Corporate tax in New Zealand

Summary

Corporate Income Tax Rate (%) 28
Capital Gains Tax Rate (%) 0
Branch Tax Rate (%) 28
Withholding Tax (%)
Nonresidents
Dividends 30 (a)
Interest 15 (b)
Royalties from Patents, Know-how, etc. 15 (c)
Payments to Contractors 15
Branch Remittance Tax 0
Residents
Dividends 33 (d)
Interest 33 (e)
Net Operating Losses (Years)
Carryback 0
Carryforward Unlimited

a) This is a final tax. If dividends are fully imputed (see Section B), the rate is reduced to 15% (for cash dividends) or to 0% (for all non-cash dividends and for cash dividends if nonresident recipients have direct voting interests of at least 10% or if a tax treaty reduces the New Zealand tax rate below 15%). The rate is also reduced to 15% to the extent that the dividends are fully credited under the dividend withholding payment system (which is being phased out) or to the extent that imputation credits are passed on to foreign investors through the payment of supplementary dividends under the foreign investor tax credit regime.

b) This is a final tax if the recipient is not associated with the payer. For an as­sociated person, this is a minimum tax (the recipient must report the income on its annual tax return, but it may not obtain a refund if the tax withheld exceeds the tax that would otherwise be payable on its taxable income). Under the Income Tax Act, associated persons include the following:

  •  Any two companies in which the same persons have a voting interest of at least 50% and, in certain circumstances, a market value interest of at least 50% in each of the companies
  •  Two companies that are under the control of the same persons
  • Any company and any other person (other than a company) that has a vot­ing interest of at least 25% and, in certain circumstances, a market value interest of at least 25% in the company

Interest paid by an approved issuer on a registered security to a non-associated person is subject only to an approved issuer levy (AIL) of 2% of the interest payable. An AIL rate of 0% applies to interest paid on or after 7 May 2012 to nonresidents on certain widely offered and widely held corporate bonds that are denominated in New Zealand currency.

c) This is a final tax on royalties relating to literary, dramatic, musical or artistic works. For other royalties, this is a minimum tax.

d) See Section B

e) The 33% rate is a default rate if recipients’ tax file numbers are not supplied. Individuals may elect rates of 10.5% (if their expected annual income does not exceed NZD14,000), 17.5%, 30% or 33%. The basic rate for interest paid to companies is 28%, but companies may elect a 33% rate.

Taxes on corporate income and gains

Income tax. Resident companies are subject to income tax on worldwide taxable income. Nonresident companies carrying on business through a branch pay tax only on New Zealand-source income.

A company is resident in New Zealand if it is incorporated in New Zealand, if it has its head office or center of management in New Zealand or if director control is exercised in New Zealand.

Rate of income tax. Resident and nonresident companies are sub­ject to tax at a rate of 28%.

Capital gains. No capital gains tax is levied in New Zealand. How­ever, residents may be taxed on capital gains derived from many types of financial arrangements, and all taxpayers may be taxed on capital gains derived from certain real and personal property transactions. These gains are subject to tax at the standard corpo­rate tax rate.

Administration. The income year is from 1 April to 31 March. A company with an accounting period that ends on a date other than 31 March may apply to the Commissioner of Inland Revenue for permission to adopt an income year that corresponds to its ac – counting period. If the Commissioner approves an alternative in­come year, income derived during that year is deemed to have been derived during the year ending on the nearest 31 March. For this purpose, year-ends up to 30 September are deemed to be nearest the preceding 31 March, and year-ends after 30 September are deem ed to be nearest the following 31 March.

Companies with year-ends from 1 April to 30 September must file tax returns by the seventh day of the fourth month following the end of their income year. All other companies must file their returns by 7 July following the end of their income year.

Provisional tax payments must generally be made in the fifth, ninth and thirteenth months after the beginning of the company’s income year. The first installment equals one-third of the provi­sional tax payable; the second installment equals two-thirds of the provisional tax payable, less the amount of the first installment; and the balance of the provisional tax is payable in the third in­stallment. In general, the provisional tax payable in a year equals 105% of the in come tax payable in the preceding year. Com­panies that are registered for Goods and Ser vices Tax (GST; see Section D) that meet certain criteria may elect to calculate their provisional tax under a GST ratio method and pay the provi sional tax in installments when they file their GST returns, generally every two months.

