New Zealand Chamber of Commerce in Hong Kong

Trigg on Tax - A Summary of New Zealand Taxation

Tax Residency >

New Zealand imposes income tax on a residency/source basis.  It taxes residents on total worldwide income.  It taxes non-residents on New Zealand sourced income only.

Under domestic legislation, an individual becomes New Zealand tax resident where:

• they have been personally present in New Zealand for 183 days in any 12-month period; or
• they have established a permanent place of abode (PPOA) in New Zealand.

Permanent Place of Abode >

The meaning of PPOA has occupied both the Commissioner and the Courts for some time.  The Commissioner of Inland Revenue (CIR) appealed a decision of the High Court, which in turn overruled decisions of the CIR and Taxation Revenue Authority that favoured the CIR.  The Court of Appeal has confirmed the decision of the High Court.  The ordinary meaning of “to have a permanent place of abode in New Zealand” is “to have a home or property in New Zealand in which there is an enduring connection”.  Simply owning (but not occupying) a residence would not of itself result in a person having a PPOA.

Double Tax Agreement >

New Zealand and Hong Kong entered into a Double Tax Agreement [DTA] which came into effect on 1 April 2012. 

The provisions of a DTA overrule domestic legislation. 

It is possible that a person may be deemed a tax resident in New Zealand as well as Hong Kong based on respective domestic legislation, in which case the DTA takes precedence.  Reference should be made to Article 4 of the DTA which is in effect a tie-breaker test; the effect of which being that only one country can succeed in attaching a tax residency tag on taxes dealt with under the DTA.

Unlike New Zealand (which taxes on a global basis), Hong Kong imposes tax on a territorial basis.  Thus income earned outside Hong Kong is not taxed in Hong Kong.  If (unbeknownst) one triggers their New Zealand tax residency (e.g. under the physical presence test) all worldwide income then becomes taxable in New Zealand. 

Further, whilst Hong Kong has a progressive resident tax rate (similar to New Zealand), various income splitting, exemption and rebates available in Hong Kong make the average Hong Kong tax rate far less than the top marginal tax rate in New Zealand (39%).  Thus some planning may be necessary.

Domestic Tax Exemption for Migrants >

New Zealand has a forty eight-month domestic income tax exemption in respect of foreign sourced income (other than employment or services income) available for individuals who migrate or return to New Zealand and who become a New Zealand tax resident.  The exemption is not available if the person has been an New Zealand tax resident within the previous 10 years.  This is referred to as the transitional tax residency exemption.

Company Tax >

A company is resident if it is incorporated in New Zealand or if its head office, centre of management or the place from which its directors exercise control is situated in NZ.

Tax on Trusts >

The taxation of a trust is determined by the residence of its settlors.

Foreign Sourced Income by New Zealand Tax Residents >

Foreign sourced income derived by a New Zealand tax resident is subject to New Zealand tax at the taxpayer’s marginal tax rate. Foreign tax paid is available as a credit up to the equivalent New Zealand tax imposed. Non-resident withholding tax [NRWT] deducted from passive income (interest/dividends/royalties) is generally available in full as a credit. This is provided either by way of the DTA or domestic legislation. 

International Tax Regime >

New Zealand adopts a comprehensive international tax regime under which New Zealand residents are typically subject to New Zealand tax in respect to foreign investments under either the Foreign Investment Fund [FIF] or Controlled Foreign Corporation [CFC] regimes. 

Under the CFC regime, foreign sourced income of a foreign company controlled by New Zealand persons is attributed back to the New Zealand resident shareholder (where they hold at least a 10% interest in that CFC). However, where a CFC generates active income (as opposed to passive income such as interest), that active income will not be reported for New Zealand taxation purposes; nor attributed to the New Zealand shareholders of the foreign company under the CFC rules. 

Where a New Zealand resident has an interest in a FIF there is a requirement to calculate and return income attributable to that interest. Thus income can be taxed on an unrealised basis (see next paragraph). Australian listed investments (in general) are excluded from being an attributing interest in a FIF. 

