Non-residents selling in New Zealand
With the growth of cross-border trade, we are often asked about New Zealand tax implications by our overseas clients.
New Zealand has a comprehensive tax system incorporating both income tax (Direct Tax) and indirect tax (Goods and Services Tax).
While we cannot offer our clients tax advice, we have prepared below a summary of core tax facts that will help you on your way. We can also refer you to New Zealand tax advisors, accountants and legal advisors who can help you understand and comply with your tax obligations so you can concentrate on growing your business.
New Zealand Income Tax
New Zealand has a flat company tax rate of 28% on income “sourced” from New Zealand. Expenses incurred in deriving that income are deductible before the net profit is taxed. Some expenses are not deductible immediately and may need to be spread over a period of time (depreciated). Some expenses may not be deductible at all, or are only deductible in part.
As a company, your business can register with the New Zealand Companies Office as a branch of its offshore parent, or you may wish to set up a standalone New Zealand subsidiary. Both of these types of entities have different tax implications.
Other types of legal structures or entities are subject to income tax in New Zealand including trusts, unit trusts, superannuation funds, partnerships, limited partnerships and Individuals. The maximum income tax rate is 33%, but it may be lower depending on the entity or supply.
Some overseas entities may not be subject to income tax in New Zealand (subject to legal structure) if they do not have a “permanent establishment”, “fixed place of business” or similar in New Zealand and there is a Double Tax Agreement between your home country and New Zealand that says the entity will not be taxed in New Zealand.
If you are subject to income tax in New Zealand you will be required to file an annual income tax return, which is based on self-assessment (i.e. you must work out the correct taxable income and file your tax return based on this). Income tax is paid once a year but you may be subject to interim tax payments (provisional tax) after your first year of trading.
Most businesses in New Zealand have a financial year ending on 31 March, but you can apply to the Inland Revenue (Tax Department) for approval to vary this date to match your end of financial year in your home country.
Employing staff in New Zealand
If your business employs staff based in New Zealand, then you will have other New Zealand tax obligations. These include employee tax deductions (PAYE), Accident Compensation levies, Fringe Benefit tax and superannuation deductions (KiwiSaver).
If you employ staff in your home country who travel to New Zealand, then you may also have New Zealand employer tax obligations depending on their length of stay in New Zealand and any relief offered under a Double Tax Agreement.
Overseas contractors and other suppliers
If you employ overseas contractors to provide services in New Zealand, then you may have withholding tax obligations.
If you pay an overseas insurance company for cover on your New Zealand business operations then you may have a withholding tax obligation on the premiums paid.
If you pay interest to an overseas bank on your New Zealand business operations then you may have a withholding tax or a levy on the interest you pay.
Repatriating profits overseas
Depending on your legal structure, you may have New Zealand withholding tax on payments that you make to your parent overseas, for example on interest or dividends paid.
Goods and Services Tax
Goods and Services Tax (“GST”) is an indirect tax charged on goods or services that are provided in New Zealand and is charged by the supplier on top of the sales price of the goods and services. “Goods” and “Services” are defined terms and are wide with very few exclusions. Typical exclusions are employee services, exchange of money and financial services and the supply of residential accommodation. If your New Zealand operations have goods and services sales of NZD $60,000 or more in the next 12 months then you must register for GST. If your supplies are under this figure then you may elect to register.
If you are GST registered or required to be registered, the GST is charged at the rate of 15%. You are required to collect the GST from your client by including the GST in the sale price, and you must then return the GST to the Inland Revenue. In some cases GST is charged at 0%, but as a general rule this relates to only limited types of supplies. For example, if your New Zealand operation sells goods or services to people who are non-residents and are offshore at the time of the sale, the GST rate may be 0%.
You will be charged GST on supplies of goods and services made to your New Zealand business operations from New Zealand by suppliers such as Online Distribution. If you import goods into New Zealand then GST will be charged by Customs at the point of entry, which either you or your customs agent will need to pay. If you are charged GST, then it makes sense for you to register for GST so that you can claim back the GST you have paid, even if your sales are less than NZD$60,000 per annum.
The GST rules apply to both New Zealand residents and non-residents who provide supplies of goods and services within New Zealand (with some minor differences).
Depending on your GST registration you will file your GST return, pay GST and claim GST back based on an accrual system (invoice based) or cash system (payments based). GST returns are filed either monthly, two monthly or six monthly.
Remote services provided outside New Zealand
From 1 October 2016 non-residents who don’t have a physical presence in New Zealand but who supply services by remote access (i.e. from offshore) may also have an obligation to register for GST in New Zealand if their customers are in New Zealand and the customer is not registered for GST. This rule applies if the services that would be subject to New Zealand GST exceed NZD$60,000 per annum.
If your client is GST registered (and you will need proof of this) then you do not have to charge GST on services to them, however you may qualify to charge GST at 0%, and might do this where you have GST expenses to claim back.
There will be transitional rules where you have already entered into a supply contract as at 1 October 2016 and it is for a fixed term or a renewal term of 396 days or less.
The type of services caught within this new rule include:
- sales of software, apps, music and gaming systems
- e-books, movies, on-line TV shows, newspapers and magazines
- webinars and distances learning courses
- insurance services
- gambling services
- website design and publishing services
- professional services such as legal, accounting, consultancy
- booking services for hotels and tourist activities (if not already subject to GST)
- telecommunications services (if not already subject to GST)
GST returns will be filed for the quarters ended 30 June, 30 September, 31 December and 31 March, and are due on the 28th of the following month.
There will be two types of non-resident registered entities under this rule. The first type who must charge and pay to the Inland Revenue the GST collected, but who cannot claim GST expenses back (typically because they have no New Zealand suppliers charging them GST). The second type will be non-residents who charge and account for GST collected, but who can also claim GST back on GST charged to them.
This article was written by Anne Edgar, Principal Advisor at Shellock Consulting Limited, specializing in tax and business advice.
Disclaimer: This information was prepared in May 2016 and the tax information discussed is of a general nature only and should not be relied upon for any specific situation. You should seek independent qualified tax advice based on your specific situation.
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