Tax information: going to New Zealand

 

Before/once you arrive

Q. Do I need a work permit to work in New Zealand?

A.  A valid visa must be obtained before entering New Zealand as a visitor, unless you come from a country specifically exempted from this requirement. Most West European and North American countries as well as certain Asian countries and South Africa are exempt from this visa requirement.

All individuals wanting to work in New Zealand must be in possession of a valid work permit (excluding Australian citizens) before commencing their employment. This work permit is usually obtained after arrival in New Zealand. However, a work permit may be obtained before entering New Zealand if a job has already been secured. Work permits usually impose conditions that specify the type of work, the employer and the locality at which the work is to be performed. The work permit may be issued for a period of up to three years depending on the length of the employment contract.

Work permits are not required in certain cases. Such cases would include overseas sales representatives, buyers and individuals making short visits for business or trading purposes. The normal visitors visa criteria as discussed above, will still apply.

It must be noted that spouses and family members must apply for their own visitor’s visas, student permits or work permits if they are to accompany a foreign national. Children aged five years or older must obtain student permits to be able to attend school or tertiary education facilities.

Q.  Should I complete any documentation upon arrival in New Zealand?

A.  On arrival in New Zealand you should arrange for New Zealand Inland Revenue Department ("IRD") Form IR595, "Individual Application for IRD Number", to be completed and submitted to the local IRD office. Following processing of the completed IR595, the IRD will issue you with an IRD Number, a unique eight digit code for New Zealand taxpayers.

You must provide one original and one legible photocopy of one of the following documents per each category:

Category A

• Full New Zealand birth certificate;
• New Zealand passport (please photocopy the pages showing photo, name and specimen signature);
• Overseas passport with New Zealand immigration visa/permit (please photocopy the pages showing photo, name and any pages showing current work/visitor permits, or residency documentation and a specimen signature);
• New Zealand emergency travel document;
• New Zealand firearm or dealer’s licence;
• New Zealand refugee travel document;
• New Zealand certificate of identity issued by Department of Labour or Department of Internal Affairs;
• New Zealand citizenship certificate;

Category B

• New Zealand driver licence;
• New Zealand 18+ card;
• New Zealand student photo identification card;
• A letter confirming registration as a student in New Zealand (if this document is used you must provide a document from category A that contains a photo);
• An "offer of employment" letter from your employer, on their company letterhead (if this document is used you must provide a document from category A that contains a photo);
• International Drivers' Permit (issued by a member country of the UN Convention on Road Traffic);
• Overseas Drivers' Licence (accompanied by an English translation completed by an LTNZ authorized translator, if not already in English)

Once you have completed IR595, you need to take it with the current supporting documents for each category to either Automobile Association Driver Licensing Agents, or PostShops and selected New Zealand Post retail outlets.

On commencing your employment in New Zealand you should complete IRD Form IR330, and submit the completed form to your employer. The form permits your employer to withhold income tax and Accident Rehabilitation and Compensation Corporation levies in the form of pay-as-you-earn ("PAYE") deductions from your salary and/or wages. These forms should be freely available from your employer but will also be available from any IRD office.

Q. Is it beneficial to open an offshore bank account (situated outside New Zealand) in comparison to an account on the UK mainland?

A. There are no administrative restrictions in maintaining funds in New Zealand or offshore. Transitional residents would not be taxed on interest income arising offshore. Therefore, tax savings may be available where funds are held in low or no tax jurisdictions. In general terms, New Zealand has no restrictions on currency movements. However, New Zealand does have rules that tax foreign currency gains/losses so these rules should be considered where individuals remain beyond 48 months. Please refer to our comments below in relation to the transitional residency exemption.

Find out more about our offshore bank accounts    

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Tax – Basics

Q.  What is the tax year?

A.  1 April to 31 March.  However under the NZ tax law a taxpayer can elect to use a home country based balance date in order to reduce compliance costs.  This election is subject to certain criteria.  You should seek expert advice in this matter.

