Doing Business in New Zealand
| 1. GENERAL INFORMATION 2. INVESTMENT FACTORS 3. TYPES OF BUSINESS ORGANISATIONS 4. TAXATION 5. BUSINESS VISITOR HINTS 6. HLB MEMBER FIRMS IN NEW ZEALAND |
FOREWORD
This document is designed to give some general information to
those contemplating doing business in New Zealand and is not intended to be a
comprehensive document. Accordingly, you should consult us before taking further
action. HLB Mann Judd Limited cannot be held liable for any action or business
decision taken on the basis of information in this booklet.
HLB Mann Judd Limited is a member of the HLB Mann Judd Australasian Association and HLB International. Formed in 1969, HLB International is a world-wide network of independent professional accounting firms and business advisers. For further information, click here: www.hlbi.com
HLB International is a world-wide network of independent professional accounting firms and business advisers, each of which is a separate and independent legal entity and as such has no liability for the acts and omissions of any other member. HLB International Limited is an English company limited by guarantee which co-ordinates the international activities of the HLB International network but does not provide, supervise or manage professional services to clients. Accordingly, HLB International Limited has no liability for the acts and omissions of any member of the HLB International network, and vice versa.
GENERAL INFORMATION
Location and Climate
New Zealand is situated in the South West Pacific and being just west of the International Date Line it is the first sizeable nation to start each new day. The country is comprised of several islands with a combined area of some 268,680 square kilometers. It is a land of great natural beauty and contrasting geography with a temperate climate and ample rainfall. Mountain range and hill country dominate much of New Zealand’s landscape and one of the most striking features in the South Island is the Southern Alps. These mountains, which rise to nearly 4,000 metres, along with fiords, glaciers, lakes and coastal plains add to the variety of South Island scenery. In the North Island hot springs, geysers and mudpools form part of the volcanic system centered around Rotorua.
New Zealand’s economic wealth has traditionally come from agriculture, fishing and forestry but increasingly manufactured goods and services make a major contribution to the export trade. Tourism and education for foreign students are also important sectors of the economy.
Population
At the time of publication, New Zealand’s estimated population is 4,238,000, most of whom live in the four main cities, i.e. Auckland and Wellington in the North Island and Christchurch and Dunedin in the South Island.
Approximately 15% of the population are of Maori origin, 7% are Polynesians and 9% are Asians. The remaining 69% are of predominately European descent. New Zealand’s largest city is Auckland with a population of over 1.3 million people.
As a comparatively young nation, New Zealanders pride themselves on being innovative people with strongly held social values such as support for conservation, justice, social welfare, sporting and cultural activities. They require a high degree of equity and integrity from political and business leaders and, as a result, New Zealand has a very stable political climate.
Constitution and 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. The constitutional law of New Zealand is contained in legislation, case law and unwritten conventions having their origins in English law. Significant statutes in this regard are the Constitution Act 1986 (that governs roles and powers of the Sovereign, the Executive, and members of Parliament and protects the judiciary from removal) and the New Zealand Bill of Rights Act 1990 (that provides for the rights and freedoms of individuals). The Treaty of Waitangi 1840 is also viewed as a founding document between Maori and the Crown, with its principles enshrined in legislation.
Constitutional power is vested in the Crown, represented by the Governor-General. All legislation that is approved by Parliament must receive the assent of the Governor-General in order to be given legal effect.
Legislative power is vested in a unicameral parliamentary system with representatives elected every three years to one central government. Mixed member proportional representation (MMP) was introduced in 1996.
Executive power is exercised by the Cabinet, formed by the party that controls the majority of votes in Parliament.
Currency and Language
New Zealand has a decimal system of currency, the unit being the dollar, which is divided into 100 cents.
New Zealand does not have Currency Exchange Controls.
English and Maori are the official languages but, as a result of considerable immigration in the last 20 years, many foreign languages are spoken by ethnic community groups.
New Zealand English does not differ significantly from other forms of English, although many colloquial expressions are unique to New Zealand.
Legal System
The legal system is reliant 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.
A Disputes Tribunal is available as a low-cost alternative for settling small claims.
The Court system is hierarchical in nature. 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 then ultimately to the Supreme Court. Traditionally the ultimate authority was the Privy Council in London but this was abolished in March 2004.
Economy
New Zealand has a relatively deregulated and open economy.
Major industries include agriculture, forestry, fishing, horticulture, manufactured goods and food processing services.
Major imports include mechanical and electrical machinery, vehicles, textiles, plastics and plastic articles.
Major exports are dairy products, meat, forestry, fish, fruit, wool, horticultural produce, wine, manufactured goods and tourism.
Principal trading partners:
Exports – Australia, Japan, USA, UK, Republic of Korea, China
Imports – Australia, USA, Japan, Republic of Korea, Germany, China
New Zealand is a proponent of free trade. It has a special trading relationship with Australia (CER), is a member of the World Trade Organisation, a signatory to the General Agreement on Trade and Tariffs (GATT), a member of Asia Pacific Economic Co-operation (APEC) and a signatory to the Kyoto protocol. A free trade agreement with China was signed in 2008.
