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Business Taxation for Expats in New Zealand

Submitted: October 2014

The authority responsible for New Zealand tax is the Inland Revenue Department (IRD).

Registration

For expats, a common form of business structure in New Zealand is the limited liability company, which offers the advantages of:

Forming a limited liability company means that your liability is limited to your equity in the company. The business's income is taxed at the corporate tax rate.

Companies must be registered with the New Zealand Companies Office; their website is here. Registration can be done online here. Once you have reserved your company name, you will have to provide various details regarding the directors and secretary of the company, together with the company address and also the number of shares issued and the names and addresses of the shareholders. At the same time you can also apply for an IRD number. If you expect that the company you are registering will achieve a turnover figure of more than NZ$60,000 then you should register for VAT at the same time as you register the company.

 

Corporate Income Tax

The New Zealand tax year for companies runs from 1 April to 31 March. Companies’ accounting years can be different to the standard tax year if there is a valid reason for it to be so. New Zealand resident companies are liable for corporate income tax on their worldwide income. The corporate tax rate is 28% for all types of income.

There is no capital gains tax in New Zealand. However corporate tax can be payable on gains made from the sale of moveable property bought for resale, and on gains made by businesses engaged in immoveable property dealing. Companies are required to pay fringe benefit tax (FBT) on certain benefits provided for employees, such as the provision of a car for private use and low interest loans given to an employee. The FBT rate is 49.25%, though it can also be calculated on the basis of the employee’s marginal tax rate.

New Zealand companies paying dividends to shareholders are required to apply a resident withholding tax (RWT) of 33% on all dividends paid to New Zealand residents. Companies can pay dividends with an attached imputation credit to dividends paid which reflects the amount of corporate tax paid on the earnings used to pay the dividend. The current maximum imputation ratio possible is 28:72, meaning that the maximum credit possible is 38.88% of the amount of the cash dividend.

Tax returns  for the year can be filed on paper or electronically. The annual return must be filed by 7 July following the end of the tax year for companies with a tax year ending between 1 October and 31 March. This deadline can be extended to 31 March of the following year if the company uses a registered tax agent. For companies with a tax year ending between 1 April and 31 March, the annual return must be filed by the 7th day of the fourth month after the year end.

Once a company has been registered for more than one year, three provisional payments of tax per year must be made over the course of the second and in subsequent years. Generally the provisional tax payments are due on 28 August, 15 January and 7 May, however these dates will differ if the company uses a non-standard tax year. The standard method of calculating the amount the company will have to pay is based on the company’s previous year’s liability, increased by an annual specified factor, generally 5% or 10%. This is based on the assumption that the company’s profit will tend to increase as the years pass. There are two other possible methods available to the company; the amount payable can be based on a reasonable estimate of the current year’s profits, or on a ratio based on the company’s GST taxable supplies However with the former method, if you underestimate your profit, you may end up paying interest on underpayments of provisional tax, once the final tax liability for the year has been calculated. You will not have to pay provisional tax if your actual tax liability in the previous year was less than NZ$2,500.

 

 

 




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