Auckland GMT +12
Ernst & Young Limited
+64 (9) 377-4790
Mail address: Fax: +64 (9) 309-8137 P.O. Box 2146 Auckland 1140 New Zealand
Street address: 2 Takutai Square Britomart Auckland 1010 New Zealand
Principal Tax Contact
Dean Madsen,
Mobile: +64 (27) 381-5267 Country Tax Leader Email: dean.madsen@nz.ey.com
Business Tax Advisory
Paul Dunne
Matthew Hanley
Mobile: +64 (21) 285-2865 Email: paul.dunne@nz.ey.com
Mobile: +64 (27) 489-9279 Email: matthew.hanley@nz.ey.com
Aaron Quintal Mobile: +64 (27) 489-9029 Email: aaron.quintal@nz.ey.com
Darren White Mobile: +64 (27) 489-9102 Email: darren.white@nz.ey.com
Richard Williams Mobile: +64 (27) 489-9034 Email: richard.williams@nz.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory and International Tax and Transaction Services – Transfer Pricing
Dean Madsen
Mobile: +64 (27) 381-5267 Email: dean.madsen@nz.ey.com
Kim Atwill Mobile: +64 (27) 221-9717 Email: kim.atwill@nz.ey.com
International Tax and Transaction Services – Operating Model Effectiveness
Dean Madsen Mobile: +64 (27) 381-5267 Email: dean.madsen@nz.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Brad Wheeler
Mobile: +64 (21) 228-5490 Email: brad.wheeler@nz.ey.com
Jessica Pritchard Mobile: +64 (21) 243-0135 Email: jessica.pritchard@nz.ey.com
People Advisory Services
Rohini Ram Mobile: +64 (27) 489-9917 Email: rohini.ram@nz.ey.com
Indirect Tax
Paul Smith
Mobile: +64 (27) 489 9866 Email: paul.smith@nz.ey.com
Legal Services – Ernst & Young Law Ltd
Tori Sullivan Mobile: +64 (27) 489-9734 Email: tori.sullivan@nz.ey.com
Christchurch GMT +12
Ernst & Young Limited
+64 (3) 379-1870
Mail address: Fax: +64 (3) 379-8288 P.O. Box 2091 Christchurch 8140 New Zealand
Street address: Level 4/93 Cambridge Terrace Christchurch Central Christchurch 8013 New Zealand
Principal Tax Contact Jason Macgregor
Mobile: +64 (27) 489-9504 Email: jason.macgregor@nz.ey.com
Wellington GMT +12
EY +64 (4) 499-4888 Mail address: Fax: +64 (4) 495-7400 P.O. Box 490 Wellington 6140 New Zealand Street address: Majestic Centre 100 Willis Street Wellington 6011 New Zealand
Principal Tax Contact and Business Tax Advisory Craig Riddle Mobile: +64 (27) 489-9389 Email: craig.riddle@nz.ey.com
A. At a glance
Corporate Income Tax Rate (%)
Capital Gains Tax Rate (%)
Branch Tax Rate (%) 28
Withholding Tax (%)
Nonresidents
Dividends 30 (a)
Interest 15 (b)
Royalties from Patents, Know-how, etc. 15 (c) Payments to Contractors 15 (d)
Branch Remittance Tax 0
Residents
Dividends 33 (e) Interest 33 (f)
Net Operating Losses (Years)
Carryback
g
Carryforward Unlimited (h)
(a) This is a final tax. If dividends are fully imputed (see Section B), the rate is reduced to 15% (for cash dividends) or to 0% (for all non-cash dividends and for cash dividends if nonresident recipients have direct voting interests of at least 10% or if a tax treaty reduces the New Zealand tax rate below 15%). The rate is also reduced to 15% to the extent that imputation credits are passed on to foreign investors through the payment of supplementary dividends under the foreign investor tax credit regime.
(b) This is a final tax if the recipient is not associated with the payer. For an as sociated person, this is a minimum tax (the recipient must report the income on its annual tax return, but it may not obtain a refund if the tax withheld
exceeds the tax that would otherwise be payable on its taxable income). Under the Income Tax Act, associated persons include the following:
• Any two companies in which the same persons have a voting interest of at least 50% and, in certain circumstances, a market value interest of at least 50% in each of the companies
• Two companies that are under the control of the same persons
• Any company and any other person (other than a company) that has a vot ing interest of at least 25% and, in certain circumstances, a market value interest of at least 25% in the company Interest paid by an approved issuer on a registered security to a non-associated person is subject only to an approved issuer levy (AIL) of 2% of the interest payable. An AIL rate of 0% applies to interest paid to nonresidents on certain widely offered and widely held corporate bonds that are denominated in New Zealand currency. Legislation made changes to the nonresident withholding tax (NRWT) and AIL rules affecting associated person and branch lending. The changes generally apply from 30 March 2017 or, for existing arrange ments, from the beginning of the borrower’s income year following 30 March 2017. The changes include the following:
• A new concept of “nonresident financial arrangement income” applies to certain financial arrangements between associated parties. If the borrower and lender are associated, the New Zealand borrower is required to perform a calculation to confirm that NRWT is being paid at approximately the same time the interest is deducted.
