%, 10.5%, 17.5% and a capped rate of 28%. PIE tax at a rate greater than 0% is a final tax for those investors who have selected the correct rate.
Doing business in New Zealand 24
Individuals
Resident individuals: tax rates
Non-resident employees: exemption
Individuals are taxed in accordance with the general principles outlined (see calculation of taxable income, p18). The most significant exception to the general position arises for employees, who are not permitted any tax deductions and are assessed in respect of any allowances, including accommodation, provided in relation to employment. However, employers may reimburse employees tax-free for work-related expenditure that would otherwise meet general deductibility tests.
Individuals are taxed at progressive rates according to total taxable income. Rates for the 2011/2012 income tax year are:
Non-resident employees may be exempt under domestic law from New Zealand tax in relation to the performance of employment duties in New Zealand provided that: • the visits to New Zealand do not exceed 92 days in total in any tax year • the employee is subject to tax elsewhere on that income • the work is performed for a nonresident.
Residence criteria: individuals
An individual is tax resident in New Zealand if: • their permanent place of abode is in New Zealand, irrespective of whether the taxpayer has a permanent place of abode outside New Zealand • they are personally present in New Zealand for more than 183 days in total in any 12 month period. A taxpayer who is resident may only subsequently become a non-resident if they: • are absent for more than 325 days in any 12 month period • do not maintain a permanent place of abode in New Zealand.
Total income (NZD)
Marginal rate
Income to $14,000
10.5%
$14,001 - $48,000
17.5%
$48,001 - 70,000
30.0%
$70,001 and over
33.0%
Tax returns are filed on an individual basis. There is no provision for the amalgamation of household incomes meaning that, for example, a married couple file separate tax returns and each is taxed accordingly. Non-resident individuals: tax rates
Non-resident individuals are taxed at the same marginal tax rates as resident individuals, except in relation to income that is subject to non-resident withholding tax (see non-resident withholding taxes, p21).
This exemption is distinct from the employee tax exemption that may apply under New Zealand’s tax treaties (see non-resident employees: treaty tax exemption, p22). Transitional resident
New Zealand has transitional resident rules which apply to new New Zealand tax residents or returning residents who have been non-resident for at least 10 years. These rules provide an exemption from income tax for foreign income (other than employment income or income from the provision of services performed offshore) derived by anyone meeting the criteria.
Doing business in New Zealand 25
Employee taxes: PAYE
KiwiSaver
Employers are required to register with New Zealand Inland Revenue and deduct ‘pay as you earn’ (PAYE) tax for wages, salaries and taxable allowances paid to employees who are subject to New Zealand tax. Consequently, nonresident employers with employees working in New Zealand must register and deduct PAYE unless the employee is exempt from New Zealand tax in accordance with domestic law (see non-resident employees: exemption, p25) or a tax treaty (see non-resident employees: treaty tax exemption, p22). Tax returns of individuals are filed in accordance with the general position previously outlined (see tax year end, p19; annual tax return and assessment, p20; tax payment obligations and timing p20; use of money interest (UMOI), p20). There is a notable exception in the case of salary and wage earners having minimal investment income, in which case no returns need to be filed.
KiwiSaver is a voluntary, work-based, superannuation scheme which requires a minimum 2% contribution from employees with a range of benefits also provided to members, including: • A one-off $1,000 kick-start for entering the scheme • Compulsory employer contribution of 2% • Tax credit available to members from the Government of up to $521.43 per year • First home deposit subsidies • Savings withdrawals for first homes
Compulsory accident insurance (ACC)
Employees are subject to a compulsory levy on earnings from employment that is capped at a fixed level of earnings. The levy applicable to the 2012/13 tax year is 1.70% (inclusive of GST) and is capped at earnings of NZD$113,768 for that year (or $111,669 for self-employed earners). The levy provides personal accident insurance cover for loss of earnings as a result of workplace and recreational injury and disability.
The minimum employee contribution is proposed to increase to 3% from 1 April 2013, matched by an increase in the employer contribution to 3%. Goods and services tax (GST) GST tax base
GST is a consumption tax imposed on the supply of goods and services in New Zealand with limited exemptions, notably financial services (such as the issue and sale of debt instruments and equities), salaries and wages and the provision of residential rental accommodation. GST is also levied by Customs on goods imported into New Zealand. GST is borne by the final private consumer. It is imposed throughout the chain of production and therefore applies to business-to-business transactions, but businesses registered
for GST receive credit for the GST paid on goods and services they purchase. GST is levied at the rate of 15% (increasing from 12.5% on 1 October 2010). Some supplies are zero-rated (GST at 0%), including exported goods and services. Zero-rated supplies are treated as taxable supplies and not exempt supplies, so GST registered taxpayers can still recover the GST paid on related purchases. There is a limited regime for the zero-rating of financial services to businesses, which allows financial service suppliers to recover some of their GST costs. Compulsory zero-rating also applies to supplies that include land and that are made between registered parties where the purchaser acquires the goods with the intention of using them for making taxable supplies and is not intending to use the land as a principal place of residence. Registration
Registration for GST is mandatory if supplies of taxable goods or services exceed NZD$60,000 in any 12 month period, or are expected to. Voluntary registration is permitted, enabling businesses making annual taxable supplies below this threshold to obtain GST refunds for supplies received from other GST-registered businesses.
Doing business in New Zealand 26
Returns
GST returns are filed on a one-monthly, two-monthly, or six-monthly basis according to taxpayer requirements and annual turnover. A one-month return basis is mandatory where annual taxable supplies exceed NZD$24 million. A sixmonth return basis can only be elected where annual taxable supplies do not exceed NZD$500,000. Taxpayers may also file on either an invoice (accruals) or payments (cash) basis. The invoice basis is mandatory where the annual value of taxable supplies exceeds NZD$2 million.
GST) for the 2012/13 year, irrespective of the employee’s occupation. Property taxes
Local authorities (local government) raise funds through the imposition of levies and rates on owners of residential and commercial property. Rates vary according to the relevant local authority and are based upon the unimproved value of the property and range from (very approximately) 0.25% for residential properties to 1.5% for commercial property. Stamp duty
Other taxes Workplace accident compensation (ACC)
The Accident Compensation Act 1982 removed the right to sue in the New Zealand Courts for damages in respect of death or injury by accident in New Zealand. In place of such prior rights, the legislation introduced a comprehensive no-fault accident insurance scheme covering all personal injury by way of accident and occupational disease. The compensation scheme is funded by payroll levies imposed on employers and employees. No levy is payable for earnings exceeding NZD$113,768 per employee. Employer levies are calculated according to the risk classification of the employer’s business, modified in some cases by actual claims experience. The employee earner premium is fixed at 1.70% (inclusive of
New Zealand abolished stamp duty in 1999. Capital gains tax
New Zealand does not have a comprehensive capital gains tax regime, but some capital receipts are taxable in certain circumstances (including profits from certain real property disposals and profits arising from the disposal of financial instruments). Estate taxes
New Zealand does not impose inheritance, estate or death duties. Gift duty
New Zealand abolished gift duty with effect from 1 October 2011.
Doing business in New Zealand 27
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