Companies with year-ends from October to January must pay ter­minal tax by the seventh day of the eleventh month following the end of the income year. Companies with a February year-end must pay terminal tax by the fifteenth day of the following January. All other companies must pay terminal tax by the seventh day of February following the end of their income year. The date for pay­ment of terminal tax may be extended by two months if the com­pany has a tax agent.

Several measures impose interest and penalties on late payments of income tax. For late payments or underpayments, the basic penal­ty equals 5% of the unpaid tax. This penalty is reduced to 1% if the tax is paid within a week after the due date. An additional penalty of 1% of the unpaid balance, compounding monthly, is also im­posed. Interest may be payable if provisional tax paid at each in­stallment date is less than the relevant proportion (generally, one-third for the first installment date, two-thirds for the second installment date and three-thirds for the third installment date) of the final income tax payable for the year. Conversely, interest may be credited on over paid provisional tax.

Interest charges and the risk of penalties with respect to provi­sional tax may be reduced if provisional tax is paid under a tax-pooling arrangement through a Revenue-approved intermediary.

The risk of interest and penalties is minimized for companies that use the GST ratio method for calculating and paying their provi­sional tax.

Dividends

Exempt income. Dividends received by New Zealand resident companies from other New Zealand resident companies are tax­able. However, dividends received from wholly owned subsidiaries resident in New Zealand are exempt. Dividends received by New Zealand resident companies from nonresident companies are generally exempt. However, as a result of changes applying for taxpayers’ income years beginning on or after 1 July 2009, cer­tain dividends received by New Zealand resident companies from non resident companies are taxable, including the following:

  • Dividends that are directly or indirectly deductible overseas
  • Dividends on certain fixed-rate shares
  • For income years beginning on or after 1 July 2011, dividends derived by Portfolio Investment Entities (PIEs; see Section E)
  • Dividends relating to certain portfolio (less than 10%) invest­ments that are exempt from income attribution under the for­eign investment fund regime (see Section E)

Imputation system. New Zealand’s dividend imputation system enables a resident company to allocate to dividends paid to share­holders a credit for tax paid by the company. The allocation of credits is not obligatory. However, if a credit is allocated, the maximum credit is based on the current corporate income tax rate. Based on the current corporate income tax rate of 28%, the maximum credit is 28/72, meaning that a dividend of NZD72 may have an imputation credit attached of up to NZD28.

The imputation credits described above may not be used to offset nonresident withholding tax on dividends paid to nonresidents. However, effective from 1 February 2010, they may allow non­resident withholding tax to be reduced to 0% for all non-cash dividends and for cash dividends if nonresident recipients hold direct voting interests of at least 10% or if a tax treaty reduces the tax rate below 15%. A New Zealand company may pass on the benefit of such credits to other nonresident investors through pay­ments of supplementary dividends. The aim of this mechanism is to allow nonresident investors to claim a full tax credit in their home countries for New Zealand nonresident withholding tax. The New Zealand company may also claim a partial refund or credit with respect to its own New Zealand company tax liability. Effective from 1 February 2010, payment of supplementary divi­dends can generally be made only to nonresident companies and individuals who hold direct voting interests of less than 10% and who are subject to a tax rate of at least 15% after any tax treaty relief. Effective from the 2013-14 income year, supplementary dividends can also be paid with respect to qualifying nonresident investors in certain portfolio investment entities (PIEs) that invest in assets outside New Zealand.

Australian resident companies may also elect to maintain a New Zealand imputation credit account and collect imputation credits for income tax paid in New Zealand. New Zealand shareholders in an Australian resident company that maintains such an imputa­tion credit account and attaches imputation credits to dividends can receive a proportion of the New Zealand imputation credits equal to their proportion of shareholding in the Australian com­pany. Imputation credits must be allocated proportionately to all shareholders.