• The concepts of associated person and related-party debt are extended to include funding provided by a member of a “nonresident owning body,” as well as indirect associated funding such as certain back-to-back loans and multiparty arrangements.
• New limits are imposed on the onshore and offshore branch exclusions from NRWT under which interest payments from a New Zealand resident (or a New Zealand branch of a nonresident) to a nonresident are subject to NRWT or AIL, regardless of whether the funding is channeled through a branch.
(c) This is a final tax on royalties relating to literary, dramatic, musical or artistic works. For other royalties, this is a minimum tax.
(d) This is neither a minimum nor a final tax and is paid on account of any annual income tax liability. Effective from 1 April 2017, labor-hire firms are required to withhold tax from all payments made to contractors, and contrac tors can elect their own withholding rate without having to apply to the Inland Revenue Department for a special tax code (subject to a minimum withhold ing rate of 10% for resident contractors and 15% for nonresident contractors).
(e) See Section B.
(f) A 45% default rate applies if recipients’ tax file numbers are not supplied. Individuals may elect rates of 10.5%, 17.5%, 30%, 33% or 39%. The basic rate for interest paid to companies is 28%, but companies may elect a 33% or 39% rate.
(g) For the 2019-20 and 2020-21 income years only, taxpayers may be eligible to carry back tax losses incurred in either of those years to the immediately preceding year. See Section C.
(h) See Section C.
B. Taxes on corporate income and gains
Income tax. Resident companies are subject to income tax on worldwide taxable income. Nonresident companies carrying on business through a branch pay tax only on New Zealand-source income.
A company is resident in New Zealand if it is incorporated in New Zealand, if it has its head office or center of management in New Zealand or if director control is exercised in New Zealand.
Rate of income tax. Resident and nonresident companies are subject to tax at a rate of 28%.
Capital gains. No capital gains tax is levied in New Zealand. However, residents may be taxed on capital gains derived from many types of financial arrangements, and all taxpayers may be taxed on capital gains derived from certain real and personal
property transactions. These gains are subject to tax at the stan dard corporate tax rate.
Administration. The income year is from 1 April to 31 March. A company with an accounting period that ends on a date other than 31 March may apply to the Commissioner of Inland Revenue for permission to adopt an income year that corresponds to its accounting period. If the Commissioner approves an alternative in come year, income derived during that year is deemed to have been derived during the year ending on the nearest 31 March. For this purpose, year-ends up to 30 September are deemed to be nearest the preceding 31 March, and year-ends after 30 September are deemed to be nearest the following 31 March.
Companies with year-ends from 1 April to 30 September must file tax returns by the seventh day of the fourth month following the end of their income year. All other companies must file their returns by 7 July following the end of their income year. If the company has a tax agent, the filing deadline is extended to the following dates:
• If the return is for the year ending 31 March, the due date is the following 31 March.
• If the return is for any year ending on an annual balance date between 30 September and 31 March, the due date is the second 31 March succeeding the actual balance date.
• If the return is for any year ending on an annual balance date between 31 March and 1 October, the due date is the following 31 March.
Provisional tax payments must generally be made in the fifth, ninth and thirteenth months after the beginning of the company’s income year. The first installment equals one-third of the provi sional tax payable; the second installment equals two-thirds of the provisional tax payable, less the amount of the first installment; and the balance of the provisional tax is payable in the third in stallment. In general, the provisional tax payable in a year equals 105% of the income tax payable in the preceding year (standard uplift method). Companies that are registered for Goods and Services Tax (GST; see Section D) that meet certain criteria may elect to calculate their provisional tax under a GST ratio method and pay the provisional tax in installments when they file their GST returns, generally every two months. A further alternative method of paying provisional tax, called the accounting income method (AIM), is generally available for businesses with annual gross income of under NZD5 million. AIM involves the use of approved accounting software and more frequent payments.
Companies with year-ends from October to January must pay terminal tax by the seventh day of the eleventh month following the end of the income year. Companies with a February year-end must pay terminal tax by the fifteenth day of the following January. All other companies must pay terminal tax by the sev enth day of February following the end of their income year. The date for payment of terminal tax may be extended by two months if the company has a tax agent.
Several measures impose interest and penalties on late payments of income tax. For late payments or underpayments, the basic penalty equals 5% of the unpaid tax. This penalty is reduced to 1%
if the tax is paid within a week after the due date. Interest may be payable if provisional tax paid at each installment date is less than the relevant proportion (generally, one-third for the first install ment date, two-thirds for the second installment date and threethirds for the third installment date) of the final income tax payable for the year. Conversely, interest may be credited on overpaid provisional tax.
