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Tax Treaty Considerations for Expats in New Zealand

Submitted: October 2014

Tax treaties exist to protect taxpayers from being taxed twice on certain money flows between two countries. Treaties are particularly important if you have investments outside New Zealand, and intend to bring money earned from them into New Zealand during your stay. They also apply if you build up some investments in New Zealand during your stay, and intend to leave them there after you have left New Zealand. New Zealand has a network of tax treaties in force with over 35 countries worldwide.

Most tax treaties will conform to the OECD Model Treaty and typically will state how the various forms of income are taxed. It will state whether the specific income is only taxed in New Zealand; only taxed in your home country; or taxed in both countries. It may also state what rate of tax is applicable in different cases. The treaty will also contain a definition of residence only for the purposes of the treaty; this is not the same as the definition of tax-residence in tax law. This definition of residence is known as the treaty tie-breaker. The New Zealand Inland Revenue Department provides information regarding residence and tax treaties here. The agreements laid out in the treaty override the domestic laws in both signatory countries. The types of income covered by a treaty may include:

It is important to recognise that a tax treaty operates on money flows both into and out of the treaty countries. The withholding tax rate in New Zealand on unimputed dividends sent to a country without a tax treaty is 30%; if sent to a country with a tax treaty the rate is generally reduced to 15%. The rate can be reduced to 0% if a fully imputed dividend is paid by a company to a non-resident who owns a 10% voting interest in the paying company. It can also be reduced to 0% if a fully imputed dividend is paid by a company to a non-resident who owns less than a 10% voting interest in the paying company, provided the rate has already been reduced to 15% by the existence of a treaty.

The withholding tax rate in New Zealand on interest sent to a country without a tax treaty is 15%; if sent to a country with a tax treaty the rate is generally reduced to 10%. Under certain circumstances it is possible for a non-resident to receive interest with no withholding tax deducted, provided that the borrower is an approved issuer under the Approved Issuer Levy scheme.

The withholding tax rate in New Zealand on royalties sent to a country without a tax treaty is 15%; if sent to a country with a tax treaty the rate is generally reduced to 10%. Where lower rates have been negotiated on certain specific types of royalty, they are generally reduced to 10%.

New Zealand’s tax treaties with other countries generally restrict the amount of withholding tax those countries can charge New Zealand residents. For the complete rules and rates it is necessary to read the treaty itself. A link to each New Zealand treaty in force can be found here. The sections dealing with dividends, interest and royalties can usually be found half way through the treaty document.

Prior to arriving in New Zealand you may be able to arrange your existing investments so that the maximum advantage is gained from the terms of any treaty. This may involve moving investments from one non-New Zealand country to one with a more favourable tax treaty, or even to New Zealand itself, to reduce the tax rate paid.

If your home country has a generally higher rate of tax than New Zealand, you may benefit by becoming tax-resident in New Zealand as early as possible. At the end of your stay in New Zealand you can also rearrange your affairs to ensure that any on-going income from New Zealand employment or investments is also taxed at the lowest rate possible in the future.

 

 

 




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