The Reserve Bank operates monetary policy to maintain price
stability, promotes the maintenance of a sound and efficient financial system
and meets the currency needs of the public.
Economic Indicators
| 2004 | 2005 | 2006 | 2007 | 2008 | |
| CPI Inflation (annual % change) | |||||
| - March year ended | 1.5 | 2.8 | 3.3 | 2.5 | 3.4 |
| Interest Rates (90 Day Bank Bill) | |||||
| - March | 5.54 | 6.99 | 7.49 | 7.88 | 8.91 |
| Interest Rates (5 year Govt. Stock) | |||||
| - March | 5.59 | 6.29 | 5.80 | 6.50 | 7.16 |
| USD/NZD Exchange Rate | |||||
| - March | 0.66 | 0.73 | 0.64 | 0.70 | 0.80 |
| Unemployment Rate | |||||
| - March quarter ended | 4.5 | 4.2 | 4.3 | 4.2 | 3.6 |
INVESTMENT FACTORS
International Relations
The New Zealand economy is dependent on international trade and accordingly the government pursues a free-trade policy.
New Zealand is located at the edge of the burgeoning markets of the Asia Pacific Rim. The New Zealand Government has developed not only friendly and co-operative relations, but also mutually profitable trade investment opportunities with these nations. However, Australia is New Zealand’s largest single trading partner and remains the focus of the important CER (Closer Economic Relations) agreement and various trans-Tasman business law harmonisation efforts.
Overseas Investment Office
The Overseas Investment Office administers the Overseas Investment Act 2005. An ‘overseas person’ (neither a New Zealand citizen nor ordinarily resident) must obtain consent to acquire or take ‘control’ of 25 percent or more of ‘significant’ assets in New Zealand. The significant assets relate to:
(a) businesses or property worth more than $100 million;
(b) land over 5 hectares;
(c) any land on most off-shore islands;
(d) certain sensitive land over 0.4 hectares (for example on specified islands, containing or next to reserves, historic or heritage areas which exceed 0.4 hectares, or lakes); and
(e) any land that exceeds 0.2 hectares and includes or adjoins the foreshore.
The Office also administers sections 56 and 57 of the Fisheries Act 1996. An ‘overseas person’ must obtain either an exemption under section 56 or a permission under section 57 to acquire or continue holding quota, an interest in quota, annual catch entitlement or provisional catch history.
The Office reports to the Treasurer.
Government Incentives
The Government wishes to provide an open and competitive economic environment, offering no incentives to any particular economic sector. Its policies are focused on low inflation, low interest cost, an export competitive dollar and good employment legislation. Broadly stated, the government believes an open and competitive economic environment will encourage investment without further assistance.
In general terms, an overseas investor’s decision to invest in New Zealand comes down to the competitive and economic advantages offered.
Sources of Finance
There are no controls or restrictions on borrowing or fund-raising other than those relating to the protection of investors (such as those contained in the Securities Act 1978, the Companies Act 1993 or the Financial Reporting Act 1993). Those seeking finance can do so in the currency of their choice, with most banks offering facilities for short or long-term debt.
Equity can be raised through the issue of shares and listing on the NZX. Funds can also be raised from Equity Funds. The venture and seed capital markets in New Zealand are very limited by international standards. There are a number of regulatory requirements that must be met in soliciting funds and issuing securities.
Foreign Exchange Control
The New Zealand dollar floats freely and is readily convertible into other currencies. There are no controls on foreign exchange transactions and there are no licensing or registration requirements relating to foreign exchange dealers.
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.
Employment Legislation
A number of statutes provide protection to employees. The primary statute is the Employment Relations Act 2000 and amendments. 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, 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 Convention 87 on Freedom of Association and Convention 98 on the Right to Organise and Bargain Collectively.
Other legislation governing employment includes the Holidays Act 1981, the Parental Leave and Employment Protection Act 1987, the Minimum Wage Act 1983, the Wages Protection Act 1983, the Health and Safety in Employment Act 1992 and the Human Rights Act 1993. Various amendment Acts have been passed updating this legislation, including providing all New Zealand employees with four weeks of annual leave entitlement.
TYPES OF BUSINESS ORGANISATIONS
Principal Forms of Business
In New Zealand there are five principal types of business organisation:
Limited Liability Company
Trust
Partnership
Joint Venture
Sole Proprietorship
A foreign corporation may incorporate a local subsidiary or register the foreign corporation and operate a branch office. Each type of business organisation chosen has advantages and disadvantages regarding liability, tax treatment, reporting, documentation and legal requirements. Choosing the right structure is therefore an important decision and we recommend that you seek professional advice before setting up in New Zealand.
Companies
Companies in New Zealand currently operate under the Companies Act 1993.
The rules relating to the formation and operation of companies are found in the Act but other legislation, particularly the Financial Reporting Act 1993 and the Securities Act 1978, also impacts on the operation of companies. A company may be incorporated, after its name application has been approved, by filing the appropriate set of company documents with the Registrar of Companies with a nominal fee. All companies must have the suffix “Limited” or “Ltd” as part of their name. A constitution is not necessary but one may be included as part of incorporation or adopted at a later date.
When an application is made to reserve a name, approval is usually given within an hour and generally would only be withheld if it were an exact copy of an existing company name.
