least 10% or if a tax treaty reduces the New Zealand tax rate below 15%). The rate is also reduced to 15% to the extent that imputation credits are passed on to foreign investors through the payment of supplementary dividends under the foreign investor tax credit regime.
(c) This is a final tax if the recipient is not associated with the payer. For an associated person, this is a minimum tax (the recipient must report the income on its annual tax return, but it may not obtain a refund if the tax withheld exceeds the tax that would otherwise be payable on its taxable income). Under the Income Tax Act, associated persons include the following:
• Any two companies in which the same persons have a voting interest of at least 50% and, in certain circumstances, a market value interest of at least 50% in each of the companies
• Two companies that are under the control of the same persons
• Any company and any other person (other than a company) that has a voting interest of at least 25% and, in certain circumstances, a market value interest of at least 25% in the company
Interest paid by an approved issuer on a registered security to a non-associated person is subject only to an approved issuer levy (AIL) of 2% of the interest payable. An AIL rate of 0% applies to interest paid to nonresidents on certain widely offered and widely held corporate bonds that are denominated in New Zealand currency. Additional considerations apply in relation to the nonresident withholding tax (NRWT) and AIL rules affecting associated person and branch lending, including the following:
• A concept of “nonresident financial arrangement income” applies to certain financial arrangements between associated parties. If the borrower and lender are associated, the New Zealand borrower is required to perform a calculation to confirm that NRWT is being paid at approximately the same time the interest is deducted.
• The concepts of associated person and related-party debt are extended to include funding provided by a member of a “nonresident owning body,” as well as indirect associated funding such as certain back-to-back loans and multiparty arrangements.
• Limits are imposed on the onshore and offshore branch exclusions from NRWT under which interest payments from a New Zealand resident (or a New Zealand branch of a nonresident) to a nonresident are generally subject to NRWT or AIL, regardless of whether the funding is channeled through a branch.
(d) This is a final tax on royalties relating to the use of copyrighted literary, dramatic, musical or artistic works. For other royalties, this is a minimum tax.
(e) Certain payments made to nonresident contractors may be subject to nonresident contractors’ tax at a rate of 15%. This is generally neither a minimum nor a final tax and is paid on account of any annual income tax liability. If the recipient’s name and tax file number are not supplied, a no-notification rate of 20% applies where the recipient is a nonresident company (45% if the recipient is a non-corporate taxpayer). Nonresident contractors can apply for a special tailored rate or for an exemption certificate from nonresident contractors’ tax in certain circumstances.
(f) See Section B.
(g) A 45% non-declaration rate applies if recipients’ tax file numbers are not supplied. Individuals may elect rates of 10.5%, 17.5%, 30%, 33% or 39% based on their marginal income tax rate. The basic rate for interest paid to companies is 28%, but companies may elect a 33% or 39% rate.
(h) For the 2019-20 and 2020-21 income years only, taxpayers who satisfied certain requirements had the option of carrying back tax losses incurred in either of those years to the immediately preceding year. See Section C.
(i) See Section C.
B. Taxes on corporate income and gains
Income tax. Resident companies are subject to income tax on worldwide taxable income. Nonresident companies carrying on business through a branch pay tax only on New Zealand-source income.
A company is resident in New Zealand if it is incorporated in New Zealand, if it has its head office or center of management in New Zealand or if director control is exercised in New Zealand.
Rate of income tax. Resident and nonresident companies are subject to tax at a rate of 28%.
Capital gains. No comprehensive capital gains tax is levied in New Zealand. However, residents may be taxed on capital gains derived from many types of financial arrangements, and all taxpayers may be taxed on capital gains derived from certain real and personal property transactions. These gains are subject to tax at the standard corporate tax rate.
Administration. The income year is from 1 April to 31 March. A company with an accounting period that ends on a date other than 31 March may apply to the Commissioner of Inland Revenue for permission to adopt an income year that corresponds to its accounting period. If the Commissioner approves an alternative income year, income derived during that year is deemed to have been derived during the year ending on the nearest 31 March. For this purpose, year-ends up to 30 September are deemed to be nearest the preceding 31 March, and year-ends after 30 September are deemed to be nearest the following 31 March.
Companies with year-ends from 1 April to 30 September must file tax returns by the seventh day of the fourth month following the end of their income year. All other companies must file their returns by 7 July following the end of their income year. If the company has a tax agent, the filing deadline is extended to the following dates:
• If the return is for the year ending 31 March, the due date is the following 31 March.
• If the return is for any year ending on an annual balance date between 30 September and 31 March, the due date is the second 31 March succeeding the actual balance date.
• If the return is for any year ending on an annual balance date between 31 March and 1 October, the due date is the following 31 March.
Late filing penalties may apply where tax returns are not filed by the due date.