Q. How will I be taxed in New Zealand?

A. New Zealand residents are taxed on their worldwide income, subject to the provision of foreign tax credits and the operation of double tax agreements.

If you are a non-resident of New Zealand for the duration of your assignment, only your New Zealand sourced income will be subject to income tax.

Persons qualifying as transitional residents will be temporarily exempt from taxation in New Zealand on most of their foreign-sourced income. The exemption will apply to new migrants, new assignees and returning New Zealanders who have been absent for a period of ten years or more.  The exemption will apply for a period of up to 48 months from the time the person acquires a “permanent place of abode” (PPOA) in New Zealand and will apply once in a person’s lifetime.

 The exemption will apply to persons new to New Zealand and others that have been absent from New Zealand for ten years or more.  A person’s 48 month exemption period will begin on the first day of the month in which the person acquires a PPOA and will be available to persons obtaining a PPOA on or after 1 April 2006. 

The general intention of the new exemption is that most foreign-sourced income derived by a transitional resident will not be subject to tax in New Zealand, including:

• Employment income and employee share plan benefits relating to work performed outside New Zealand prior to the person becoming a transitional resident
• Interest
• Dividends
• Rental income

In addition, persons who qualify for the exemption will not be subject to the complex and often onerous Financial Arrangement or Foreign Investment Fund regimes, nor will they be required to account for Non-Resident Withholding Tax on interest payments made to foreign lenders.

Generally, most forms of income are subject to tax in New Zealand including the following:

(a)  Monetary remuneration (employment income), including salaries, wages, bonuses, commissions, gratuity, extra salary, allowances, redundancy payments, emoluments, employee share and option benefits and other benefits in money. The market value of accommodation provided free is also taxable in full. No deductions may be claimed in relation to employment income except tax return preparation costs and insurance for loss of earnings
(b)  Rental income. Deductions against rental income include repairs and maintenance costs, agent’s fees, insurance, property taxes and rents, interest and tax depreciation.
(c)  Dividends
(d)  Interest.
(e)  Income from a partnership.
(f)  Income from a trust

Other benefits you receive from your employer, such as interest free or low interest loans and subsidised motor vehicles, are subject to Fringe Benefit Tax (FBT). FBT is levied on and payable by your employer.

It should also be noted that New Zealand has a broad and complex set of rules specifying the manner in which income and expenditure from "financial arrangements" and “foreign investment funds” should be treated for tax purposes. These rules are complex and will apply where an expatriate becomes resident in New Zealand and has foreign currency denominated investments or borrowings or interests in foreign superannuation funds, life insurance policies or shares in overseas entities. You should seek expert advice in this matter.

Q. How is tax residence determined?

A. You will be regarded as resident if you have a permanent place of abode (PPOA) in New Zealand, regardless of whether you have a permanent place of abode elsewhere or the length of presence in New Zealand. Generally you will have a permanent place of abode if you have a home in New Zealand available for your use. However, the presence of a home is not, in itself, sufficient and it is necessary to consider other connections or relationships with New Zealand such as;

• The amount of time spent in New Zealand;
• Your employment ties;
• Whether you have been accompanied by you family;
• Economic and financial ties;
• Where you spend your vacations;
• Your intentions.

The tests above are generally more relevant for New Zealand residents leaving who are seeking to establish non-residence.

You will also be regarded as resident in New Zealand if you are physically present there for more than 183 days in any 12-month period. You will be considered resident from your first day of presence.

You will be deemed to be a non-New Zealand resident if you are absent from New Zealand for more than 325 days in a 12-month period. Non-residency is deemed to be effective from the first day of your absence from New Zealand if you satisfy the 325-day test. However, you should note that, if you maintain a permanent place of abode (PPOA) in New Zealand during your absence, you will continue to be regarded as a New Zealand tax resident, irrespective of the duration of your absence from New Zealand.

Please also note the transitional resident provisions outlined above.