A name reservation from the Companies Office does not provide any proprietary rights or interest under the Trade Marks Act 2002 or Fair Trading Act 1986. It is the responsibility of the company and its directors to ensure that the company name does not breach either of these Acts.
Incorporation is carried out electronically and can be performed within 24 hours if the name has been reserved and if signed consent forms from shareholders and directors are sent to the Registrar.
The directors of a company have a duty to act in good faith and in the best interests of the company. A director must exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances.
The principal advantage of trading under a company structure is that the liability of shareholders is limited to the amount of share capital they have subscribed to except in cases of fraudulent or reckless trading. In these situations the Courts may find the directors personally liable. This is unlike sole traders who have unlimited personal liability for business debts.
Companies Cont…
A return detailing shareholders and officers of the company must be filed annually with the Registrar of Companies.
Under the Companies Act 1993 a company may have one or more shareholders and directors (who can be the same person) and there is no requirement for a company secretary to be appointed. Shares in a company no longer have “par values”. A share simply becomes a proportionate interest in the company in the same way that shares in a partnership are not par shares.
Auditors do not have to be appointed if shareholders unanimously resolve not to appoint them, except where 25 percent or more of the voting shares are held by persons or companies not ordinarily resident in New Zealand or the company issues shares or securities to the public.
International Financial Reporting Standards generally need to be adopted by reporting entities for accounting periods beginning on or after 1 January 2007. However, a government review of the financial reporting requirements applying to small and medium sized companies will commence in mid 2008. Accordingly, the mandatory adoption of IFRS has been delayed where a company is not an issuer of securities to the public, is not required to file financial statements and is not large (as defined in terms of total assets, total turnover and employees).
Differential reporting exemptions apply to limit financial statement disclosures where an entity does not have public accountability and either all of its owners are members of the governing body or the entity is not large.
Overseas Companies
Companies incorporated outside New Zealand may establish branches in New Zealand after reserving the company name with the Registrar of Companies. Company details and annual audited financial statements for both New Zealand and worldwide operations are also required to be filed with the Registrar.
Companies incorporated in New Zealand that are either a subsidiary of an overseas company or large with more than 25 percent of foreign shareholders, must also file annual audited accounts with the Registrar of Companies. Financial statements filed with the Registrar are available for inspection by the public at all times.
Trusts
Trusts are normally created by the execution of a trust deed detailing the terms and conditions of the trust. They are primarily established for asset protection, anonymity of investment, estate planning and long-term provisions for family income. The beneficiaries’ entitlements may be in a fixed proportion or variable at the discretion of the trustee.
Trading Trusts with a corporate trustee are a form of operating a business where the trustee holds the assets of the business and runs it for the benefit of the beneficiaries.
A unit trust structure may be adopted where a beneficiary’s entitlement to the income of the trust is dependent upon the number of units the beneficiary holds. These more public entities are subject to indirect legislative controls such as the Securities Act in respect of investments from the public. Units are similar to shares in a company in a number of respects and, although there are fundamental legal differences between the two, may be listed on the Stock Exchange.
Trusts Cont…
The principal advantages of trusts are that they are relatively easy to form and are not subject to government controls on their formation or operation. Other advantages may include taxation benefits and some flexibility in terms of control and distribution of funds. The disadvantages of trusts is that the trustees must strictly adhere to the terms of the Trust Deed or incur personal liability for losses incurred as a result of failing to do so. The directors of corporate trustees also have the same responsibilities for their actions and cannot rely on the limited liability of the trustee company.
Partnerships
A partnership is defined by the Partnership Act 1908 as “the relationship which subsists between persons carrying on a business in common with a view to profit”. Generally, a partnership may not consist of more than 25 persons, although this may be increased for certain professions. The liability of the partners for the obligations of the partnership is joint and several. The partners’ rights and obligations among themselves are governed by their partnership agreement and by the Partnership Act.
Limited partnerships have been recently introduced and are a form of partnership involving general partners who are liable for all the debts and liabilities of the partnership and limited partners who are only liable to the extent of their contribution to the partnership.
Except for some special instances, there are no specified registration requirements for a partnership. There are also no legal requirements as to the audit of accounts or holding meetings. No details of the financial position of a partnership need to be made known to the public.
The shares of partners in the income of a partnership are taxed separately in their hands as personal income and a partnership must file an annual tax return disclosing each partner’s share of the income as adjusted for tax purposes. Conversely, losses are deductible against any income of those partners.
Joint Venture
A joint venture is an association of two or more participants (companies or individuals) that is usually formed to undertake a specific business enterprise. The rights and obligations of the participants between themselves are governed by the joint venture agreement. A joint venture may have some or all of the characteristics of a partnership or may specifically state the Partnership Act does not apply.
There are no specific registration requirements as to the auditing of accounts or holding meetings. As with partnerships, joint ventures are not taxable as separate legal entities but must file an annual income tax return disclosing each venture’s share of tax adjusted income.
Depending on the level of investment, an overseas person may require the consent of the Overseas Investment Commission to participate in a joint venture. Foreign participants in a joint venture are taxable on their share of the income from New Zealand sources in accordance with the provisions of legislation concerning the taxation of non-residents.