Interest charges and the risk of penalties with respect to provi sional tax may be reduced if provisional tax is paid under a taxpooling arrangement through a Revenue-approved intermediary.
The risk of interest and penalties is minimized for companies that use the GST ratio or standard uplift methods for calculating and paying their provisional tax.
The use of a tax-pooling arrangement is not permitted for AIM provisional tax payments. However, taxpayers using the AIM method that make the provisional tax payments calculated by their AIM-capable software are generally not subject to interest if their year-end residual income tax results in a different tax liability.
From the 2017-18 income year, companies paying provisional tax under the standard uplift method (see above) are not subject to interest on provisional tax installments until their terminal tax date if the residual income tax liability of the company for a year does not exceed NZD60,000 or otherwise until the third install ment date.
Dividends
Exempt income. Dividends received by New Zealand resident companies from other New Zealand resident companies are tax able. However, dividends received from wholly owned subsidiar ies resident in New Zealand are exempt. Dividends received by New Zealand resident companies from nonresident companies are generally exempt. Certain dividends received by New Zealand resident companies from nonresident companies are taxable, including the following:
• Dividends that are directly or indirectly deductible overseas
• Dividends on certain fixed-rate shares
• Dividends derived by Portfolio Investment Entities (PIEs; see Section E)
• Dividends relating to certain portfolio (less than 10%) invest ments that are exempt from income attribution under the for eign investment fund regime (see Section E)
Imputation system. New Zealand’s dividend imputation system enables a resident company to allocate to dividends paid to share holders a credit for tax paid by the company. The allocation of credits is not obligatory. However, if a credit is allocated, the maximum credit is based on the current corporate income tax rate. Based on the current corporate income tax rate of 28%, the maximum credit is 28/72, meaning that a dividend of NZD72 may have an imputation credit attached of up to NZD28.
The imputation credits described above may not be used to offset nonresident withholding tax (NRWT) on dividends paid to nonresidents. They may allow NRWT to be reduced to 0% for all
non-cash dividends and for cash dividends if nonresident recipi ents hold direct voting interests of at least 10% or if a tax treaty reduces the tax rate below 15%. A New Zealand company may pass on the benefit of such credits to other nonresident investors through payments of supplementary dividends. The aim of this mechanism is to allow nonresident investors to claim a full tax credit in their home countries for New Zealand NRWT. The New Zealand company may also claim a partial refund or credit with respect to its own New Zealand company tax liability. Supplementary dividends can generally be made only to nonresi dent companies and individuals who hold direct voting interests of less than 10% and who are subject to a tax rate of at least 15% after any tax treaty relief. Supplementary dividends can also be paid with respect to qualifying nonresident investors in certain portfolio investment entities (PIEs) that invest in assets outside New Zealand.
Australian resident companies may also elect to maintain a New Zealand imputation credit account and collect imputation credits for income tax paid in New Zealand. New Zealand shareholders in an Australian resident company that maintains such an imputation credit account and attaches imputation credits to dividends can receive a proportion of the New Zealand imputation credits equal to their proportion of shareholding in the Australian com pany. Imputation credits must be allocated proportionately to all shareholders.
In general, the carryforward of excess credits for subsequent distribution must satisfy a 66% continuity-of-shareholding test. Interests held by companies or nominees are generally traced through to the ultimate shareholders. Listed, widely held compa nies and limited attribution foreign companies are entitled to special treatment. In effect, they are treated as the ultimate shareholder if their voting interest in other companies is less than 50% or if the actual ultimate shareholders would each have voting interests of less than 10% in the underlying company. The defini tion of a listed company includes companies listed on any exchange in the world that is recognized by the Commissioner of Inland Revenue. For carryforward purposes, direct voting or market value interests of less than 10% may be considered to be held by a single notional person, unless such an interest is held by a company associated with the company that has the carryfor ward.
Resident withholding tax. For dividends paid to a resident company by another resident company that is not in a tax group with the recipient, the payer must deduct a withholding tax equal to 33%, having first allowed for any imputation credits attached to the dividend, unless the recipient holds an exemption certificate. From 1 April 2020, the Inland Revenue provides a public register of all current exemption certificates.
Although this rate does not align with the corporate income tax rate of 28%, any excess tax can be used as tax credits during or refunded through the annual income tax return process.
Foreign tax relief. In general, any tax paid outside New Zealand by a New Zealand resident taxpayer can be claimed as a credit
against the tax payable in New Zealand. The credit is limited to the amount of New Zealand tax payable on that income.
C. Determination of trading income
General. Assessable income consists of all profits or gains derived from any business activity, including the sale of goods and ser vices, commissions, rents, royalties, interest and dividends.
A gross approach applies to the calculation of taxable income. Under this approach, a company calculates its gross assessable income and then subtracts its allowable deductions to determine its net income or loss. If the company has net income, it subtracts any losses brought forward or group losses to determine its tax able income.