Q. Are there any regional or state taxes?

A. No.

Q. Can I file a joint tax return with my spouse?

A. Married couples file individual tax returns. There is no provision for joint returns.

Q.  What rate of tax will I pay in New Zealand?

A.  Rates for 2007:

Lower tax band (NZ$)	Upper tax band (NZ$)	Tax rate on bracket (%)	Plus (NZ$)
0	38.000	19.5	0
38,001	60,000	33	7,410
60,001	and up	39	14,670

A rebate system operates for individuals who do not earn more than NZ$38,000 per annum. The rebate system applies only to earned income, i.e. salary wages etc, but otherwise no distinction is drawn between earned and unearned income, i.e. interest, dividends etc.

Q. Can I claim a tax deduction for charitable contributions?

A. Taxpayers are entitled to a tax credit of up to NZ$630 for charitable gifts made in cash to specified approved charitable bodies.  The credit is calculated as 33-1/3% of qualifying donations, and thus the maximum amount of qualifying donations is NZ$1,890.

Family Support Tax Credits, In-Work Payments, Family Tax Credits and Parental Tax Credits are also available depending upon income and family size.

Q. Are any other tax deductions and allowances available?

A. Deductions

 No deductions are available against employment income except tax return preparation costs and insurance for loss of earnings.  Deductions however are available for costs incurred in relation to the production of amounts included in “gross income” for tax purposes (e.g., rental income from a tenanted property or interest incurred on a loan over shares which produce dividend income).

  Allowances

Employee allowances are generally taxable although reimbursement of actual work related expenses can be paid tax free.

Q. I will also be paying tax in my home country. Am I being taxed twice?

A. No. A foreign tax credit will usually be claimed on your home country tax return for New Zealand taxes paid on New Zealand-source income. Alternatively, an exemption of income may be claimed on your home country tax return.

Likewise, a foreign tax credit will be claimed on your New Zealand tax return for foreign taxes paid on foreign sourced income.

The method of mitigating double taxation will depend upon your home country's domestic tax legislation, and the existence of any tax treaty between New Zealand and your home country.

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Tax – Administration

Q.  Do I need to file a New Zealand tax return?

A. Annual income tax returns are required from New Zealand tax residents or non-residents who receive New Zealand sourced income. However, most individuals are not required to file an income tax return if their only sources of income were interest, dividends, or employment income, provided the income has had the correct amount of tax deducted at source. If tax has not been deducted, or if it has been incorrectly deducted, from income at source, an individual is still exempted from filing a return if the amount of income incorrectly taxed is NZ$200 or less.

Q. When does it need to be filed?

A. The income tax returns should be filed by 7 July following the end of the income year.

Q. Can the filing deadline be extended?

A. Extensions to income tax return filing deadlines may be obtained where professional tax agents prepare the returns and you are included on their agency list. Returns filed by tax agents are required to be filed by 31 March of the year following the end of the income year

Q. What is the procedure for paying tax?

A. Tax on income from employment is normally deducted at source under a "Pay-as-you-earn" (PAYE) system. Interest and dividend income has resident withholding tax deducted at 19.5%, 33% or 38% depending on your marginal tax rate.

New Zealand also operates an instalment payment system, referred to as the provisional tax regime, for income which is not subject to deductions at source. Payments are required during an income year on 28 August, 15 January and 7 May provided you have a standard balance date. You will be required to pay provisional tax in respect of an income year where your residual income tax ("RIT") for the previous income year exceeds NZ$2,500. Broadly, RIT is the balance of income tax payable for a year after offsetting tax credits and income tax deducted as withholding tax or under the PAYE system (but not provisional tax paid).

If you are required to pay provisional tax and your RIT for an income year exceeds NZ$50,000 you may be subject to use-of-money interest if you underpay. Use-of-money interest is currently payable on underpayments of provisional tax (i.e. to the extent that actual RIT for an income year exceeds provisional tax paid) at the rate of 9.73% per annum. Use-of-money interest is payable from the first instalment date. Conversely, if you overpay provisional tax, the New Zealand Inland Revenue Department will currently pay use-of-money interest at the rate of 4.23% per annum.