Incorporated joint ventures are taxed as companies. Profits of such joint ventures are treated as dividends.
Sole Proprietorship
A sole trader is an individual who carries on business on his or her own behalf. The principal advantages of sole proprietorships are that they are comparatively easy and inexpensive to establish, operate and to wind up or sell such businesses. There are no specific registration, accounting or audit requirements for a sole proprietorship unless the gross value of goods and services to be supplied in any 12 months exceeds $40,000, in which case the person must register for Goods and Services Tax (see p 21). However, the major disadvantage is that a sole proprietor has unlimited liability for business obligations and debts.
TAXATION
Fiscal Year
The standard year end for all taxpayers is 31 March. Alternative balance sheet dates are generally allowed by the Inland Revenue Department upon application.
General Structure – Income Tax
Income Tax in New Zealand is administered under the Income Tax Act 2004 (“the Act”) together with associated legislation such as the Taxation Review Authorities Act 1994 and the Tax Administration Act 1994. The Act’s provisions only apply to income derived by a taxpayer, that is: individuals, corporations, trusts and partnerships.
Income is determined on an accrual basis with some parts of the legislation including as income what would normally be considered capital gains. This occurs in the areas of financial arrangements, some interest provisions and profits on the sale of land in a number of circumstances. There is no specific capital gains tax although gift duty levies are based on capital values.
While the Act revolves around the concept of income, it does not precisely define what “income” is. The term is “assessable income” which is any income not expressly exempt from income tax. The Act does not set out various types of receipts which are deemed to be assessable income. Expenses of a revenue nature that are incurred in producing gross income are generally deductible in calculating taxable income. There are, however, limits on deductibility of certain expenditure such as entertainment, Inland Revenue penalties and accrual expenditure etc.
The two key elements which give rise to a New Zealand tax liability are residence and source. Briefly, a New Zealand resident is liable for tax on all income, whether derived from New Zealand or overseas. A non-resident is liable for New Zealand income tax only on income which is derived from New Zealand. For this reason there is a carefully drafted definition of “New Zealand” for tax purposes which enlarges the tax jurisdiction to cover many of the mineral exploration activities carried on off the New Zealand coast. Various Double Taxation Treaties exist to determine residency in the case of conflict and set out applicable tax rates.
Tax Rates
Individuals
| For income up to $38,000 | 19.5% with some rebates available |
| For income between $38,001 - $60,000 | 33.0% |
| For income over $60,000 | 39.0% |
| New rates apply from 1 October 2008: | |
| For income up to $14,000 | 12.5% |
| For income between $14,001 - $40,000 | 21.0% |
| For income between $40,001 - $70,000 | 33.0% |
| For income over $70,000 | 39.0% |
| There are progressive changes each year, and from 1 April 2011: | |
| For income up to $20,000 | 12.5% |
| For income between $20,001 - $42,500 | 21.0% |
| For income between $42,501 - $80,000 | 33.0% |
| For income over $80,000 | 39.0% |
Tax Rates Cont…
Note that a general election takes place in New Zealand in November 2008 and accordingly these tax rates are subject to change.
Source deductions apply on all wages, salaries and commissions. Rebates of tax apply for residents only, particularly in relation to low income and charitable donations. Tax credits apply in various family support schemes dependent on total family income in relation to the number of children in a family. Imputation credits on dividends are also available to reduce any taxation liability arising from such income.
The above rates apply to sole traders. Hence for sole traders earning over the top threshold, there may be a tax advantage in operating through a company as there is currently a difference between the highest rate applicable to an individual (39%) and that applicable to a company (30%). However this tax advantage may be restricted in situations where the company’s gross income is derived from personal services and 80% of which is derived from one source.
Foreigners and returning New Zealanders who have been away at least ten years can be given a tax holiday on certain overseas income in a measure to assist businesses to attract talented people to work in New Zealand. The tax holiday can be up to four years but excludes income from employment and personal services.
| Trusts | |
| Trustees | 33% |
| Beneficiaries | Marginal Personal Rate |
| Beneficiaries under 16 years | 33% above $1,000 |
| Companies | |
| Companies | 30% |
| Overseas Companies | 30% |
The corporate tax rate was reduced from 33% to 30% from 1 April 2008.
Corporate
A “company” for income tax purposes includes any body corporate or entity which has a legal personality or existence distinct from those of its members, whether it is incorporated or created in New Zealand or elsewhere. This extends to any local or public authority, any unit trust or incorporated society and any company incorporated under the Companies Act 1993.
A company is deemed to be resident in New Zealand if:
It is incorporated in New Zealand; or
It has its head office in New Zealand; or
It has its centre of management in New Zealand; or
Control of the company by its directors, acting in their capacity as directors, is exercised in New Zealand, whether or not decision making by directors is confined to New Zealand.
Whether the ‘centre of management’ test deems a particular company, which is not resident in New Zealand, and has no head office or directors acting in New Zealand, as a resident company, depends upon all the facts in the particular circumstances. Until case law evolves, many companies may need to take care that there is no centre of management in New Zealand and that all approvals or substantive decisions are made outside New Zealand.