In general, the carryforward of excess credits for subsequent dis­tribution must satisfy a 66% continuity-of-shareholding test. Inter­ests held by companies or nominees are generally traced through to the ultimate shareholders. Listed, widely held companies and limited attribution foreign companies are entitled to special treat­ment. In effect, they are treated as the ultimate shareholder if their voting interest in other companies is less than 50% or if the actual ultimate shareholders would each have voting interests of less than 10% in the underlying company. The definition of a listed com­pany includes companies listed on any exchange in the world that is recognized by the Commissioner of Inland Revenue. For carry-forward purposes, direct voting or market value interests of less than 10% may be considered to be held by a single notional person, unless such an interest is held by a company associated with the company that has the carryforward.

Foreign dividend payments. The foreign dividend payment system was previously called the dividend withholding payment system. Under the foreign dividend payment system, dividends received by a resident company from a nonresident up to the end of their 2008-09 or 2009-10 income year (depending on their year-end date) were subject to a 30% (33% until the end of the 2007-08 income year) foreign dividend payment to be made by the recipi­ent to the Inland Revenue Department.

Companies with foreign dividend payment credits may pass the benefit of the payments to the shareholder by way of a credit attaching to dividends paid by the company. The credit may be available under either the imputation system or the foreign divi­dend payment system. The unused portion of a foreign dividend payment credit can be refunded to the shareholder, but an excess imputation credit is not refundable.

In accordance with changes enacted in October 2009, the foreign dividend payment system is being phased out. New Zealand resi­dent companies are no longer required to make foreign dividend payments to the Inland Revenue Department on dividends re­ceived. Companies may continue attaching credits to dividends paid to pass on the benefit of previous foreign dividend payments.

Resident withholding tax. For dividends paid to a resident com­pany by another resident company that is not in a tax group with the recipient, the payer must deduct a withholding tax equal to 33%, having first allowed for any imputation credits attached to the dividend, unless the recipient holds an exemption certificate. This rate has not been reduced to align with the reduced corpo­rate income tax rate of 28%, but any excess tax can be used as tax credits during or refunded through the annual income tax return process.

Foreign tax relief. In general, any tax paid outside New Zealand by a New Zealand resident taxpayer can be claimed as a credit against the tax payable in New Zealand. The credit is limited to the amount of New Zealand tax payable on that income.

Determination of trading income

General. Assessable income consists of all profits or gains derived from any business activity, including the sale of goods and ser­vices, com missions, rents, royalties, interest and dividends.

A gross approach applies to the calculation of taxable income. Under this approach, a company calculates its gross assessable income and then subtracts its allowable deductions to determine its net income or loss. If the company has net income, it subtracts any loss carryforwards or group losses to determine its taxable income.

To be deductible, expenses must generally be incurred in deriving gross in come or necessarily incurred in carrying on a business for the purpose of deriving gross income. Interest is now generally de ductible for most New Zealand resident companies, subject only to the thin-capitalization rules (see Section E). Effective from tax payers’ income years beginning on or after 1 July 2009, interest paid on certain debts that are stapled to shares on or after 25 Feb­ruary 2008 may be treated as non deductible dividends. Substituting debentures, which were previously treated as equity for income tax purposes, are generally treated as debt, effective from 1 April 2015. Related interest from these debentures is taxable and de­ductible as interest instead of being treated as dividends.

Deductions for certain business entertainment expenses are lim­ited to 50% of the expenses incurred. Capital expenditures are generally not deductible.

Exempt income. The only major categories of exempt income are dividends received from a wholly owned subsidiary resident in New Zealand, certain dividends received from nonresident com­panies and certain dividends paid out of capital gains derived from arm’s-length sales of fixed assets and investments on wind­ing up.

A specific exemption applies until 31 December 2019 for income derived by nonresident companies from certain oil and gas drill­ing and related seismic or electromagnetic survey vessel activi­ties in New Zealand’s offshore permit areas.

Inventories. Stock in trade must generally be valued at cost. Market selling value may be used (but not for shares or “excepted finan­cial arrangements”) if it is lower than cost. Cost is determined by reference to generally accepted accounting principles, adjusted for variances between budgeted and actual costs incurred. Sim pli-fied rules apply to “small taxpayers,” which are those with annual turnover of NZD3 million or less. A further concession applies to taxpayers with annual turnover of NZD1,300,000 or less and clos­ing inventory of less than NZD10,000.

