DOING BUSINESS IN NEW ZEALAND
New Zealand (NZ) has a relatively deregulated and open economy and is consistently ranked as one of the easiest countries in which to do business. The World Bank and International Finance Corporation (IFC) ranks NZ first in the world for protecting investors and starting a business.
As well as simplicity the tax system has the major attractions of predictability, fairness and a minimum of loop holes.
Of course one of the major attractions of NZ is the more relaxed living philosophy and lifestyle which seems to be more obtainable than in many other countries.
However local knowledge of the legal, accounting and taxation framework is essential when looking to set up or do business in NZ. This document provides a brief summary of the practical issues you will need to consider.
WHAT TYPE OF BUSINESS STRUCTURE SHOULD WE USE
Foreign investors can operate in NZ through whatever entity they choose and the most common ones used are locally incorporated companies or a branch of a foreign entity.
1. Limited Company
- Provides limited liability.
- Can be foreign owned or a subsidiary company.
- Must have at least one local director.
- The Register of Companies maintains a file for each Company and details must be updated annually.
- Corporation tax to be paid on Company profits.
- A "Large" company with more than 25% foreign ownership must file audited financial statements with the Register of Companies. There is no requirement to file the overseas Parent Company's Statements.
- Large as above is defined for the NZ Company as greater than $10 million turnover or $20 million assets for the two preceding years.
2. Branch (of an overseas business)
- Not a separate legal entity but an extension of the overseas parent company.
- No limited liability or ring fencing of the NZ operations.
- Must register with the Registrar of Companies.
- Corporation tax is payable on NZ profits.
- Must file separate audited financial statements for both the Parent and the NZ Branch operations.
3. Look Through Companies
- Incorporated as a company but treated like a Partnership for income tax purposes.
- All profits or losses flow through each year to shareholders in proportion to shareholdings.
- Subject to loss limitation rules.
- Can have non resident shareholders.
4. Other trading Entities
- Individual (sole trader)
- Limited Partnership
- Currently a flat rate of 28%.
- NZ operates a dividend imputation system whereby tax paid at the company level can effectively be credited against shareholder tax liabilities on dividends received. These credits may be restricted when paid offshore.
- NZ resident companies are subject to tax in respect of worldwide income. Non resident companies are liable for tax only on income earned in NZ.
CROSS BORDER TRANSACTIONS
- Generally NZ rules follow the OECD guidelines to ensure an arm's length basis to protect the NZ tax base.
- Thin capitalisation rules apply to ensure that NZ taxpayers do not deduct a disproportionately high amount of worldwide group interest expense.
NZ operates a PAYE system (Pay as you earn) and employers are required to deduct this tax from wages and salaries paid to employees.
NZ has Compulsory Accident Insurance (ACC) and employees are subject to this tax (approx. 2%) which is included with the PAYE. The levy is capped at a fixed level of earnings. This levy provides for loss of earnings and medical expenses as a result of workplace or recreational injury or disability.
NZ has a voluntary work based superannuation scheme (Kiwisaver) and employers are required to make a compulsory contribution of 3% of gross salaries for those employees who choose to join the scheme.
- There is no payroll tax.
- There is no social security tax.
- There is no health care tax apart from ACC as above.
- There is a fringe benefit tax system (FBT) which can impose a tax on benefits supplied to employees.
There are rules to determine tax residency in NZ which can be quite complex and professional advice is advised.
Current personal income tax rates are:-
Income to $14,000 10.5%
$14,000 - $48,000 17.5%
$48,000 - $70,000 30.0%
$70,000 and over 33.0%
- Tax returns are filed on an individual basis and there is no provision for amalgamation of household income.
- There are transitional resident rules which generally exempts such persons from NZ tax on foreign income for the first 4 years of residency, which can be of great benefit.
- NZ tax residents are taxed on their world wide income.
NZ has a simplified tax system where taxes that apply in many other countries do not apply in NZ.
- There is no capital gains tax except in some special cases.
- There is no inheritance, estate or wealth tax.
- There is no stamp duty.
- There is no gift duty.
- There is no local or state taxes apart from property rates levied by local councils.
GOODS AND SERVICES TAX
NZ operates a Goods & Services Tax (GST) similar to VAT which is a consumption tax borne by the final private consumer. It is imposed throughout the chain of production and therefore applies in respect of business to business transactions. The current rate of GST is 15%.
- Registration is mandatory for the supply of goods or services exceeding $60,000 over a 12 month period.
- GST returns are required to be filed on either a one month, two month or six month basis according to taxpayer requirements and annual turnover.
- There are very few exemptions from GST.
- A wide range of free trade agreements and pro competitive regulations make NZ an ideal base for expansion in the Asia Pacific region.
- More than 80% of the value of imported goods into NZ are tariff – free.
- GST is payable to NZ Customs on goods imported into NZ and is generally recoverable by GST registered persons or entities.
- NZ has double tax treaties (DTA) with 39 countries which generally provides relief from double taxation.
- Non resident withholding tax (NRWT) is applied to dividends, interest and royalties paid to non residents. NRWT is generally a final tax and the rates will often depend upon the DTA applicable.
TO DISCUSS YOUR REQUIREMENTS PLEASE CONTACT THE INTERNATIONAL OFFICE +44 (0) 1245 449266 OR EMAIL US DIRECTLY AT McGREGOR BAILEY CHARTERED ACCOUNTANTS – SEE OUR WEBSITE
Kreston International Limited is a global network of independent accounting firms with the reputation for providing trusted compliance and advisory services to entrepreneurial business in the SME and mid-market sectors.
Currently ranked as the 13th largest accounting network in the world, Kreston has a presence in over 100 countries, providing a resource of over 20,000 professional and support staff.
Our members are accustomed to working together to deliver cohesive international solutions to ensure clients receive the highest quality of expertise available in their respective countries. Beyond assurance, quality and experience, clients will enjoy the unique synergy that stems from the trusted relationships that Kreston members have created globally and which support the consistent delivery of exceptional international service.
This information is provided for guidance only and is not a substitute for professional advice. Neither Kreston International Limited nor its member firms accept any liability for any loss arising as a result of actions taken or not taken based on the information contained in this document.
The information in this document was prepared as at 25th July, 2016.