Corporate Cont…
Every company must file a return of income for each year regardless of whether or not the company has traded. This must be accompanied by a copy of the company’s financial statements and whatever other forms are necessary to support matters contained in the return. A resident company is required to put in a return showing worldwide income, whereas a non-resident company’s return should record income derived from New Zealand only.
Closely held companies consisting of five or fewer shareholders may elect to become Qualifying Companies and are taxed in a similar fashion to partnerships and sole traders. Losses can be attributed directly to shareholders and realised capital gains can be distributed tax free. There is an entry tax to pay on undistributed profits on joining the scheme and shareholders become personally liable for any unpaid tax in the event of the company being wound up. In addition, losses carried forward from prior years will be forfeited.
Resident companies are taxed at 30% on worldwide income. A robust International Tax regime involving both the Controlled Foreign Company (CFC) regime and a Foreign Investment Fund (FIF) regime is in place ensuring that the concept of worldwide income is thoroughly covered, particularly with regard to interests in countries recognised as tax havens.
International tax reform continues with the intention to introduce a tax exemption for the active income of New Zealand businesses operating overseas. Active income earned by New Zealand resident companies through their controlled foreign companies will be exempt from domestic tax. Only their passive income will be taxed. Dividends from controlled foreign companies to the New Zealand parent will also be exempt from domestic tax.
An imputation regime exists and is designed to eliminate double taxation of corporate earnings distributed as dividends to shareholders. The system enables a resident company to pass on to its shareholders the benefit of tax it has paid through attaching imputation credits to dividends paid. A resident shareholder can then obtain a credit against their own taxation liability.
The imputation credit account is maintained on a cash basis and needs to be in credit at March 31 each year. A 67% continuity of ownership is required to carry forward imputation credits.
A Foreign Investor Tax Credit (FITC) regime has been implemented that enables non-resident shareholders to receive dividends from New Zealand companies at a total effective underlying tax cost of 30%, being the New Zealand company tax rate.
The mechanism involves New Zealand companies paying overseas shareholders an additional (“supplementary”) dividend that may wholly or partly fund the NRWT obligation in respect of both the ordinary and supplementary dividends. An amount equivalent to the NRWT is credited against the income tax liability of the company paying the dividend.
The differential dividend is specifically provided for under company law, although there is a cashflow disadvantage in effectively funding the NRWT obligation. The resulting credit against the company’s tax liability means that the effective New Zealand tax cost of the payer company, and hence the non-resident shareholder, is limited to 30%, and any New Zealand resident shareholders are not disadvantaged.
Non-resident companies are taxed at 30% on business income sourced in New Zealand if the company has a permanent establishment or trades in New Zealand. Non-resident companies providing contract services in New Zealand are subject to a 15% withholding tax.
Corporate Cont…
Branch or Company?
Foreign corporations commencing business in New Zealand must decide whether to incorporate a separate company or trade as a branch. In either case the income tax rate on profit is 30% and funds can be freely transferred.
Dividends paid overseas by a New Zealand incorporated company are effectively exempt from non-resident withholding tax if sufficient imputation credits are held pursuant to the FITC regime as set out above. Losses incurred by a New Zealand incorporated company can be carried forward indefinitely and set off against future New Zealand income. The carry forward provisions are subject to 49% continuity in ultimate shareholding at all times. This includes the shareholding in the ultimate parent company wherever domiciled.
Tax transfers require 67% common ownership between entities, and can be done by either an offset in the tax return or by way of subvention payment.
The decision whether to trade as a branch or through a separate company will depend upon several factors including taxation, accounting, New Zealand shareholders and dealing with local agencies and financiers. These matters should be carefully considered with professional advisers before any action is taken.
Provisional Taxes
Companies, overseas companies, trusts and sole traders pay provisional tax during the financial year with a subsequent final (“terminal”) payment or refund.
For standard balance dates the provisional tax payments will generally be due on August 28, January 15 and May 7 each year. Terminal tax where a taxpayer is on an agency list is due on April 7 of the following year. Use of money interest is charged / paid on over / under payments.
Individuals
Individuals will be treated as residents of New Zealand for income tax purposes if:
they have a permanent place of abode in New Zealand whether or not they also have an abode outside New Zealand; or
they are physically present in New Zealand for 6 months (183 days) within a 12 month period. Residence is deemed from the first day of presence; or
they are absent from New Zealand in the service of the New Zealand Government.
Individuals are not resident in New Zealand if:
they do not meet any of the above tests; and
they have been absent from New Zealand for 325 days within a 12 month period. Non-residence is deemed from the first day of absence.
New Zealand resident taxpayers are taxed on their worldwide net income while non-residents are taxed on income derived from New Zealand.
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.
Individuals Cont…
Individuals are taxed in accordance with the general structure outlined above. The most significant exception to the general position arises in respect of employees who are not permitted any tax deductions except for the costs of preparing their return and premiums paid for income protection insurance and are assessed in respect of any allowances, including accommodation, provided in relation to employment. However, employers may pay tax-free allowances that recompense employees in respect of expenditure incurred by employees in the course of their employment and that would meet the tests of deductibility applicable to other categories of taxpayers.