Depreciation. The depreciation regime generally allows a deduc­tion for depreciation of property, including certain intangible prop­erty, used in the production of assessable income. Depreciation cannot be claimed for income tax purposes on buildings with useful lives estimated by the Commissioner of Inland Revenue to be at least 50 years, effective from taxpayers’ 2011-12 income years. Depreciation may continue to be claimed on commercial building fit-outs, certain depreciable land improvements and structures other than 50-year buildings. Most assets can be depre­ciated using the straight-line or the declining-balance methods. For assets valued at less than NZD5,000 (NZD2,000 before the 2015-16 income year), a taxpayer may elect to pool the assets and apply the pool-depreciation method. Under the pool-depreciation method, the lowest rate applicable to any asset in the pool is used to depreciate all assets in the pool. A taxpayer may have more than one pool of assets. Assets in a pool must be used for business purposes only or be subject to Fringe Benefit Tax (see Section D) to the extent the assets are not used for business purposes. Build­ings may not be pooled. Pro perty costing NZD500 or less may generally be written off immediately.

Assets, other than intangible property, acquired before 1 April 1993 are depreciated at the rates provided under the prior depreciation regime.

A transitional system applies to assets, including certain intangi­ble property, acquired from 1 April 1993 through the end of the taxpayer’s 1994-95 income year (the income year ending nearest to 31 March 1995). Under the transitional system, a taxpayer could elect to use the depreciation rates under the prior regime or the economic depreciation rates set by the Commissioner of Inland Revenue, which are based on the effective useful life of an asset.

Assets acquired in a taxpayer’s 1995-96 or subsequent income year must be depreciated using economic depreciation rates. In general, most of these assets, other than buildings and used im­ported motor cars, qualified for a 20% loading on the applicable depreciation rates for the 1995-96 and subsequent income years, if the assets were not previously used in New Zealand and if they were acquired by 20 May 2010. In certain circumstances, a tax­payer may apply for a special depreciation rate. The formula for setting depreciation rates has changed for the 2005-06 income year and subsequent years, resulting in increased rates for most plant and equipment acquired on or after 1 April 2005, and re­duced rates for buildings acquired on or after 19 May 2005. The following table provides some of the general straight-line and declining-balance depreciation rates applicable to assets acquired between the 1995-96 and 2004-05 income years and assets ac­quired in the 2005-06 and subsequent income years, before the addition of any loading.

Method
Declining-balance Straight-line
1995 – 96 to From 1995 – 96 to From
Asset Rate (%) Rate (%) Rate (%) Rate (%)
Buildings* 4 3 3 2
Chairs (office) 15 16 10 10.5
Computers and software 40 50 30 40
Desks 12 13 8 8.5
Filing cabinets 12 13 8 8.5
Motor vehicles 15 to 40 16 to 50 10 to 30 10.5 to 40
Photocopiers 33 40 24 30

* Effective from taxpayers’ 2011-12 income years, no tax depreciation can be claimed on buildings with useful lives estimated by the Commissioner to be at least 50 years, regardless of the date of acquisition of the building.
The rates for plant and machinery vary depending on the particu­lar industry and type of plant and machinery.

Tax depreciation is generally subject to recapture on the sale of an asset to the extent the sales proceeds exceed the tax value after depreciation. Amounts recaptured are generally included in as­sessable income in the earliest year in which the disposal consid­eration can be reasonably estimated. If sales proceeds are less than the tax value after depreciation, the difference may generally be deducted as a loss in the year of disposal. However, such losses on buildings are deductible only if they occur as a result of natural disasters or other events outside the taxpayer’s control. Specific rules have been introduced to provide some deferral and rollover relief with respect to irreparable damage arising from the 2010-11 Canterbury earthquakes, and related insurance recoveries and replacements.

Special deductions. A few special deductions designed to achieve specific government objectives are available, such as certain de­ductions relating to petroleum, mining, forestry and agricultural activities. Some concessionary provisions relating to exploring for and mining certain minerals (including gold and silver) have been repealed and new rules introduced for income and expense recognition, effective from taxpayers’ 2014-15 income years. Tran sitional provisions allow the add-back of previous conces­sionary de ductions for anticipated expenditure to be spread over the 2014-15 and 2015-16 income years.

