Is tax applicable to non-residents in New Zealand? Unfortunately, yes.
The increasing number of departures from New Zealand is largely down to individuals seeking freedom from one of the highest cases of government overreach.
New Zealand’s government’s small thinking should not stop you from dreaming big. What do non-residents pay taxation on?
We will cut through the jargon to cover expat taxes, double taxation, and income tax rate. This guide is all about giving you tax advice. You can legally reduce your New Zealand tax obligations, and we can help you.
At Nomad Capitalist, we offer bespoke holistic strategies to maximize your wealth. We are tax specialists and are here to ensure unfavorable tax rates do not trip you up. We work with many tax advisors and are committed to lowering your tax rates.
What Does a Non-Resident Mean When It Comes to Tax Purposes?
Living in New Zealand Has Tax Obligations
Once considered a Southern Hemisphere utopia, things don’t look so positive for residents in 2023.
Inflation is at a record high, with authorities balancing the call for lower tax rates with a desire from those living in New Zealand for European-level social services.
Farmers reacted in outrage to the proposal for the world-first system to levy taxes on farmers based on the level of emissions from their herds, the ‘fart’ tax plan.
A four-year exemption from income tax is available on certain foreign income derived by new migrants or Kiwis who return to their home country after an absence of at least ten years.
Your New Zealand employer will deduct tax monthly if you’re an employee. Pay as you earn (PAYE) includes income tax and an ACC earners’ levy, the national accident insurance scheme.
Permanent Place of Abode
You are considered a resident and subject to tax on worldwide income if you have a Permanent Place of Abode (PPOA) in the country, whether or not you also have a permanent place of abode outside the country.
PPOA is a broad concept that covers not only a home or place of residence but also connections and ties a person has with NZ concerning financial, social, and family-based factors.
As Easy as 183
You are classed as a resident of New Zealand, as in many other jurisdictions, if present in the country for more than 183 days in 12 months.
Any person absent from New Zealand for more than 325 days in any period of 12 months ceases to be resident in the country from the first day of absence in those 12 months.
When it comes to tax filing, the New Zealand tax year starts on April 1st and ends on March 31st.
Expat Taxes
However, you will need to pay expat taxes if you become a US citizen. Just the same way any Americans living in New Zealand will have to file expat taxes.
However, Americans living in the country can offset this expat tax with a Foreign Tax Credit.
Tax credits are a method used to decrease the amount of money that is considered taxable income, which can be used more extensively than in other parts of the world.
The Foreign Earned Income Exclusion (FEIE) and Foreign Housing Exclusion permit US citizens to exclude a certain amount of foreign-earned income by meeting specific requirements.
The amount of the expat tax credit allowed cannot exceed the lesser amount of tax paid in the foreign jurisdiction or the New Zealand tax liability on the foreign-sourced income.
Depending on income level, US citizens living in NZ are unlikely to owe high US taxes because of lower NZ taxes. There is no totalization or social security agreement between the US and NZ.
Therefore, Americans living and working abroad may need to contribute to both nations’ social security systems.
If you have a balance of at least $10,000 in one or more foreign accounts at any time during the tax year, you need to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
Foreign assets worth more than $200,000 per person, excluding your home, will require you to file expat tax form 8938.
What Non-Resident Taxes in New Zealand Are There?
While New Zealand residents are assessable on worldwide income, non-residents are assessable only on income sourced within the country. This means the government will tax you on any income you earn from New Zealand sources.
You will still need to declare income from a New Zealand source and arrange to be taxed for the right amount of income tax, even if you’re no longer a New Zealand resident.
If your sole New Zealand income comes from interest, dividends, or royalties, and the correct non-resident withholding tax (NRWT) amount is deducted, there is no need to file tax returns.
Non Resident Withholding Tax
If you’re a non-tax resident for income tax purposes, you’ll need to provide your overseas address to every organization in New Zealand you receive interest, dividends, and royalties from.
NRWT, generally a rate of around 10 – 15%, may be deducted from this New Zealand revenue before you receive it, this depends on your home country and whether or not they have a tax treaty with New Zealand.
The NRWT rate deducted depends on whether New Zealand has a double taxation agreement (DTA) with your resident country and the conditions of that DTA. For example, Malaysia and NZ have a tax treaty.
A non-tax resident can seek relief from New Zealand taxes with a double taxation agreement.
We recommend consulting a tax professional who will be able to help and determine if a relevant tax treaty exists and applies to the likes of capital gains.
Trusts
Your family trust’s New Zealand tax obligations will depend on how your trust is classified under national law.
The NZ trust regime is settlor-based (not trustee-based regime). This means that the tax treatment of the trust depends on where the settlor of the trust is resident.
There are three types of trusts:
- a complying trust is an ordinary resident trust with resident trustees and a resident settlor
- a foreign trust is a trust where the settlor is a non-resident when a distribution is made
- a non-complying trust is when the trust is foreign, but the settlor has become a resident
As a trust does not have a legal personality, there is no concept of residency for trusts. However, the trustee of a trust may be recognized as an NZ taxpayer, so they are generally verified.
A trustee includes all co-trustees of that trust for the time being, and residence is determined by whether a sole trustee or at least one co-trustee is resident in the country.
The trustee’s residence is generally irrelevant in determining trustee income treatment. New Zealand-sourced trustee earnings are always subject to taxation, and foreign-sourced trustee proceedings are subject to tax based on the settlor’s residence.
Non-Tax Residents of New Zealand FAQ
What Happens If I Don’t File a Tax Return?
You may be subject to interest charges and penalties if you:
- file your tax return late
- pay your tax liability late
- underpay your tax liability
What Is the Penalty For Late Filing?
If you file your tax return late, your penalty amount depends on your net income.
However, if you register with a tax agency, there is an automatic filing extension to March 31 of the following year.
For debts of more than NZD$2,500 ($1,532.39), you need to clear these in three installments.
Net Income Penalty
- less than $100,000: $50
- $100,001 to $1 million: $250
- more than $1 million: $500
What Are Transitional Residents?
Individuals deemed as transitional residents in New Zealand can be temporarily exempt from being taxed on most types of overseas income. The exemption is for four years.
You are a transitional resident if:
- you are a new migrant or New Zealander returning home
- you qualified as a New Zealand resident on or after 1 April 2006
- you were not a resident in the ten years before you qualified
The transitional residency will be automatically granted to you if you meet the criteria.
If you do not wish to be a transitional resident, you must notify the IRD. You can only get the exemption once.
Employment income from overseas employment carried out while living in New Zealand and business income relating to offshore services are excluded.
What Are the Tax Obligations for Subsidiaries in New Zealand?
New Zealand resident companies are liable for tax for all active or passive revenue.
However, New Zealand legislation allows NZ companies to have subsidiaries abroad, for instance, UAE or Hong Kong companies.
Suppose these offshore companies produce active income abroad (such as project development earnings, including capital gain). In that case, they will have tax liability only in the country they operate in, not New Zealand.
It allows that company to have up to 5% passive income and not to report it on the mother company’s income statement.
Whatever service is captured between the mother company and daughter company needs to be under fair value.
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Let us assist you in legally reducing your income tax bills, diversifying and protecting your assets, and becoming global citizens.
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