Partnerships
The shares of partners in the income of a partnership are taxed separately in their hands as personal income and a partnership must file an annual return disclosing each partner’s share of the income as adjusted for tax purposes. Conversely, losses are deductible against any other income of those partners.
Trusts
New Zealand’s trust regime generally revolves around the domicile of the Settlor and trusts are classified as either:
Qualifying trusts which are generally trusts with resident trustees with all trust income subject to New Zealand income tax. Trust income is taxed at 33% or the individual beneficiary’s tax rate if distributed within a prescribed six month period. (Distributions of more than $1,000 to beneficiaries below 16 years of age are taxed at 33%).
Foreign trusts which are generally where the settlor is not a resident for New Zealand income tax. Foreign trusts are taxed in New Zealand only on their New Zealand sourced income at 33% or the individual beneficiary’s tax rate if distributed within a prescribed period. Any other distribution from the trust is taxed at the individual beneficiary’s tax rate unless it is part of the corpus of the trust or it is a realised gain except where an associate of a trustee was involved in the transaction.
Non-Qualifying trusts which exist generally where the settlor is resident but trustees are non-resident. These are taxed similarly to qualifying trusts but, in addition, all distributions except those of trust corpus and those paid to beneficiaries on a current basis are taxed at a flat rate of 45%.
Charitable trusts which are exempt from income tax.
Provision exists for foreign and non-qualifying trusts to elect to become qualifying trusts and hence be liable for New Zealand tax on all future income.
Ordering rules determine the nature of a distribution from any trust and remove the ability for foreign and non-qualifying trusts to make non-taxable distributions to New Zealand resident beneficiaries where trustee income derived in the 1989 and subsequent income years is available for distribution.
Intending migrants who have already settled property in trusts should obtain advice relating to any tax implications which may arise as this issue is a complex one.
Portfolio Investment Entities (PIES)
From 1 October 2007 portfolio investment entities commenced operation. Investments in PIES are treated in the same way as direct investments by individuals, thus removing longstanding disadvantages of saving through intermediaries.
PIES provide a maximum tax rate of 30% and there is no further tax at the investor level other than for zero rated investors (ie some trusts) or if the advised prescribed investor rate (PIR) is incorrect.
Foreign Investment Fund (FIF) Regime
The foreign investment fund regime applies to direct interests in international equities of less than 10% (other than certain Australian entities) and direct interests in non-grey list equities of 10% or more if not a controlled foreign company.
The Fair Dividend Rate (FDR) method is one method of assessing income from certain overseas investments and commenced on 1 April 2007. Taxable income is 5% of the opening market value of the investment at the beginning of the year. Individuals and family trusts have the ability to use the Comparative Value method, based on movement in value over the year, if this results in lower taxable income.
An overseas share portfolio costing less than $50,000 and held by an individual is exempt from the FDR regime and instead will be taxed on a dividend received basis.
Thin Capitalisation
The Income Tax Act provides “thin capitalisation rules”. These ensure, in the case of a New Zealand taxpayer controlled by a single non-resident and which has a disproportionately high level of New Zealand group debt funding, that an appropriate apportionment is made to the New Zealand taxpayer of the group of entities’ worldwide interest expenditure of which the New Zealand taxpayer is a part.
The thin capitalisation rules require an apportionment of interest deductions for an income year if the taxpayer has a New Zealand group debt percentage for the income year which exceeds both:
75%, and
the worldwide group debt percentage of the taxpayer multiplied by 1.1.
If a taxpayer’s New Zealand group debt percentage for an income year fails this test, then the amount deductible by the taxpayer in the income year is reduced proportionately.
Transfer Pricing
A taxpayer entering into a cross-border arrangement with an associated person for the acquisition or supply of goods, services, or anything else at a consideration which reduces the taxpayer’s net income, must substitute an arms-length consideration when calculating the taxpayer’s net income.
Research and Development
Any New Zealand business either carrying out research and development on its own account or outsourcing it to a New Zealand provider will be eligible for a 15% tax credit from 1 April 2008.
Double Taxation Agreements
New Zealand has a network of 34 double tax agreements with its main trading and investment partners aimed at reducing tax impediments to cross-border trade and investment and assisting tax administration.
New Zealand currently has Double Tax Agreements with:
| Austria | ||
| Australia | India | Russian Federation |
| Belgium | Indonesia | Singapore |
| Canada | Ireland | South Africa |
| Chile | Italy | Spain |
| China | Japan | Sweden |
| Czech Republic | Korea | Switzerland |
| Denmark | Malaysia | Taiwan |
| Fiji | Netherlands | Thailand |
| Finland | Norway | United Arab Emirates |
| France | Philippines | United Kingdom |
| Germany | Poland | United States of America |
Withholding Tax
(i) Resident Withholding Tax (RWT)
RWT is a source deduction from most interest and dividend payments.
(a) Interest
All New Zealand residents, and non-residents carrying on a taxable activity through a fixed establishment in New Zealand, are required to deduct RWT on interest payments, unless:
The person holds a valid certificate of exemption, or
The payment is made in the course or furtherance of a taxable activity and the payer pays less than $5,000 of interest in a year.
The rate of RWT to be deducted from interest is either 19.5%, 33% or 39% where no IRD number has been supplied to the payer.