Trading losses. Trading losses may generally be carried forward and offset against future taxable income if, at all times from the beginning of the year of loss to the end of the year of offset, a group of per sons held aggregate minimum voting interests in the company and, in certain circumstances, minimum market value interests of at least 49%.

Current proposals to tax certain sales of residential land (if ac­quired from 1 October 2015) when they occur within a two-year “bright-line” period include provisions that may limit the offset­ting of losses on such transactions against income from other taxable disposals of land.

Research and development credits for tax losses. For income years beginning on or after 1 April 2015, it is proposed that certain un­listed New Zealand resident companies carrying out research and development (R&D) activities be allowed to convert current year tax losses to refundable cash tax credits at the current company tax rate. The maximum losses a company could “cash out” for the 2015-16 income year would be NZD500,000 (a cash credit of NZD140,000 at the current company tax rate of 28%). The maxi­mum loss amount would increase by NZD300,000 annually to a maximum of NZD2 million by the 2020-21 income year. Credits received may be repayable (and tax losses may then be reinstated) in certain circumstances, such as the sale of R&D assets, cessation of New Zealand tax residence, liquidation or the breach of a 10% shareholder continuity test. The extent of R&D credit repayments may be reduced by the amounts of income tax liabilities arising in intervening income years.

Group losses. Losses incurred within a group of companies may be offset against other group company profits either by election or subvention payments.

Subvention payments are intercorporate payments specifically made to effect the transfer of company losses. They are treated as deductions to the paying (profit) company and as taxable income to the recipient (loss) company. The loss company and the profit-making company must be in the same group of companies through­out the relevant period. The required common ownership is 66%.

Wholly owned corporate groups may elect income tax consol i-dation.

Elective regime for closely held companies. Look-through compa­nies with five or fewer shareholders may elect to be taxed simi­larly to partnerships. However, reforms enacted following the May 2010 budget restrict shareholders’ ability to claim losses, effective from their 2011-12 income years.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Goods and Services Tax (GST), similar to a
value-added tax, levied on the supply of
goods and services and on imports
15
Fringe Benefit Tax (FBT); paid by the employer
on the value of fringe benefits provided to
employees and on non-cash dividends
distributed to shareholder-employees
49.25
(If benefits are attributable to particular
employees, employers may elect to calculate
FBT on the attributable benefits at a range of
rates between 11.73% and 49.25%. The rates vary
depending on the employee’s cash remuneration
inclusive of the fringe benefits. Unattributed
benefits provided to such employees are subject
to FBT at a rate of 42.86% [49.25% if provided
to major shareholder-employees]. As a further
alternative, employers may pay FBT at a rate
of 49.25% on attributed benefits and 42.86%
on unattributed benefits [49.25% if provided
to major shareholder-employees].)
Accident compensation levy, on gross
salaries and wages, paid by
Employer; rate (before residual and health and
safety elements) varies according to industry
class and may be reduced if the employer meets
certain work safety criteria; certain employers
may take direct responsibility under full
self-cover or partnership discount plans
0.02 to 4.42
Employee 1.45
Self-employed; rate (before residual and
health and safety elements) varies according
to industry class, incorporating income and
non-income benefit portions (the calculation
of which depends on the individual’s earnings)
and according to age and abatement factors
if a guaranteed amount of weekly compensation
is purchased
0.02 to 4.42

Miscellaneous matters

Anti-avoidance legislation. Legislation permits the Inland Revenue Department to void any arrangement made or entered into if tax avoidance is one of the purposes or effects of the arrangement and is not merely incidental.

Branch-equivalent system. Under the branch-equivalent system of taxation, New Zealand residents that have interests in the in come of a controlled foreign company (CFC) may be taxed on attributed income as if the CFC is a branch of a New Zealand resident com­pany. A CFC is a foreign company under the control of five or fewer New Zealand residents or a group of New Zealand resident directors. In general, for the purposes of the CFC rules, control is more than 50% ownership. A New Zealand resident with an in­come interest greater than 10% is required to calculate and in­clude in income the attributed foreign income or loss of the CFC unless the CFC is resident in Australia and meets certain criteria or the active-income exemption applies. Branch-equivalent loss­es are quarantined.