To be deductible, expenses must generally be incurred in deriving gross income or necessarily incurred in carrying on a business for the purpose of deriving gross income. Interest is generally deduct ible for most New Zealand resident companies, subject to the thin-capitalization rules (see Section E). Interest paid on certain debts that are stapled to shares may be treated as nondeductible dividends.
In addition, changes introduced in March 2022 limit the deduct ibility of interest expenses on residential investment property from 1 October 2021. Interest deductibility will be phased out from 100% to 0% from 1 October 2021 to 1 April 2025; with 0% interest being deductible from 1 April 2025.
For companies, these new rules will generally apply only if residential property makes up more than half of their total assets or if five or fewer people own more than half of the company. Relief from the interest limitation rules may be available in certain cir cumstances, such as for property development, or if the interest expense relates to a property that is a “new build.”
Deductions for certain business entertainment expenses are lim ited to 50% of the expenses incurred. Capital expenditures are generally not deductible.
Exempt income. The only major categories of exempt income are dividends received from a wholly owned subsidiary resident in New Zealand, certain dividends received from nonresident com panies and certain dividends paid out of capital gains derived from arm’s-length sales of fixed assets and investments on wind ing up.
A specific exemption applies until 31 December 2024 for income derived by nonresident companies from certain oil and gas drill ing and related seismic or electromagnetic survey vessel activi ties in New Zealand’s offshore permit areas.
Inventories. Stock in trade must generally be valued at cost. Market selling value may be used (but not for shares or “excepted finan cial arrangements”) if it is lower than cost. Cost is determined by reference to generally accepted accounting principles, adjusted for variances between budgeted and actual costs incurred. Simplified rules apply to “small taxpayers,” which are those with annual turnover of NZD3 million or less. A further concession applies to taxpayers with annual turnover of NZD1,300,000 or less and closing inventory of less than NZD10,000.
Depreciation. The depreciation regime generally allows a deduction for depreciation of property, including certain intangible property, used in the production of assessable income. Most assets can be depreciated using the straight-line or the decliningbalance methods. A taxpayer may elect to apply the pooldepreciation method for assets valued at less than NZD5,000.
Under the pool-depreciation method, the lowest rate applicable to any asset in the pool is used to depreciate all assets in the pool. A taxpayer may have more than one pool of assets. Assets in a pool must be used for business purposes only or be subject to Fringe Benefit Tax (FBT; see Section D) to the extent the assets are not used for business purposes. Buildings may not be pooled.
From 17 March 2021, property costing NZD1,000 or less may generally be expensed immediately. Between 17 March 2020 and 16 March 2021, the threshold was temporarily increased to NZD5,000, and prior to 17 March 2020, the threshold was set at NZD500.
From the 2020-21 income year onward, depreciation is reintro duced for nonresidential buildings. From the 2011-12 income year until the 2019-20 income year, depreciation could be claimed on commercial building fitouts, certain depreciable land improvements and structures other than structures with an esti mated useful life greater than 50 years.
The rates for plant and machinery vary depending on the particu lar industry and type of plant and machinery.
Tax depreciation is generally subject to recapture on the sale of an asset to the extent the sales proceeds exceed the tax value after depreciation. Amounts recaptured are generally included in as sessable income in the earliest year in which the disposal consid eration can be reasonably estimated. If sales proceeds are less than the tax value after depreciation, the difference may generally be deducted as a loss in the year of disposal. However, such losses on buildings are deductible only if they occur as a result of natural disasters or other events outside the taxpayer’s control.
Special deductions. A few special deductions designed to achieve specific government objectives are available, such as certain deductions relating to petroleum, mining, forestry and agricultural activities.
Research and development tax incentives. Certain unlisted New Zealand resident companies carrying out R&D activities in New Zealand may convert current year R&D business tax losses to refundable cash tax credits at the current company tax rate of 28%. The maximum annual losses that a company can “cash out” from the 2020-21 income year onwards is NZD2 million (a cash credit of NZD560,000 at the current company tax rate of 28%). Credits received may be repayable (and tax losses may then be reinstated) in certain circumstances, such as the sale of R&D assets, cessation of New Zealand tax residence, liquidation or the breach of a 10% shareholder continuity test. The extent of R&D credit repayments may be reduced by the amounts of income tax liabilities in intervening income years.
From the 2019-20 income year, all businesses regardless of their legal structure are eligible to claim the R&D tax credit, including industry research cooperatives, state-owned enterprises and
mixed-ownership model companies. The key features of the scheme include the following:
• A tax credit of 15% on eligible R&D expenditure. The definition for R&D is similar to other global schemes. Eligible expenditure encompasses a broad range of actual R&D costs, but some activity and expenditure exclusions apply.
• A minimum R&D expenditure threshold of NZD50,000 per year with an NZD120 million cap per year on eligible R&D expenditure (with a mechanism to go beyond the cap).
• An overseas R&D expenditure cap of 10% of total eligible expenditure.
From the 2019-20 income year, certain businesses are eligible to refund their tax credits if they satisfy additional corporate and R&D intensity requirements. Alternatively, tax credits not re funded can be carried forward.