(b) Dividends
Broadly stated, RWT must be deducted from all non-exempt dividends paid by the following persons:
persons that are New Zealand residents
non-residents carrying on a taxable activity in New Zealand through a fixed establishment, in circumstances where the dividend does not have full imputation credits attached to it. The rate of RWT will be the rate necessary to ensure a 30% combined credit is attached to the attached dividend in the form of Imputation Credits and RWT.
(ii) Non-Resident Withholding Tax (NRWT)
NRWT is levied on moneys paid or credited to non-residents by way of dividend, interest or royalties. The rate of tax on dividends for most tax treaty countries is 15% rising to 30% for countries with no applicable tax treaty. This may be mitigated by the FITC regime discussed earlier. In the case of interest most tax treaties require NRWT to be deducted at the rate of 10% but in some cases the rate is 15%. The rate for non-Treaty Countries is also 15%.
NRWT is levied at 15% on royalties for Canada, Singapore, Japan, Fiji, Indonesia, Malaysia and the Philippines and at 10% for most other tax treaty countries. Non-tax treaty countries have NRWT deducted at 15% from royalties.
(iii) Non-Resident Contractors Withholding Tax (NRCWT)
Contract payments to non-resident contractors are treated for tax purposes as a withholding payment liable for withholding tax deductions (NRCWT). The Regulations specify that the appropriate rate of withholding tax deduction is 15 cents in the dollar. Non-resident contractors to whom the Regulations apply are those persons who are not regarded as resident in New Zealand for New Zealand tax purposes and who carry out any “contract activity”. This term effectively covers all contractual activities undertaken in New Zealand.
The NRCWT deduction is made from each payment to the non-resident contractor at the appropriate rate. The tax deducted must be accounted for to the Inland Revenue Department as part of the monthly PAYE tax remittances. The NRCWT so deducted and accounted for is an interim payment on account of the non-resident’s annual income tax liability. The tax, therefore, is neither a minimum nor a final determination of the non-resident’s New Zealand income tax liability for the income year. Any refund or the payment of further tax is determined only after an annual return of income is filed.
To provide relief in circumstances where the NRCWT would exceed the level of New Zealand tax payable, and to cater for other circumstances where non-resident contractors consider the deduction of NRCWT may be problematic, the Regulations contain provisions for the issuing of a certificate of exemption (COE).
Where a contractor is eligible for relief under a Double Tax Agreement and is in New Zealand for 92 days or less in the 12 month period the contractor will not be required to apply for a certificate of exemption. In addition, contract payments amounting to less than $15,000 in a 12 month period are also exempt from NRCWT. The contractors themselves will be responsible for the payment of New Zealand tax.
Goods and Services Tax
Goods and Services Tax (GST) is a value added tax of the type commonly found in the EU. It is charged by registered persons on the supply of goods and services in New Zealand in the course of a taxable activity.
Registered persons are those whose taxable supplies ordinarily exceed $40,000 in any one year. The tax is not limited to business or situations where a profit motive is apparent, and includes any form of continuous or regular activity where supplies are made for consideration.
The rate of tax is currently 12.5%. Financial services, domestic rentals and supplies of donated goods or services by a non-profit body are exempt from GST. Wages and salaries from employment and private activities such as hobbies are not taxable. Exports and international transportation are GST zero-rated but GST is charged on imports.
A person registered for GST can recover GST incurred on purchases made in the course of making taxable supplies. GST is not therefore a tax on business, it is a tax on consumers.
Fringe Benefit Tax
Non-monetary benefits such as motorcars, low interest loans, non-business related entertainment and free or subsidised goods provided by employers to employees or their relatives attract fringe benefit tax (FBT) which is payable quarterly by the employer at a rate of 64 percent or a rate based on the marginal tax rate of remuneration paid to the employee. FBT is a deductible expense for income tax purposes.
An employer will be liable for FBT regardless of whether or not it is a taxable entity for income tax or because it is in a loss situation. Generally, if a fringe benefit is provided by other than the employer, but in accordance with some arrangement with the employer, then it will be deemed to have been provided by the employer.
Accident Compensation Levy
Employers and self-employed persons are required to pay an accident compensation levy in respect of work accidents. The levy is based on employment incomes to which rates of between 0.24% and 11% are initially applied, depending on the industry or the business activity in which the income is earned. Employees and the self-employed also pay a levy in respect of non-work accidents, at an average rate of 1.3% of income. The maximum amount of earnings on which levies are paid is currently $99,817 per annum. Levy rates for employers are either discounted or weighted depending on the level of claims made.
The Accident Compensation Corporation funds created by the levy are used to provide earnings related compensation and to fund medical treatment where persons are unintentionally injured in New Zealand. There is no civil right to claim damages for unintentional injury and the scheme removes any need for liability insurance on products or workplace injuries.
Social Security System
There is an extensive social security system funded out of general taxation.
Benefits include:
Costs of Hospitalisation
Subsidies on Healthcare
Unemployment Income
Invalid and Disabled Income
Domestic Purposes Benefit
Pensions and Superannuation
Membership of private or employer superannuation schemes is not compulsory but all persons over the age of 65 receive a pension funded by the Government (New Zealand Superannuation) under the Social Welfare Act.