A person has FIF income if inter alia that person has rights in a foreign company or rights under a life insurance policy issued by a non-resident and such rights/entitlement are not otherwise exempted or fall within the CFC regime.

Pensions and Annuities >

Pensions and annuity benefits are taxed as received.  Certain lump sum withdrawals from foreign superannuation schemes no longer come under the FIF regime.  In this regard, there is a four-year window (where the withdrawal would be non-taxable) that applies separately and alongside the transitional residency exemption. Outside of the four year window, the receipt of lump sum payments will be based on the length of residence of the person in New Zealand.

Fair Dividend Rate >

A person is generally eligible to use the fair dividend rate [FDR] method to calculate their income under the FIF regime.  Applying the FDR method, a person is taxed at 5% of the opening market value [MV] of their attributing FIF interests.  When applying the FDR method, dividends are not separately taxed in the hands of the shareholder.

Assume a taxpayer holds offshore shares that are subject to the FIF rules that have a market value [MV] of NZ$100k at 1 April 2024.  During the year, the taxpayer acquires another NZ$20k of shares, which are held at 31 March 2025.  During the year ended 31 March 2025, the taxpayer also receives a dividend of NZ$3k.  The shares have a MV of NZ$121k at 31 March 2025.  Under the FDR method, the taxpayer would be taxed on NZ$5k (being 5% of the opening MV of NZ$100k). 

However, if a non-corporate taxpayer can show their actual return is less than NZ$5k (calculated by applying the comparative value FIF method), they would be taxed on that lesser amount.  In the above illustration, the taxpayer has received dividends of NZ$3k plus gain of NZ$1k to equal NZ$4k.  As a result, tax would be imposed on NZ$4k in the 2025 income year.  Corporate taxpayers do not have the option of applying this comparative value method for calculating their FIF income.

Dividends from a Foreign Company >

Dividends derived by a New Zealand resident individual from a foreign company (that is not subject to FIF rules) are subject to New Zealand income tax on the gross dividend. A tax credit is available for foreign tax paid up to the equivalent New Zealand tax. Reference needs to be made to any double tax agreement for any variation to the above.

Capital Gains Tax >

Unlike much of the Western world, New Zealand does not have a general capital gains tax [CGT]. 

Sales of Residential Property and Interest Deducations >

However, with the intended objective of making more residential homes available to New Zealanders, a tax regime was introduced to apply income tax to sales of New Zealand residential rental property [RRP]. 

Under the Labour Government, RRP acquired after 27 March 2021 attracted tax if sold within 10 years of acquisition (this is referred to as the bright-line test). When the current Coalition Government was elected in November 2023, that period was reduced from 10 years to two years.  There are certain exemptions, the primary one being for sales of one’s main home. 

Gains on sales of residential property may also be taxable under other provisions of New Zealand’s tax legislation where sold outside the bright-line period.

There is a short term denial of interest deductions against RRP rentals [the exception being for new builds, which were not subject to these interest limitation rules]. Commencing from 1 April 2024, landlords can deduct 80% of their mortgage interest cost as an expense. From 1 April 2025 the deduction is fully restored.

Tax Rates >

Company Flat Rate     28.0%

Trustee 39.0%

Individuals Income to  $15,600 pa              10.5%

                             $15,601 - $53,500 17.5%

                             $53,501 - $78,100 30.0%

                             $78,101 - $180,000 33.0%

                             Over $180,000              39.0%

New Zealand does not have a wealth tax, stamp duty or death duties.

Tax on New Zealand Resident Companies >

New Zealand resident companies, including New Zealand subsidiaries of a foreign company, are taxed on net income after allowable deductions. 

Non-resident Withholding Tax >

Non-resident withholding tax [NRWT] is generally chargeable on dividends, interest and royalties remitted from NZ to non-residents.  The NRWT rate is generally 15% on interest/royalties and 30% on dividends.  In respect of countries with which NZ has a double tax treaty, the NRWT rate may be reduced to 5% or 15% for dividends, 5% or 10% for royalties, and 10% for interest.

NRWT on dividends can be 0% (for over 10% shareholding) or 15% (for less than 10% shareholding) if dividends are fully imputed.