No attribution is required under the CFC rules if passive income is less than 5% of the CFC’s or a relevant group’s income. If the 5% threshold is exceeded, any attribution is limited to passive in­come. The rules defining passive income and calculating the percentage of a CFC’s passive income in relation to total income are complex.

Foreign investment fund system. New Zealand has a foreign in­vestment fund (FIF) system that aims to tax the change in value of a New Zealand resident’s interest in the FIF over an income year. The change in value may include income, capital growth and any exchange fluctuation.

The FIF regime generally applies to all offshore investments that are not CFC interests, including interests in foreign companies, foreign unit trusts, foreign life insurance, and foreign savings and superannuation funds.

The FIF rules do not apply to individuals owning FIF interests that cost less than NZD50,000. Exemptions are also provided for certain employment-related foreign superannuation schemes and foreign private annuities and pensions as well as for the first four years that individuals who become resident in New Zealand hold interests in foreign life insurance funds and superannuation schemes, if the individuals held these interests before they be­came resident in New Zealand. Superannuation scheme interests acquired by individuals before becoming resident in New Zealand have generally been removed from the FIF regime, effective from 1 April 2014.

As a result of reforms to the FIF rules, which generally apply for the 2007-08 and subsequent income years, a general exclusion of interests in grey list country companies no longer exists. Interests in certain Australian listed companies and unit trusts, certain ven­ture capital investments in grey list country companies and shares held under certain employee share schemes may be excluded from the FIF rules if statutory criteria are met. The grey list countries are Australia, Canada, Germany, Japan, Norway, Spain, the United Kingdom and the United States.

Initially, the four permissible methods for calculating FIF income were a branch-equivalent method, a deemed rate of return meth­od, a comparison of opening and closing values, and a method based on accounting profits. Effective from the 2007-08 income year, two other alternatives could generally be used if the FIF interest held was less than 10%. These two methods were the 5% fair dividend rate method and the cost method.

An “active business” and “active income” exemption for FIF in­terests in companies of at least 10% replaced the previous grey list country exemption for income years beginning on or after 1 July 2011. An exemption is retained for FIF interests of at least 10% in Australian companies. Application of the outbound thin-capitalization rules (see Debt-to-equity ratios) is extended to residents with interests of at least 10% in FIFs that are exempt from attribution of FIF income under the Australian FIF exemp­tion and to cases in which the “active income” method is used. The branch-equivalent and accounting profits methods are no longer available for taxpayers’ income years beginning on or after 1 July 2011, and use of the deemed rate of return method is more restricted. The 5% fair dividend rate method is the general de­fault method if taxpayers with FIF interests of at least 10% do not have sufficient information, or do not want, to use the “active income” method to determine exempt or non-exempt status or to calculate any attributable FIF income.

Portfolio investment entities. Certain collective-investment enti­ties that elect to be in the Portfolio Investment Entity (PIE) regime are not taxable on gains on the disposal of New Zealand and cer­tain Australian shares. In addition, their income may generally be tax ed at the corporate tax rate or at rates approximating their indi­vidual investors’ marginal tax rates (which may be 0% for non­resident investors in certain types of PIEs that invest wholly or partly in assets outside New Zealand).

Transfer pricing. The transfer-pricing regime in New Zealand is aimed primarily at cross-border arrangements between associated parties. Taxpayers are able to adopt the method that produces the most reliable measure of arm’s-length consideration. The allow­able methods are the comparable uncontrolled price method, the resale price method, the cost-plus method, the profit-split method and the comparable profits method. Binding rulings with respect to transfer-pricing issues are available from the Commissioner of Inland Revenue. New Zealand and countries with which New Zealand has concluded tax treaties may enter into multilateral advance pricing agreements under the transfer-pricing regime.