The R&D credit for tax losses regime and the R&D tax credit regime are not mutually exclusive but have different R&D definitions and eligibility criteria.
Trading losses. Trading losses may generally be carried forward and offset against future taxable income if, at all times from the beginning of the year of loss to the end of the year of offset, a group of persons held aggregate minimum voting interests in the company and, in certain circumstances, minimum market value interests of at least 49%.
For breaches of ownership continuity occurring in the 2020-21 and later income years, a new “business continuity test” applies to determine whether a business that has breached the 49% threshold is able to carry forward its tax losses. Under the busi ness continuity test, losses arising from the 2013-14 income year onwards may generally be carried forward provided there has been no “major change” in the nature of the company’s business activities. Most companies will be required to maintain the business continuity test from the time of the ownership change until the earliest of the end of the income year in which the losses are utilized or five years after the breach.
Sales of residential property (that is not the main home) purchased between 1 October 2015 and 28 March 2018 may be tax able if they occur within a two-year “bright-line” period. For agreements to purchase residential property entered into between 29 March 2018 and 26 March 2021, the “bright-line” period is five years. For agreements to purchase residential property entered into on or after 27 March 2021, the “bright line” period is generally extended to 10 years. Legislation expected to be enacted in 2022 retains the five-year period for “new builds” acquired on or after 27 March 2021.
The offsetting of losses on “bright-line” transactions against other types of income may be limited. For “close companies” (generally if five or fewer people own more than half of the com pany), additional limitations exist to restrict the offset of losses generated from rental properties (in cases in which rental expen diture exceeds rental income) against income from other sources.
For the 2019-20 and 2020-21 income years, taxpayers may be eli gible to carry back tax losses incurred in either of those years to
the immediately preceding year. Losses that can be carried back are limited to the available taxable income in the preceding year to which loss is carried back. Taxpayers can access these losses during the year either by amending the prior-year assessment or through re-estimating their current provisional tax requirements.
Group losses. Losses incurred within a group of companies may be offset against other group company profits either by election or subvention payments.
Subvention payments are intercorporate payments specifically made to effect the transfer of company losses. They are treated as deductions to the paying (profit) company and as taxable income to the recipient (loss) company. The loss company and the profitmaking company must be in the same group of companies through out the relevant period. The required common ownership is 66%. Wholly owned corporate groups may elect income tax consolida tion.
Elective regime for closely held companies. Certain closely held companies can elect to become look-through companies (LTCs) if they have five or fewer shareholders and be taxed similarly to partnerships. The eligibility and membership criteria for this regime include restrictions on the type of shareholder and some restrictions on the earning of foreign income.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax Rate (%)
Goods and Services Tax (GST), similar to a value-added tax, levied on the supply of goods and services and on imports 15 Fringe Benefit Tax (FBT); paid by the employer on the value of fringe benefits provided to employees and shareholder employees; Standard rate 63.93 (If benefits are attributable to particular employees, employers may elect to calculate FBT on the attributed benefits at a range of rates between 11.73% and 63.93%. The rates vary depending on the employee’s cash remuneration inclusive of the fringe benefits. Non-attributed benefits are subject to FBT at a rate of 49.25% [63.93% if provided to major shareholder employees]. As a further alternative, employers may pay FBT at a rate of 63.93% on attributed benefits and 49.25% on non-attributed benefits, 63.93% if provided to major shareholder-employees. Further options are expected to be finalized in 2022.) Accident compensation levy, on gross salaries and wages, paid by Employer; rate (before residual and health and safety elements) varies according to industry class and may be reduced if the employer meets certain work safety criteria; certain employers may take direct responsibility under full self-cover or partnership discount plans;
Nature of tax Rate (%)
approximate average levy
0.67 (0.63 from April 2022)
Employee 1.21 (1.27 from April 2022) Self-employed; rate (before residual and health and safety elements) varies according to industry class, incorporating income and non-income benefit portions (the calculation of which depends on the individual’s earnings) and according to age and abatement factors if a guaranteed amount of weekly compensation is purchased;
approximate average levy
0.67 (0.63 from April 2022) (Self-employed persons must also pay the employee rate of 1.21%.)
E. Miscellaneous matters
Anti-avoidance legislation. Legislation permits the Inland Revenue Department to void any arrangement made or entered into if tax avoidance is one of the purposes or effects of the arrangement and is not merely incidental.
Controlled foreign companies. New Zealand residents that have an interest in a controlled foreign company (CFC) need to consider the application of the CFC rules. A CFC is a foreign company under the control of five or fewer New Zealand residents or a group of New Zealand resident directors. In general, for purposes of the CFC rules, control is more than 50% ownership. A New Zealand resident with an income interest in the CFC of greater than 10% is required to calculate and include in income the at tributed foreign income or loss of the CFC unless the CFC is resident in Australia and meets certain criteria or the active-income exemption applies.