NRWT on interest can be substituted with a 2% approved issuer levy [AIL] which is payable by the borrower [the 2% itself is tax deductible].  This is not available where the parties (lender/borrower) are associated.

Tax on Portfolio Investment Entities >

Investment in a Portfolio Investment Entity [PIE] allows returns to be taxed at a maximum 28%.  Some investors will be taxed as low as 10.5%.

Non-resident Investors >

An investor, who is not resident in New Zealand, can receive income that has a zero rate of tax attracted. This incentive to attract foreign investment is known as a notified foreign investor [NFI]. 

An NFI can invest in a Portfolio Investment Entity [PIE] via a zero-rate PIE. 

Advice and Warning >

Migrants/returning expats do need to take professional advice prior to moving to New Zealand.

There is increasing cooperation among tax authorities worldwide to ensure taxpayers meet their global tax obligations. New Zealand Inland Revenue is currently actively conducting reviews to ensure taxpayers have correctly recorded income from foreign investments.

In a number of cases, migrants/returning expats have received entitlements (e.g. pension/lump sum payments/ dividends/interest) that are not subject to tax in the country of source, but which are liable for tax in New Zealand [unless exempted as a transitional resident].

What if I do get it wrong? >

Where income has not been declared; or expenses wrongly claimed, NZ imposes a costly penalty regime.  The resulting additional core tax is then subject to accumulating late payment penalty, accumulating use of money interest and, in some instances, shortfall penalties.

A rule of thumb method is that one can treble the amount of core tax to take into account the combination of penalties referred above.  A voluntary declaration (in other words one gets to Inland Revenue before they get to you) will generally reduce the impact of shortfall penalties.

Disclaimer >

This update and information is provided by Des Trigg CA Tax Consultant of Auckland. The content is for information only and should not be acted upon without specific and proper professional advice.  Neither the author, the New Zealand Chamber of Commerce in Hong (including its members and staff) nor any staff member accept any liability to any other party.

Des Trigg CA TAX CONSULTANT

Mobile: (+6421) 768-967 Website: www.destrigg.co.nz Email: des@destrigg.co.nz

1 January 2025

APEC Business Travel Card

A virtual card stored on your mobile device, the APEC Business Travel Card gives accredited business people streamlined entry to participating APEC economies. This occurs through a simple pre-clearance system that allows business people, through a single application, to obtain multiple short-term entry to these economies.

The card means an end to the time consuming need to apply for visas or entry permits and an end to long airport queues on entry.

Participating jurisdictions include: Australia, Brunei, Chile, the People's Republic of China, Hong Kong Special Administrative Region, Indonesia, Japan, Korea, Mexico, Malaysia, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, Thailand, Taiwan and Vietnam. The United States and Canada are transitional members of the scheme (limited benefits apply).

Cardholders enjoy

•    pre-cleared entry to participating APEC economies (no need to apply for visas or entry permits)
•    multiple short-term entry to these economies; cards are valid for five years
•    faster immigration processing on arrival
•    entry and exit through special APEC lanes at major airports.

Who’s eligible?

Business people who:

•    are passport holders of participating economies
•    travel regularly to conduct trade and investment activities in those economies
•    have not been convicted of a criminal offence.

Renewals

An APEC Business Travel Card is normally issued with a validity period of five years. Upon expiry there is no automatic renewal. Holders of APEC cards must reapply afresh for a replacement card. As it takes time for the approvals process, and to ensure uninterrupted use of the APEC card facility, experience suggests holders should apply for a new [replacement] card around six months prior to the expiry of their current card.

Changed passport

If an APEC card holder renews his/her passport during the term of the APEC card, they should contact the issuing APEC card office for reissue of a replacement card bearing the revised passport details. A new card is issued without the need to go through the approvals process.

Applications

New Zealand passport holders download the application form here. Application form will open in a new window and in pdf format.This form is issued by the New Zealand Immigration Service.

If you are the holder of a Hong Kong Permanent Identity Card, you may be able to apply for a Hong Kong issued APEC Business Travel Card even though you hold a foreign passport. Details are available from the Hong Kong Immigration Department here.

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