The current payment for a single person is NZD 18,070 p.a. and is taxed at the marginal rate of the recipient.
Kiwisaver is a voluntary retirement savings initiative created by the government, whereby full time income earners can contribute either 4% or 8% of gross salary. Members qualify for a tax credit of $20 a week for their Kiwisaver contributions starting from 1 July 2007. A compulsory matching employer contribution will be phased in from 1 April 2008, and be 4% from 1 April 2011. Employer contributions will qualify for a matching tax credit of up to $20 a week per employee.
Outside Kiwisaver, employers who elect to contribute to
superannuation schemes for employees pay specified superannuation contribution
withholding tax (SSCWT) on the amount paid. From 1 April 2007 the employer may
elect to pay the tax on a progression rate depending upon the employee’s annual
income, comprising both salary / wages and employer superannuation
contributions.
| $0 - $11,400 | 15% |
| $11,401 - $45,600 | 21% |
| Over $45,600 | 33% |
Payroll Tax
There are no payroll taxes in New Zealand
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 value of the property and range from (very approximately) 0.25% for residential properties to 1.5% for commercial property.
Stamp Duty
New Zealand has abolished stamp duty.
Capital Gains Tax
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).
Estate Taxes
New Zealand does not impose inheritance, estate or death duties.
Gift Duty
Gift duty is imposed in respect of dispositions of property for inadequate consideration. Liability to gift duty arises in respect of gifts:
by persons domiciled in New Zealand irrespective of where the subject property is situated;
or
by persons not domiciled in New Zealand where the subject property is situated in New Zealand.
Gift duty is calculated in respect of the total value of gifts made within any 12 month period and is calculated at the following rates:
Total value of gifts (NZD) Rate of gift duty
| 0 to 27,000 | nil |
| 27,001 to 36,000 | 5% |
| 36,001 to 54,000 | 10% |
| 54,001 to 72,000 | 20% |
| Over 72,000 | 25% |
BUSINESS VISITOR HINTS
Visitors’ Visas
Under a visa waiver policy that applies to many countries, short-term visitors who intend staying for less than three months need only apply for a visitor’s permit upon arrival in New Zealand. This waiver of visas applies only to visitors who are tourists, on business, visiting friends or relatives, or engaged in sporting or cultural activities. Normally a three month permit is granted, and it is extendible to nine months in any 18-month period.
Every year persons from all over the world make New Zealand their home or come to work.
The rules vary from case to case and for further information prospective migrants should check with the New Zealand Immigration Service www.immigration.govt.nz for information relating to the following:
Migration
Working in New Zealand
Long Term Business Visa/Permit
Employees of Relocating Businesses
Investor Category
Entrepreneur Category
International Time
New Zealand, which lies just west of the International Date Line, is 12 hours ahead of Greenwich Mean Time. Daylight saving time (one hour) operates from late September to early April.
Business Hours
The normal working week is five days, Monday through Friday. The standard day for commercial establishments, bank and public (civil) service is generally 8.30 am to 5.00 pm, with a one hour lunch break. In most cities, retail stores are open seven days per week with at least one late night each week, often Thursday or Friday.
Statutory Holidays
Eleven public holidays are observed in New Zealand:
| New Years Day | January 1 |
| Day after New Year’s Day | January 2 |
| Waitangi Day (New Zealand National Day) | February 6 |
| Good Friday | Variable |
| Easter Monday | Variable |
| Anzac Day | April 25 |
| Queen’s Birthday (Observed) | First Monday in June |
| Labour Day | Fourth Monday in October |
| Christmas Day | December 25 |
| Boxing Day | December 26 |
| Provincial Anniversary Day | Dates vary from province to province. |
Weight and Measures
New Zealand uses the metric system of measurement.
Dates and Numbers
For writing dates, the most common system is day/month/year, e.g. 30 June 2007 or 30/06/07.
Numbers are written with commas denoting thousands and a period to denote fractions, for example NZ$10,500.50.
Local Customs
There are no local customs going beyond those of normal courtesy that a business visitor should feel compelled to observe with respect to New Zealand colleagues. In New Zealand the tipping of waiters, hotel staff and taxi drivers etc is not expected but is appreciated.
Visitors usually experience some exposure to Maori culture. Business in New Zealand may be conducted in a less formal manner than in other countries. The use of first names is common. Business meetings are often held during lunch or dinner. Business entertaining often involves sporting or social events and frequently includes partners.
HLB MEMBER FIRMS IN NEW ZEALAND
|
Auckland Telephone + 64 9 303 2243 Directors Consultants |
Telephone + 64 9 489 5674 |
|
Dunedin Telephone + 64 (0) 3 477 1984 |
Christchurch HLB Neil Stevenson & Co Limited 322 Riccarton Road P O Box 6011 Christchurch Also in Dunedin Telephone + 64 (0) 3 341 2013 0800 650 585 Fax + 64 (0) 3 341 2016 Email: enquiries@neilstevenson.co.nz Web: www.neilstevenson.co.nz Director Neil Stevenson, B Com, F.C.A, MNZCS, AAMINZ |