Debt-to-equity ratios. In conjunction with the transfer-pricing regime (see Transfer pricing), a thin-capitalization regime applies to New Zealand entities that are at least 50% owned or controlled by a single nonresident (however, interests held by persons as­sociated with a nonresident may be included for the purpose of de termining the nonresident’s level of control). Effective from taxpayers’ 2015-16 income years, the scope of the inbound thin-capitalization rules is extended to apply also to the following:

  • New Zealand companies that are at least 50% owned or con­trolled by two or more non-associated nonresident investors if they are regarded as acting together with respect to the debt funding of the New Zealand entities
  • Certain trusts and trust-controlled companies if at least 50% of the value of trust settlements have been made by a nonresident or by nonresidents acting together or if entities otherwise subject to the rules have general powers to appoint or remove trustees

The inbound thin-capitalization regime generally denies interest deductions to the extent that the New Zea land entity’s level of interest-bearing debt exceeds both a safe harbor debt to total assets ratio of 60% and 110% of the ratio of interest-bearing debt to total assets of the entity’s worldwide group. A netting rule excludes borrowings that are in turn loaned to the following:

  • Nonresidents that are not carrying on business in New Zealand through a fixed establishment
  • Non-associated persons
  • Associates that are subject to the thin-capitalization regime but are not in the lender’s New Zealand group

Specific rules and thresholds apply to registered banks.

As a result of changes enacted in October 2009 for thin-capital­ization purposes, certain stapled debt securities and fixed-rate shares are included as debt. Investments in CFCs and interests of at least 10% in FIFs may be excluded from assets.

For income years beginning on or after 1 July 2009, dividend amounts paid on certain fixed-rate shares may also be added back when interest deductions are limited under the thin-capitalization rules.

Other changes applying from taxpayers’ 2015-16 income years include the following:

  • Asset revaluation amounts that arise from associated party trans­actions in the 2015-16 income year or a subsequent income year are generally excluded from asset values in calculating New Zealand group debt percentages unless the revaluations could have been recognized, without a transaction, under generally accepted accounting practices or unless the revaluations arise from a restructuring following acquisition of the company by a non-associated party.
  • Certain related-party debt is excluded from the debt amounts used in calculating worldwide group debt percentages in in­bound situations.
  • Changes are made to the complex New Zealand and worldwide group membership rules.

Similar thin-capitalization rules are extended to New Zealand residents with income interests in CFCs, effective from their in­come years beginning on or after 1 July 2009. For income years beginning on or after 1 July 2011, the outbound thin-capitalization rules are extended to New Zealand residents with interests in FIFs of at least 10% that are subject to the new “active income” method or Australian exemptions from FIF income attribution.

Under safe harbor rules, the outbound thin-capitalization rules do not limit interest deductions on outbound investment if the New Zealand group debt percentage does not exceed 75% and 110% of the worldwide group debt percentage. Additional exemptions with respect to outbound investment may apply in certain circum­stances, including situations in which New Zealand group assets (generally excluding CFC investments and certain interests of at least 10% in FIFs) are at least 90% of the worldwide group assets. An alternative safe harbor threshold calculation based on an inter­est-to-net income ratio may be used in limited outbound circum­stances. The apportionment calculation provides an effective ex­emption with respect to outbound investment by eliminating any adjustment if annual New Zealand group finance costs are below NZD1 million and provides relief on a tapering basis if those an­nual finance costs are between NZD1 million and NZD2 million.

Treaty withholding tax rates

The rates reflect the lower of the treaty rate and the rate under domestic tax law.

Dividends

%

Interest

%

Royalties

%

Australia 0/5/15 (i) 10 (j) 5
Austria 15 10 (a) 10
Belgium 15 10 10
Canada (n) 0/5/15 (b) 0/10 (r) 5/10 (s)
Chile 15 15 (e) 5
China 15 10 (a) 10
Czech Republic 15 10 (a) 10
Denmark 15 10 10
Fiji 15 10/15 (h) 15
Finland 15 10 10
France 15 10 (a) 10
Germany 15 10 (a) 10
Hong Kong SAR 0/5/15 (k) 10 (j) 5
India 15 10 (a) 10
Indonesia 15 10 (a) 15
Ireland 15 10 10
Italy 15 10 (a) 10
Japan 0/15 (q) 10 (j) 5
Korea (South) 15 10 (a) 10
Malaysia 15 15 (p) 15
Mexico 0/5/15 10 (a) 10
Netherlands 15 10 (a) 10
Norway 15 10 (a) 10
Papua New Guinea 15 10 (m) 10
Philippines 15 10 15
Poland 15 10 10
Russian Federation 15 10 10
Singapore 5/15 (l) 10 (m) 5
South Africa 15 10 (a) 10
Spain 15 10 (m) 10
Sweden 15 10 10
Switzerland 15 10 10
Taiwan 15 10 10
Thailand 15 15 (f) 10/15 (g)
Turkey 5/15 (o) 10/15 (c) 10
United Arab Emirates 15 10 (a) 10
United Kingdom 15 10 (a) 10
United States 0/5/15 (i) 10 (j) 5
Vietnam 5/15 (t) 10 10
Non-treaty
countries (d)
30 15 15

