New Zealand is consistently ranked as one of the best countries in the world to do business. Its pro-foreign business and foreign investment government actively advertise the country as a worthy choice for expanding foreign commercial operations. With long-standing positive economic growth, New Zealand offers a secure and supportive environment for foreign businesses.
After choosing to expand or startup, however, navigating your tax requirements is a crucial step. If your company is to profit from the opportunities the country has to offer you will have to comply with New Zealand tax regulations. These regulations might seem complex from afar. Therefore, we break down some key points to take note of regarding tax in New Zealand.
An introduction to corporate taxes
Firstly, to understand what amount of corporate tax your company has to pay, you have to understand what regulations apply. The first step is understanding whether or not your company is considered a resident of New Zealand. A company is considered resident in New Zealand if one of the following three things apply:
- The company is incorporated in New Zealand
- It conducts business in New Zealand and is managed or controlled from within the country
- It conducts business in the country and its voting power is controlled by resident shareholders or directors.
Permanent establishments and double taxations
Companies that are residents of New Zealand are subject to the country’s income tax on their worldwide income. A company resident in a country with which New Zealand has a double taxation agreement (DTA) won’t have to pay taxes in both countries.
New Zealand can tax business profits. However, this right is generally limited to profits attributable to a permanent establishment (PE) in New Zealand. This means non-resident companies have a smaller amount of earnings on which they have to pay taxes.
New Zealand acknowledged PEs when companies engage in business from a standard place. Furthermore, a PE is acknowledged without having a standard place of engaging in business. This is only the case when people working at a foreign company have a history of brokering contracts or providing services in New Zealand.
Moreover, the country recently introduced new legislation that refines acknowledgement for any company that provides services in New Zealand as a PE. The authorities state that the PE changes for companies operating from a country that has a DTA with New Zealand. These companies are permanent establishments because of the DTA in place, or by a specific anti-avoidance provision within the New Zealand Income Tax Act.
For an enterprise that is resident in a country or territory with which New Zealand does not have a DTA, the meaning of PE is given by the New Zealand Income Tax Act.
Corporate income tax rates
The type of residency has an influence on the corporate tax rate. All resident companies are subject to a federal tax rate of 28% on their worldwide taxable income. However, non-resident companies (including branches) are only taxed on their domestic profits at the same rate.
Corporate tax regulations
The New Zealand taxation system identifies specific income tax regulations which you must comply with. An example of this is the filing of tax returns and provisional tax. New Zealand requires companies to submit provisional tax payments. Also, tax returns must be filed annually.
The Inland Revenue Department (the authority overseeing the submitting) make a distinction in when to submit tax filings and when to submit provisional tax. Companies have to submit their tax filings by 31 March and pay provisional tax on 15 January, 31 March, and 7 May.
The ‘Look-Through’ Company
New Zealand recognizes a special type of legal entity. Look-Through Companies have special tax frameworks. A Look-Through company (LTC) is a separate legal entity but for income tax purposes it is treated as a partnership.
An LTC has to file income tax returns and report to the authorities just like any other company previously described. However, an LTC can offset losses against their other income. This means this entity only pays taxes on its profits. And thus, is exempt from other taxes.
As per Inland Revenue , an owner with an effective look-though interest in the LTC is treated as:
- carrying on the activities and having the status, intentions and purposes of the LTC
- holding the property of the LTC
- being a party to any arrangement to which the LTC is a party to
- doing an activity or having an entitlement to anything the LTC does or has entitlement to.
New Zealand’s standard goods and services tax rate is 15%. Moreover, no taxes have to be paid over dividends received by a New Zealand business. This is only when the distributing company is based abroad or is a fully owned subsidiary.
Lastly, a 30% withholding tax exists. This tax counts for dividends paid to non-residents. For a New Zealand company, this tax rate is 15%. This counts for royalties or interest payments made to non-residents.
Specialized needs call for specialized assistance
Following tax regulations in New Zealand is a task that requires knowledge of the system. As previously described, the system itself is not hard to follow. However, due to the many regulations and exemptions, one might find himself getting lost in the paperwork.
In order to understand and comply with tax regulations in New Zealand, a local partner can offer crucial guidance and support on tax compliance requirements. Biz Latin Hub is an expert in connecting businesses and supporting startups in the region.
Biz Latin Hub offers customized business solutions in a number of market-entry and back-office services. This includes company formation and financial services. Our New Zealand team offers expert support to ensure a smooth process for you and your business.
Contact our team of professionals today for expert assistance tailored to your needs.