New
Zealand Scope of Income Tax
Taxable
entities are resident companies (including limited
partnerships) and the permanent establishments
of non-residents that derive income in New Zealand.
A company is resident in New Zealand for tax
purposes if:
-
it is incorporated in New Zealand;
-
control by company directors is exercised
in New Zealand;
-
it has its centre of day-to-day management
in New Zealand; or
-
it has its head office in New Zealand.
A
permanent establishment is a fixed place of
business through which the business of an enterprise
is wholly or partly carried on. It includes
a place of management, a branch, an office,
a factory, a mine or any other place of extraction
of natural resources, an agricultural or forestry
property, and a building or assembly project
that lasts more than six months.
If a company is conducting its business through
an independent reseller, it is unlikely to have
to pay income tax in New Zealand. If it utilises
a commission agent or employee (who has the
authority to enter into contracts on its behalf),
it is likely to be deemed to have a permanent
establishment in the country.
New Zealand-resident companies are liable for
tax on their worldwide taxable income. Non-resident
companies are taxed only on their New Zealand-sourced
income.
Consolidation rules allow a group of companies
wholly-owned by the same shareholders to elect
to be treated as a single tax entity.
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New
Zealand
Income Tax Rates
The
rate of company tax in New Zealand is 28% for
the 2011/12 income year or later, reduced from
30% on April 1, 2011.
There is no alternative minimum tax.
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New
Zealand
Calculation of Taxable Base
Taxable
income includes income from business activities
and the profits of non-resident subsidiaries.
There is no capital gains tax in New Zealand,
but gains on the sales of property can be taxable
if the seller is a dealer in property, purchased
the land for resale, or the property was subject
to development.
Dividends received from other resident companies
are included in taxable income unless they have
been wholly “franked” under the
New Zealand imputation system, under which companies
that have paid company tax in New Zealand pass
on to their shareholders an equivalent 30% “franking”
credit for the tax paid on profits when distributing
those profits.
Income received from other countries is taxable,
subject to the availability of tax credits (whether
for corporate income or withholding taxes) under
double taxation treaties. Credits are limited
to the amount of tax that would have been payable
in New Zealand.
However, all New Zealand-resident companies
that receive dividends from an overseas company
must deduct a withholding payment from the dividend
and pay it to the IR. This payment is called
a foreign dividend payment.
To enable New Zealand-based businesses to compete
more effectively in foreign markets, with effect
from the 2010 income year, if income is received
from a controlled foreign company (CFC) in which
at least a 10% income interest is held, there
is no liability for tax as long as the CFC is
involved in “active business”, such
as manufacturing, distribution or sales. If
not, income tax is payable on the company’s
proportionate share of passive income only.
CFCs
must be tested to determine if they are active
businesses. A CFC will be considered “active”
during an accounting period if its passive income
amounts to less than 5% of its gross income.
Consideration is also being given to extending
that tax exemption also to non-portfolio foreign
investment funds (FIFs), in which New Zealand
companies are not the controlling partner. No
income would be taxable from income interests
of more than 20% in FIFs that have passive income
of less than 5% of their total gross income.
Interest incurred by a company is normally tax
deductible. However, thin capitalisation rules
apply to non-resident controlled groups and
deny an interest deduction where a taxpayer's
debt/asset ratio exceeds 75%, or 110% of its
worldwide ratio.
Normal business expenses are deductible from
income. A company can carry forward a net loss
from one income year against the assessable
income of future years, subject to a 49% continuity
test of shareholder voting interest.
A 15% tax credit on qualifying research and
development expenditure was introduced for the
2009 income year, but was rescinded from 2010
onwards.
An income equalisation scheme is available to
allow farmers, fishers and foresters, who are
eligible taxpayers, to even out fluctuations
in income by spreading their gross income from
year to year.
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New
Zealand
Filing Requirements and Payment of Tax
The
due date of filing of a company’s tax
return depends on the end of its accounting
year. When a company applies for its IRD number,
its end-year date is fixed at March 31. A
company requiring a different end-year date
will need to apply to the IR, stating the
reason for the change.
For accounting years ending between October
1 and March 31, the due date of filing an
income tax return is July 7 (the due date
therefore for most businesses). Other companies
have a due date on the 7th day of the fourth
month after the end of their accounting year.
A
company may choose to make voluntary tax payments
during its first year of business, and may
then be entitled to claim an early payment
discount.
If
a company’s tax payable on its last
income tax return was more than NZD2,500,
provisional tax is payable during the following
year. The number of such payments during a
year is normally three, but depends on how
the provisional tax is calculated by the company
and whether a company is also GST-registered.
At the end of the tax year, a company pays,
or is refunded, the difference between the
amount of provisional tax paid and the amount
it should have paid, based on actual taxable
profit for the year.
If a company files and/or pays late, or does
not pay the full amount, penalties may be
applied by the IR.
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New
Zealand
Withholding Taxes
Resident withholding tax (RWT) is generally
required to be deducted from payments of dividends
and interest to New Zealand residents. RWT
rates applicable from April 1, 2010 for individual
investors are equivalent to the new marginal
personal income tax rates, and for corporate
investors will be equal to the 30% corporate
income tax rate from April 1, 2011 (33% for
previous years).
If
the individual or corporate investor does
not provide an IRD number to the payer, the
RWT is to be withheld at 38%. The obligation
for collecting the tax is placed on the person
making the payment.
Non-resident withholding tax (NRWT) must be
deducted from payments of interest, dividends
and royalties made to non-residents. The NRWT
rate on dividends is 30% (to the extent not
fully imputed) and 15% on interest and royalties,
although the rates may be reduced through
the operation of double taxation treaties.
New Zealand has tax treaties with 37 countries
(2012).
Fringe benefits tax is payable in respect
of employee benefits, such as the private
use of company cars, loans, subsidised transport,
medical insurance and travel, while employers’
contributions to superannuation will also
be required.
New Zealand Sales Taxes and VAT
Goods
and services tax (GST) is a tax on most goods
and services in New Zealand, most imported
goods, and certain imported services. GST
is added to the price of taxable goods and
services at a rate of 15% (12.5% prior to
October 1, 2010).
GST-exempt supplies include financial services,
renting a residential dwelling, and the supply
of fine metals (gold, silver and platinum),
while zero-rated supplies include exported
goods.
New Zealand levies excise duties on alcoholic
beverages (such as wine, spirits and beer),
tobacco products and fuel.
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