a) Interest paid to a contracting state or subdivision, to certain state financial institutions or with respect to certain state-guaranteed loans may be exempt.

b) The following are the tax rates applicable to dividends:

  • 0% for certain government bodies if the competent authorities so agree
  • 5% if paid to companies holding at least 10% of the voting power
  • 15% in all other cases

c) The rate is reduced to 10% for bank interest. Interest paid to certain govern­ment bodies or central banks may be exempt.

d) See applicable footnotes to Section A.

e) The rate is 10% for interest paid to banks and insurance companies.

f) The rate is 10% for interest paid to financial institutions, including insurance companies, or if the interest relates to arm’s-length sales on credit of equip­ment, merchandise or services. Interest paid to certain institutions of the government or the central bank is exempt.

g) The 10% rate applies to payments for the use of copyrights, industrial, scien­tific or commercial equipment, films, tapes or other broadcast matter. The 15% rate applies to other royalties.

h) A minimum rate of 15% applies to interest paid to certain associated persons. No tax applies to interest paid to the other country’s reserve bank.

i) The rate may be reduced to 5% or 0% for company shareholders, depending on their level of ownership and certain other criteria.

j) No tax applies to interest paid to government bodies or to unrelated financial institutions in certain circumstances.

k) The rate may be reduced to 5% or 0% for company shareholders, depending on their level of ownership and certain other criteria. Dividends paid to cer­tain government institutions are exempt.

l) The rate may be reduced to 5% for dividends paid to companies that have an interest of at least 10% in the payer.

m) Interest paid to certain government institutions may be exempt.

n) A new treaty with Canada entered into force from 26 June 2015. The rates under the new treaty are reflected in the above table. These rates apply to pay­ments on or after 1 August 2015. Other provisions generally apply for New Zealand income years beginning on or after 1 April 2016.

o) The rate may be reduced to 5% if the dividends are paid to companies that have an interest of at least 25% in the payer and if the dividends are exempt in the recipient’s country.

p) The 15% rate is a minimum rate for interest paid to certain associated persons.

q) The rate may be reduced to 0% for dividends paid to company shareholders, depending on the shareholders’ level of ownership and certain other criteria.

r) The following are the tax rates applicable to interest:

  • 0% for loans made by certain export development bodies or unrelated financial institutions
  • 10% in all other cases

(s)   The following are the tax rates applicable to royalties:

  • 5% on certain copyright, cultural, software and patent royalties
  • 10% in all other cases

(t)   The 5% rate applies if the dividends are paid to companies that directly hold at least 50% of the voting power in the payer.

New Zealand has also signed a tax treaty with Samoa (8 July 2015) and protocols to its tax treaties with Belgium and Malaysia, which have not yet entered into force.

New Zealand has signed and ratified the multilateral Convention on Mutual Administrative Assistance in Tax Matters, which enter­ed into force for New Zealand on 1 March 2014. It has enter ed into an agreement with the United States and related competent authority arrangements with respect to reporting requirements for financial institutions under the US Foreign Account Tax Compli­ance Act.

New Zealand has entered into tax information exchange agree­ments with Cayman Islands, Cook Islands, Curaçao, Gibraltar, Guernsey, Isle of Man, Jersey, Marshall Islands, Netherlands Antilles, Niue, Samoa and Sint Maarten. It has also entered into tax information exchange agreements that are not yet in force with Anguilla, Bahamas, Bermuda, British Virgin Islands, Domi­nica, St. Kitts and Nevis, St. Vincent and the Grenadines, Turks and Caicos Islands, and Vanuatu.