New Zealand has a broad base tax system. The taxation of individuals (other than those who are self-employed) is straightforward, with almost all income derived by such individuals being subject to the deduction of withholding tax at source. The taxation of companies and self-employed individuals can be complex.
New Zealand taxes all resident individuals on their worldwide income; however, an exemption is available to people coming to live in New Zealand on or after 1 April 2006 for the first time or after an extended absence. This transitional resident exemption lasts for four years after migration and covers most types of foreign income.
The New Zealand tax base incorporates the following direct and indirect taxes:
For companies and individuals defined as resident in New Zealand, income tax is imposed on all world-wide income. Companies and individuals not resident in New Zealand are subject to tax only on income derived from New Zealand, although the provisions of an applicable double tax agreement may reduce this tax liability.
The tax rate for companies both resident and non-resident is 28%.
A company is regarded as resident in New Zealand if it is incorporated in New Zealand, it has its head office in New Zealand, it has its centre of management in New Zealand, or control of the company by its directors is exercised in New Zealand.
In cases of companies, taxable income generally corresponds with accounting gross profits or loss. However, adjustments are commonly required in relation to the timing of income and expenditure, depreciation, bad debts, legal expenses, and provisions and reserves.
Individual tax rates for residents and non-residents are:
If a resident company or a New Zealand branch of a non-resident company incurs a tax loss, that loss can be carried forward to offset future New Zealand taxable income, provided a certain level of shareholder continuity is maintained. The required level is at least 49% common ownership from the time the tax loss is incurred to the time it is offset.
Losses may be shared between group companies where there is at least 66% common ownership between the companies at all times from the time the loss is incurred to the time the loss is offset.
New Zealand has double tax agreements in place with most countries with which it trades to reduce instances of double taxation.
A unilateral foreign tax credit is generally available to New Zealand residents for foreign income tax imposed on income derived from countries or territories outside New Zealand.
Dividends paid by resident companies to shareholders are taxable. However, dividends paid between wholly owned resident companies are generally exempt. To avoid double payment of tax, imputation credits and certain other credits may be attached to dividends paid by resident companies. An imputation credit represents a portion of the tax paid by the company and is only recognised in New Zealand.
New Zealand’s transfer pricing regime seeks to ensure that almost all cross-border transactions are priced on an arm’s length transaction. New Zealand also has thin capitalisation rules which, broadly speaking; operate to disallow deductibility for interest paid on debt to the extent that a foreign owned New Zealand group has a debt to equity ratio greater than 60%.
Goods and Services Tax (GST) is a consumption tax chargeable on the supply of most goods and services in New Zealand at a rate of 15%. GST registered taxpayers supplying goods and services in the course of carrying on a taxable activity must charge GST, even if the recipient is not the final consumer.
Generally, a GST registered taxpayer can obtain a credit for the GST charged on goods and services they acquire. In this way, the burden of GST is passed along a chain of GST registered suppliers until it reaches the final consumer
Subject to certain exceptions, the principal exemptions from GST are for financial services like the lending of money and transactions in shares, services performed as an employee and residential rental accommodation.
Non-residents providing remote services to New Zealand customers need to register for GST if their taxable supplies to New Zealand customers exceeds $60,000 in any 12 month period.
New Zealand uses tariffs as the principal form of protection from imports.
Rates are the main source of local government revenue and these are calculated as a percentage of the value of land and or capital values.
Under New Zealand’s universal no-fault accidental compensation regime, levies are charged to employers, the rate depending on the nature of the employers’ business activity. Self-employed persons also pay these levies.
There is no stamp duty in New Zealand.
There is no capital gains tax in New Zealand. However, in certain defined circumstances the proceeds derived from the sale of real or personal property (including shares) is subject to income tax. If residential property is sold within two years of purchase the gain on sale will be taxable with certain exceptions such as the vendor’s main residence. This was extended to five years on 29 March 2018.
Fringe Benefit Tax (FBT) is payable by employers on the value of most non-cash benefits provided to their employees, for example motor vehicles, low interest loans. The FBT rate depends on the marginal tax rate of the employee.
There are no estate or death duties payable in New Zealand.