Doing Business in New Zealand
Contributed by Mary Swire
13 January, 2009
A company is deemed to be tax resident in New Zealand if it is incorporated in New Zealand, or if its head office or centre of management is in New Zealand, or if control of the company by its directors (or persons acting in that capacity) is exercised in New Zealand.
A non-resident company will be taxable if it has a permanent establishment, defined to include an office, a factory, a workshop, a mine or equivalent, a building or construction site, or if it is significantly involved in supervisory or managerial activity in the country. No permanent establishment is created by the storage, display or delivery of goods and merchandise or the maintenance of a fixed place of business for such purposes.
Resident companies are taxed on world-wide income from all sources, at a corporate taxation rate of 30%. Non-resident companies are taxed only on New Zealand-sourced income.
In New Zealand, regional or local governments do not impose additional corporate taxes. However, companies are also liable to pay Goods and Services Tax (similar to VAT), currently at 12.5%, and there are municipal property taxes, known as rates.
Types of Company
In New Zealand, the most fequently used corporate form is the Limited Liability Company. Partnerships are also commonly used, either General or Limited. Foreign companies frequently operate through branches.
Formation of a limited company is quick and easy in New Zealand. There is a public company register which holds information about the company, including the names of the directors and the company's registered address. There must be at least one shareholder, at least one share, and at least one director, who can be the same as the sole shareholder.
The New Zealand subsidiary of a foreign company must have an address for service in New Zealand but is not required to have New Zealand directors.
Annual accounts have to be filed with the registrar, but if a company has more than 25% or more foreign ownership it only has to file financial statements if it has total assets greater than NZD10,000,000, turnover greater than NZD20,000,000, or 50 or more full time employess.
The registration fee for a company is NZD100, with ongoing annual return fees of NZD30. Shelf companies are available.
Under the Companies Act, the branch of a foreign company must register within 10 working days of starting to carry on business within New Zealand (this is not defined by statute law). There is a fine of up to NZD10,000 for failure to register.
Restrictions on Foreign Investment
There are no foreign exchange controls in New Zealand. Foreign direct investment in New Zealand is welcomed.
There are certain controls which are in the hands of the Overseas Investment Office (OIO), particularly as regards significant purchases of land. Government approval is required for purchases of land in excess of 5 hectares (12.35 acres) and land in certain sensitive or protected areas. Government approval is required for non-land business investments of NZD100 million or more. These approvals are normally given readily, but the OIO monitors foreign investments after approval.
Permits are required for mining operations under the Crown Minerals Act 1991, and also from the Minister of Conservation in the case of public land. Resource consents for land or water use may have to be obtained from the relevant municipality.
Federal Investment Incentives
The 2008 tax package which reduced the coporate tax rate from 33% to 30% also introduced a 15% tax credit for research and devlopment expenditure. To qualify for the credit, a business must control the R&D project, bear the financial and technical risks of it, and own the project results. The R&D must be carried out predominantly in New Zealand. R&D credits will be paid out in cash to loss-making businesses such as start-ups.
Expenditure eligible for the tax credit includes the cost of employee remuneration, the depreciation of tangible assets used primarily in conducting R&D, overhead costs, and the costs of consumables and payments to entities conducting R&D on behalf of the business.
Non-tax incentives are available for investments in activities that encourage export
expansion, regional development and employment. These are provided directly by the government in the form of financial support.
Is New Zealand an Attractive Location For Multi-Nationals?
The high standard of living, modern telecommunications and transport networks, wide variety of investment opportunities, and generally very well educated and trained workforce, added to the fact that New Zealand is in a very favourable position to access emerging Asian markets, all contribute towards making New Zealand potentially a very rewarding place in which to do business.
However, on the down side, the corporate taxation rate is still comparatively high, even after a recent reduction, and the Controlled Foreign Company and Foreign Investment Fund rules are quite restrictive (the assessable income of Australian resident companies includes passive income from non-resident entities, even if that income is not remitted to Australia).
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