Under the active-income exemption, no attribution is required if passive income is less than 5% of the CFC’s or a relevant group’s income. If the 5% threshold is exceeded, any attribution is limited to passive income. The rules defining passive income and calculating the percentage of a CFC’s passive income in relation to total income are complex.
Foreign investment fund system. New Zealand has a foreign investment fund (FIF) system that aims to tax the change in value of a New Zealand resident’s interest in the FIF over an income year. The change in value may include income, capital growth and any exchange fluctuation.
The FIF regime generally applies to all offshore investments that are not CFC interests, including interests in foreign companies, foreign unit trusts, foreign life insurance, and foreign savings and superannuation funds.
The FIF rules do not apply to individuals owning FIF interests that cost less than NZD50,000. Exemptions are also provided for certain employment-related foreign superannuation schemes and foreign private annuities and pensions as well as for the first four years that individuals who become resident in New Zealand hold interests in foreign life insurance funds and superannuation schemes, if the individuals held these interests before they became resident in New Zealand. Superannuation scheme interests
acquired by individuals before becoming resident in New Zealand have generally been removed from the FIF regime, effective from 1 April 2014.
Interests in certain Australian listed companies and unit trusts, certain venture capital investments in grey list country companies and shares held under certain employee share schemes may be excluded from the FIF rules if statutory criteria are met. The grey list countries are Australia, Canada, Germany, Japan, Norway, Spain, the United Kingdom (including Northern Ireland) and the United States.
The most common methods for calculating FIF income are the 5% fair dividend rate method and the comparative value method. The comparative value method involves a comparison of opening and closing values. Other methods include the attributable FIF income method, which includes an “active business” and “active income” exemption for FIF interests in companies of at least 10% (similar to the exemption that applies under the CFC rules [see Controlled foreign companies]), a deemed rate of return method and the cost method. The choice of method is limited by legisla tive criteria.
Portfolio investment entities. Certain collective-investment entities that elect to be in the Portfolio Investment Entity (PIE) regime are not taxable on gains on the disposal of New Zealand and cer tain Australian shares. In addition, their income may generally be taxed at the corporate tax rate or at rates approximating their indi vidual investors’ marginal tax rates (which may be 0% for non resident investors in certain types of PIEs that invest wholly or partly in assets outside New Zealand).
Transfer pricing. The transfer-pricing regime in New Zealand is aimed primarily at cross-border arrangements between associated parties. Taxpayers can adopt the method that produces the most reliable measure of arm’s-length consideration. The allowable methods are the comparable uncontrolled price method, the resale price method, the cost-plus method, the profit-split method and the comparable profits method. Binding rulings with respect to transfer-pricing issues are available from the Commissioner of Inland Revenue. New Zealand and countries with which New Zealand has concluded tax treaties may enter into multilateral advance pricing agreements under the transfer-pricing regime.
The New Zealand government has enacted legislation containing reforms to the current transfer-pricing regime, effective for income years commencing on or after 1 July 2018, as part of changes being made to address base erosion and profit shifting. The main measures include the following:
• The New Zealand transfer pricing rules are aligned with the Organisation for Economic Co-operation and Development (OECD) transfer-pricing guidelines and Australian transferpricing rules. The legal form can be disregarded if it does not align with the actual economic substance of the transaction.
• The ability of the Inland Revenue Department to reconstruct an arrangement for transfer-pricing purposes is based on the corresponding test in the OECD’s transfer pricing guidelines.
• The onus of proof on transfer-pricing matters is shifted to the taxpayer.
• The Inland Revenue Department’s powers to access multina tionals’ information and documents held offshore, including information about other nonresident group companies, is increased.
Debt-to-equity ratios. In conjunction with the transfer-pricing regime (see Transfer pricing), a thin-capitalization regime applies to New Zealand entities that are at least 50% owned or controlled by a single nonresident (however, interests held by persons as sociated with a nonresident may be included for the purpose of determining the nonresident’s level of control). These inbound thin-capitalization rules also apply to the following:
• New Zealand companies that are at least 50% owned or con trolled by two or more non-associated nonresident investors if they are regarded as acting together with respect to the debt funding of the New Zealand entities
• Certain trusts and trust-controlled companies if at least 50% of the value of trust settlements have been made by a nonresident or by nonresidents acting together or if entities otherwise subject to the rules have general powers to appoint or remove trustees
The inbound thin-capitalization regime generally denies interest deductions to the extent that the New Zealand entity’s level of interest-bearing debt exceeds both a safe harbor debt to total assets ratio of 60% and 110% of the ratio of interest-bearing debt to total assets of the entity’s worldwide group. A netting rule generally excludes borrowings that are in turn loaned to the following:
• Nonresidents that are not carrying on business in New Zealand through a fixed establishment
• Non-associated persons
• Associates that are subject to the thin-capitalization regime but are not in the lender’s New Zealand group
Other significant aspects of the thin-capitalization regime include the following:
• Complex New Zealand and worldwide group membership rules need to be considered.
