1. Corporate Income Tax (CIT)
New Zealand’s corporate tax rate is 28% on net profits for most companies. It’s essential for both resident and non-resident entities operating in the country to understand the implications of CIT and the deductions available.
Key CIT Compliance Factors:
Resident Companies: Subject to CIT on global income, which includes any income from foreign operations.
Non-resident Companies: Only taxed on New Zealand-sourced income, providing an incentive to allocate specific revenue streams strategically if operating globally.
Tax Deductions: Common deductible expenses include wages, business travel, insurance, rent, utilities, and costs directly related to income generation. Certain expenses, like entertainment costs, are only 50% deductible.
Depreciation: Assets used for income generation, such as machinery, office equipment, or vehicles, are eligible for depreciation, a reduction in taxable income based on asset wear over time.
Transfer Pricing: If part of a multinational, businesses need to ensure compliance with transfer pricing rules, which prevent income shifting and require prices for goods/services traded between branches to match market rates.
Filing and Payment Deadlines: CIT returns are due annually, with payments typically due three months after the end of the fiscal year (April 1 – March 31). Quarterly provisional tax payments may also be required based on income estimates.
2. Individual Income Tax (PIT)
New Zealand’s progressive tax system has rates that range from 10.5% to 39% based on income levels, impacting payroll obligations for employers.
Income Range (NZD) | Tax Rate |
|---|---|
0 – 14,000 | 10.5% |
14,001 – 48,000 | 17.5% |
48,001 – 70,000 | 30% |
70,001 – 180,000 | 33% |
Above 180,000 | 39% |
Additional Considerations:
Non-residents: Only pay tax on New Zealand-sourced income, making careful management of overseas income streams possible for tax planning.
Resident Withholding Tax (RWT): Interest, dividends, and royalties paid to residents and non-residents alike are subject to RWT, which employers must deduct if applicable.
Deductions: Employees may claim expenses directly related to earning income, though not all deductions permitted for corporate tax apply here.
PAYE Tax Withholding: Employers must calculate and deduct Pay-As-You-Earn (PAYE) tax from employee wages and remit these funds to Inland Revenue. Accurate deductions are essential to avoid liability for under-withholding and to maintain compliance.
3. Goods and Services Tax (GST)
New Zealand’s GST, set at 15%, applies to most goods and services, including imports, making it a significant factor for companies with taxable transactions.
Important GST Details:
Zero-rated Exemptions: Some goods and services, such as exports and certain financial services, may qualify for a 0% GST rate.
Registration Threshold: Businesses with an annual turnover exceeding NZD 60,000 must register for GST. Voluntary registration is also allowed and can be beneficial for businesses with high input costs.
Input Tax Credits: Registered businesses can claim credits on GST paid for business purchases, reducing their net tax liability. This requires careful record-keeping to ensure compliance.
Filing Frequency Options:
Monthly: Required for businesses with over NZD 24 million in turnover.
Bi-monthly: Standard for most businesses.
Six-monthly: Available for smaller businesses with lower turnover, which can simplify filing requirements.
4. Pay-As-You-Earn (PAYE) Tax
Employers must handle PAYE deductions, covering both income tax and certain social levies, which Inland Revenue uses to fund public services.
Key Details of PAYE:
Deductions Include: PAYE covers income tax and the ACC (Accident Compensation Corporation) levy, which provides insurance for workplace injuries.
Accurate PAYE Deductions: Employers must align deductions with each employee’s earnings and tax code, ensuring that underpayments or overpayments are avoided.
Filing and Reporting: Employers submit PAYE information each payday, with an annual summary by April 7 each tax year, ensuring transparency in employee income tax reporting.
5. Accident Compensation Corporation (ACC) Levy
The ACC levy supports New Zealand’s national accident insurance scheme and is an essential consideration for companies, as it directly impacts payroll costs.
Details for Employers:
Workplace Levy Rates: These vary by industry and are calculated based on the business’s accident history, aligning with workplace safety records.
Types of Levies: The two primary ACC levies are the Earners’ Levy (for employee earnings) and the Workplace Levy (based on workplace safety risk). Rates are reviewed annually by ACC and can fluctuate based on industry and company safety records.
Compliance Requirements: Accurate tracking and reporting of workplace injuries can help businesses lower ACC levies by demonstrating improved safety measures, potentially reducing operational costs.
6. Fringe Benefit Tax (FBT)
FBT applies to benefits provided to employees outside of their direct salary, such as company cars, low-interest loans, or accommodation.
FBT Rates and Deductions:
Standard Rate: 49.25% for most benefits, although rates vary based on the type of benefit and employee’s marginal tax rate.
Quarterly and Annual Reporting: Employers are required to file FBT returns quarterly, with an option to file an annual reconciliation.
Exemptions: Certain benefits, like reimbursed travel expenses, may be exempt if they fall within business-related expenses rather than personal perks.
FBT Optimization Strategies: Accurate valuation of non-cash benefits and careful planning of FBT obligations can minimize the effective FBT rate, especially when benefits are structured to align with business necessities.
Additional Considerations and Residency Criteria
Tax Residency Rules: Residency in New Zealand is determined by the 183-day rule and ties to the country, such as family and business connections.
Corporate Residency: Corporations are considered residents if they are incorporated or maintain central management in New Zealand.
Individual Residency: Tax is applied on global income for residents, while non-residents are taxed only on New Zealand-sourced income, making structuring income sources beneficial.
Capital Gains and Land Taxes: While New Zealand doesn’t have a formal capital gains tax, certain property sales may be taxed if considered speculative under the bright-line test, which applies to residential properties sold within 10 years of purchase.
Filing Deadlines and Penalties: Failure to comply with tax deadlines can incur penalties and interest charges. For instance, failing to file the GST return on time can result in late payment penalties ranging from 1% to 5% of the overdue amount, plus compounding interest.
Double Taxation Agreements (DTAs): New Zealand has tax treaties with various countries to prevent double taxation, reducing or exempting certain tax obligations for companies with cross-border operations.
Tax Residency in New Zealand
Corporate Residency: Companies are residents if they are incorporated in New Zealand or maintain central management and control in the country.
Individual Residency: Individuals are considered residents for tax purposes if they live in New Zealand for over 183 days in any 12-month period or have strong economic and personal ties to the country.