Any outstanding income tax liability for an income year, known as terminal tax is due for payment on or before 7 February of the year following the end of the income year for which the liability arose (or 7 April if you are on an accountant's agency list with the Inland Revenue Department). Terminal tax that remains unpaid after the due date is subject to an initial 1% late payment penalty, followed by 4% penalty if there is still an amount of unpaid tax (including penalties) at the end of the 7 th day from the due date. Further incremental penalties of 1% will be added if tax remains unpaid, compounding monthly. Use of money interest is also payable on these amounts.

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Tax – Income from employment

Q. Will non-cash compensation be taxable (e.g. housing)?

A.. Tax relief is available to individuals who maintain a "duplicate household." You are deemed to have a "duplicate household" if you maintain a personal residence (rented, owned, or lived with family) in your home country and did not rent it, whilst your employer paid for accommodation in New Zealand. The accommodation provided would be excluded from your assessable income if the criteria were met.

Tax relief may also be available in respect of relocation expenses, temporary accommodation and certain reimbursing allowances (e.g. travel expenses, entertaining).

Most non-cash benefits are subject to fringe benefit tax ("FBT") payable by your employer. The principal benefits to which FBT applies are the provision of cars, low interest loans, and the provision of goods and services at less than market rates. There are a few minor exemptions from FBT such as benefits provided on the employer's premises.

Q.  I will be working in different countries while living in New Zealand. Will all of my employment income be taxable in New Zealand?

A. This will depend upon your residence status.

Individuals resident in New Zealand are liable to New Zealand tax on worldwide income.

Non-residents are subject to New Zealand tax on New Zealand-sourced income only.

Transitional residents are subject to New Zealand tax on worldwide employment income and other New Zealand-sourced income.

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Tax – Other income

Q. Will I pay New Zealand tax on investments and rental income generated in my home country?

A.  A New Zealand resident is assessable on all foreign income and credit is given for the foreign tax actually paid so far as it does not exceed the New Zealand income tax due on that foreign income. The foreign tax must substantially be of the same nature as New Zealand income tax. The foreign tax may be an income tax (whether imposed by a central, state, or local Government) or a non-resident withholding tax. However, please also refer to our comment above for the transitional residency exemption.

Q. Is there a Capital Gains Tax regime in New Zealand?

A. There is no capital gains tax, subject to certain exceptions. The major exceptions are:

• Where personal property is acquired for the purpose of resale, even if it is an isolated transactions and unconnected with a normal trade or business.
• Profits from land which was acquired for the purpose or intention (at the time of acquisition) of future sale/disposal.
• On the disposal of depreciable property a depreciation clawback may be triggered.

Q. What do I need to know about any other tax regime, e.g. Inheritance, Estate or Wealth tax?

A. Gift Duty
 
Gift duty applies to all gifts where the donor is an individual domiciled in New Zealand or a company incorporated in New Zealand.  Where the donor is domiciled or incorporated outside New Zealand the duty applies only to gifts of property situated in New Zealand.
 
Some gifts are exempt, including the gift of up to half of matrimonial property transferred from one spouse to the other and gifts to charities.
 
The following gift tax rates apply in New Zealand:

Values of Dutiable Gifts in Bands (NZ$)	Rate (%)
Up to 27,000	Nil
27,001-36,000	5
36,001-54,000	10
54,001-72,000	20
Over 72,000	25

 

There is no estate or stamp duty in New Zealand.

New Zealand imposes Goods and Services Tax (GST), Excise Duties, Import Duties and Cheque Duty.

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Social security

Q. Will I be required to pay New Zealand Social Security?

A. New Zealand does not have a specific social security tax. Employees are required to pay a levy to the Accident Compensation Corporation, known as "the earner premium". The levy is based on an employee's New Zealand sourced monetary remuneration and paid at rates set annually. For the year commencing 1 April 2009 the earner premium is NZ$1.70 per NZ$100 of income up to NZ$106,473. The earner premium is withheld as part of PAYE deductions from salaries and wages.

There are generally no ways of avoiding this levy.

Q. Are social security contributions deductible for tax purposes?

A. No.

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