• Specific rules and thresholds apply to registered banks.
• Certain stapled debt securities and fixed-rate shares are includ ed as debt. Investments in CFCs and interests of at least 10% in FIFs may be excluded from assets.
• Dividend amounts paid on certain fixed-rate shares may also be added back if interest deductions are limited under the thincapitalization rules.
• Asset revaluation amounts that arise from associated party transactions are generally excluded from asset values in calcu lating New Zealand group debt percentages unless the revalua tions could have been recognized, without a transaction, under generally accepted accounting practices or unless the revalua tions arise from a restructuring following acquisition of the company by a non-associated party.
• Certain related-party debt is excluded from the debt amounts used in calculating worldwide group debt percentages in inbound situations.
Similar thin-capitalization rules (often referred to as the outbound thin-capitalization rules) apply to New Zealand residents with income interests in CFCs or with interests in FIFs of at least 10%
that are subject to the “active income” method or Australian exemptions from FIF income attribution.
Under safe harbor rules, the outbound thin-capitalization rules do not limit interest deductions on outbound investment if the New Zealand group debt percentage does not exceed 75% and 110% of the worldwide group debt percentage. Additional exemptions with respect to outbound investment may apply in certain circumstances, including situations in which New Zealand group assets (generally excluding CFC investments and certain interests of at least 10% in FIFs) are at least 90% of the worldwide group assets. An alternative safe harbor threshold calculation based on an interest-to-net income ratio may be used in limited outbound circumstances. The apportionment calculation provides an effective de minimis exemption with respect to outbound investment by eliminating any adjustment if annual New Zealand group finance costs do not exceed NZD1 million and provides relief on a tapering basis if those annual finance costs are between NZD1 million and NZD2 million. This de minimis relief may also apply to the inbound thin-capitalization rules in certain circumstances.
Changes affecting interest limitation and the thin-capitalization rules form part of the New Zealand government’s base erosion and profit shifting-related reforms apply for income years commencing on or after 1 July 2018. The main changes include the following:
• A new restricted transfer-pricing rule applies to potentially limit the interest rate that can be applied for tax purposes on cross-border loans (over NZD10 million in total). This rule applies in addition to the existing thin-capitalization rules. The restricted transfer-pricing rule for pricing inbound related-party loans determines the credit rating of New Zealand borrowers at a high risk of base erosion and profit shifting, typically no more than two notches below the ultimate parent’s credit rating. The rules remove any features not typically found in third-party debt to restrict the level of deductible interest. Some of the more common features that may be affected include loans with terms of more than five years and the subordination of a loan to other obligations.
• Non-debt liabilities need to be netted off assets in thincapitalization gearing calculations. Deferred tax is split into “real” and “accounting fictional” categories for the purposes of this rule, with the former being part of non-debt liabilities and the latter removed.
Hybrid and branch mismatch rules. Hybrid and branch mismatch rules were also introduced as part of the New Zealand govern ment’s base erosion and profit shifting-related reforms applying for income years commencing on or after 1 July 2018. These rules are complex and are designed to prevent the exploitation of differences between countries’ tax rules to create tax advantages. New Zealand’s hybrid rules largely follow the OECD recommen dations.
F. Treaty withholding tax rates
The rates reflect the lower of the treaty rate and the rate under domestic tax law.
Dividends Interest Royalties
% % %
Australia 0/5/15 (i) 10 (j) 5
Austria 15 10 (a) 10
Belgium 15 10 10
Canada 0/5/15 (b) 0/10 (r) 5/10 (s)
Chile 15 15 (e) 5
China Mainland 0/5/15 (t) 10 (a) 10
Czech Republic 15 10 (a) 10
Denmark 15 10 10
Fiji 15 10/15 (h) 15
Finland 15 10 10
France 15 10 (a) 10
Germany 15 10 (a) 10
Hong Kong
0/5/15 (k) 10 (j) 5
India 15 10 (a) 10
Indonesia 15 10 (a) 15
Ireland 15 10 10
Italy 15 10 (a) 10
Japan 0/15 (q) 10 (j) 5
Korea (South) 15 10 (a) 10
Malaysia 15 15 (p) 15
Mexico 0/5/15 (i) 10 (a) 10
Netherlands 15 10 (a) 10
Norway 15 10 (a) 10
Papua New Guinea 15 10 (m) 10
Philippines 15 10 (m) 15
Poland 15 10 10
Russian Federation 15 10 10
Samoa 5/15 (l) 10 10 Singapore 5/15 (l) 10 (m) 5
South Africa 15 10 (a) 10
Spain 15 10 (m) 10
Sweden 15 10 10
Switzerland 15 10 10
Taiwan 15 10 10
Thailand 15 15 (f) 10/15 (g)
Turkey 5/15 (o) 10/15 (c) 10
United Arab
Emirates 15 10 (a) 10
United Kingdom 15 10 (a) 10
United States 0/5/15 (i) 10 (j) 5
Vietnam 5/15 (n) 10 10
Non-treaty jurisdictions (d) 30 15 15
(a) Interest paid to a contracting state or subdivision, to certain state financial institutions or with respect to certain state-guaranteed loans may be exempt.
(b) The following are the tax rates applicable to dividends:
• 0% for certain government bodies if the competent authorities so agree
• 5% if paid to companies holding at least 10% of the voting power
• 15% in all other cases
(c) The rate is reduced to 10% for bank interest. Interest paid to certain govern ment bodies or central banks may be exempt.
(d) See applicable footnotes to Section A.
(e) The rate is 10% for interest paid to banks and insurance companies.
(f) The rate is 10% for interest paid to financial institutions, including insurance companies, or if the interest relates to arm’s-length sales on credit of equip ment, merchandise or services. Interest paid to certain institutions of the government or the central bank is exempt.
(g) The 10% rate applies to payments for the use of copyrights, industrial, scien tific or commercial equipment, films, tapes or other broadcast matter. The 15% rate applies to other royalties.
(h) A minimum rate of 15% applies to interest paid to certain associated persons. No tax applies to interest paid to the other country’s reserve bank.
(i) The rate may be reduced to 5% or 0% for company shareholders, depending on their level of ownership and certain other criteria.
(j) No tax applies to interest paid to government bodies or to unrelated financial institutions in certain circumstances.
(k) The rate may be reduced to 5% or 0% for company shareholders, depending on their level of ownership and certain other criteria. Dividends paid to cer tain government institutions are exempt.
(l) The rate may be reduced to 5% for dividends paid to companies that have an interest of at least 10% in the payer.
(m) Interest paid to certain government institutions may be exempt.
(n) The 5% rate applies if the dividends are paid to companies that directly hold at least 50% of the voting power in the payer.
(o) The rate may be reduced to 5% if the dividends are paid to companies that have an interest of at least 25% in the payer and if the dividends are exempt in the recipient’s country.
(p) The 15% rate is a minimum rate for interest paid to certain associated persons.
(q) The rate may be reduced to 0% for dividends paid to company shareholders, depending on the shareholders’ level of ownership and certain other criteria.
(r) The following are the tax rates applicable to interest:
• 0% for loans made by certain export development bodies or unrelated financial institutions
• 10% in all other cases
(s) The following are the tax rates applicable to royalties:
• 5% on certain copyright, cultural, software and patent royalties
• 10% in all other cases
(t) The following are the tax rates applicable to dividends:
• 0% for dividends paid to certain government bodies in some situations
• 5% if the beneficial owner is a company that holds directly at least 25% of the capital of the company paying the dividends throughout a 365-day period
• 15% in all other cases
New Zealand has signed a protocol to its tax treaty with Belgium, which has not yet entered into force.
New Zealand has signed and ratified the multilateral Convention on Mutual Administrative Assistance in Tax Matters, which en tered into force for New Zealand on 1 March 2014.
New Zealand has entered into an intergovernmental agreement with the United States and related competent authority arrangements with respect to reporting requirements for financial insti tutions under the US Foreign Account Tax Compliance Act (FATCA).
Legislation enacted in New Zealand in February 2017 implements the G20/OECD Automatic Exchange of Information ini tiative and the Common Reporting Standard (CRS) for financial institutions. Due diligence requirements under the CRS commenced on 1 July 2017, with reporting financial institutions required to submit automatic exchange of information reporting to the Inland Revenue Department for the tax year ending 31 March 2018 by 30 June 2018, and the first exchange of information occurred on 30 September 2018.
New Zealand has signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country (CbC) Reports. These new CbC reporting requirements apply to corporate groups headquartered in New Zealand with annual consolidated group revenue over EUR750 million. Initial analysis undertaken by the Inland Revenue Department suggests that around 20 New
Zealand-headquartered corporate groups are affected by the new rules. Groups with 31 December balance dates are required to collect data for the 12 months beginning 1 January 2016. Groups with a 31 March or 30 June balance date need to collect data for the 12 months beginning 1 April 2016 and 1 July 2016, respectively.
New Zealand has ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (commonly referred to as the Multilateral Instrument, or MLI), with the MLI entering into force on 1 October 2018. New Zealand’s treaties have begun to be modi fied from 2019.
New Zealand has entered into tax information exchange agree ments with Anguilla, Bahamas, British Virgin Islands, Cayman Islands, Cook Islands, Curaçao, Dominica, Gibraltar, Guernsey, Isle of Man, Jersey, Marshall Islands, Netherlands Antilles, Niue, St. Vincent and the Grenadines, San Marino, Sint Maarten, Turks and Caicos Islands and Vanuatu. It has also entered into tax information exchange agreements that are not yet in force with Bermuda and St. Christopher and Nevis.
No new tax information exchange agreements are currently being negotiated as these are no longer needed with the signing of the MLI.