Provisional tax payments must generally be made in the fifth, ninth and thirteenth months after the beginning of the company’s income year. The first installment equals one-third of the provisional tax payable; the second installment equals two-thirds of the provisional tax payable, less the amount of the first installment; and the balance of the provisional tax is payable in the third installment. In general, the provisional tax payable in a year equals 105% of the income tax payable in the preceding year (standard uplift method). Alternatively, an estimation option is available under which taxpayers can pay provisional tax based on a fair and reasonable estimate of their expected residual income tax for the year. Companies that are registered for Goods and Services Tax (GST; see Section D) that meet certain criteria may elect to calculate their provisional tax under a GST ratio method and pay the provisional tax in installments when they file their GST returns, generally every two months. A further alternative method of paying provisional tax, called the accounting income method (AIM), is generally available for businesses with annual gross income of under NZD5 million. AIM involves the use of approved accounting software and more frequent payments.
Companies with year-ends from October to January must pay terminal tax by the seventh day of the eleventh month following the end of the income year. Companies with a February year-end
must pay terminal tax by the fifteenth day of the following January. All other companies must pay terminal tax by the seventh day of February following the end of their income year. The date for payment of terminal tax may be extended by two months if the company has a tax agent.
Several measures impose interest and penalties on late payments of income tax. For late payments or underpayments, a penalty of 1% is generally charged on the amount of unpaid tax on the day after the due date, with a further 4% penalty charged on any tax (including penalties) that remains unpaid seven days later. Interest may be payable if provisional tax paid at each installment date is less than the relevant proportion (generally, one-third for the first installment date, two-thirds for the second installment date and three-thirds for the third installment date) of the final income tax payable for the year. Conversely, interest may be credited on overpaid provisional tax.
Interest charges and the risk of penalties with respect to provisional tax may be reduced if provisional tax is paid under a taxpooling arrangement through a Revenue-approved intermediary.
The use of a tax-pooling arrangement is not permitted for AIM provisional tax payments. However, taxpayers using the AIM method that make the provisional tax payments calculated by their AIM-capable software are generally not subject to interest if their year-end residual income tax results in a different tax liability.
The risk of interest and penalties is minimized for companies that use the GST ratio or standard uplift methods for calculating and paying their provisional tax.
Companies paying provisional tax under the standard uplift method (see above) are generally not subject to interest on provisional tax installments until their terminal tax date if the residual income tax liability of the company for the tax year is less than NZD60,000, or otherwise until the third installment date.
Dividends
Exempt income. Dividends received by New Zealand resident companies from other New Zealand resident companies are taxable. However, dividends received from wholly owned subsidiaries resident in New Zealand are exempt. Specific rules apply in relation to dividends paid to a dual-resident company that tiebreaks to another jurisdiction under a double tax agreement. Dividends received by New Zealand resident companies from nonresident companies are generally exempt. Certain dividends received by New Zealand resident companies from nonresident companies are taxable, including the following:
• Dividends that are directly or indirectly deductible overseas
• Dividends on certain fixed-rate shares
• Dividends derived by Portfolio Investment Entities (PIEs; see Section E)
• Dividends relating to certain portfolio (less than 10%) investments that are exempt from income attribution under the foreign investment fund regime (see Section E)
Imputation system. New Zealand’s dividend imputation system enables a resident company to allocate to dividends paid to
shareholders a credit for tax paid by the company. The allocation of credits is not obligatory. However, if a credit is allocated, the maximum credit is based on the current corporate income tax rate. Based on the current corporate income tax rate of 28%, the maximum credit is 28/72, meaning that a dividend of NZD72 may have an imputation credit attached of up to NZD28.
The imputation credits described above may not be used to offset nonresident withholding tax (NRWT) on dividends paid to nonresidents. They may allow NRWT to be reduced to 0% for all non-cash dividends and for cash dividends if nonresident recipients hold direct voting interests of at least 10% or if a tax treaty reduces the tax rate below 15%. A New Zealand company may pass on the benefit of such credits to other nonresident investors through payments of supplementary dividends. The aim of this mechanism is to allow nonresident investors to claim a full tax credit in their home countries for New Zealand NRWT. The New Zealand company may also claim a partial refund or credit with respect to its own New Zealand company tax liability. Supplementary dividends can generally be made only to nonresident companies and individuals who hold direct voting interests of less than 10% and who are subject to a tax rate of at least 15% after any tax treaty relief. Supplementary dividends can also be paid with respect to qualifying nonresident investors in certain portfolio investment entities (PIEs) that invest in assets outside New Zealand.
Australian resident companies may also elect to maintain a New Zealand imputation credit account and collect imputation credits for income tax paid in New Zealand. New Zealand shareholders in an Australian resident company that maintains such an imputation credit account and attaches imputation credits to dividends can receive a proportion of the New Zealand imputation credits equal to their proportion of shareholding in the Australian company. Imputation credits must be allocated proportionately to all shareholders.
In general, the carryforward of excess imputation credits for subsequent distribution must satisfy a 66% continuity-ofshareholding test. Interests held by companies or nominees are generally traced through to the ultimate shareholders. Listed, widely held companies and limited attribution foreign companies are entitled to special treatment. In effect, they are treated as the ultimate shareholder if their voting interest in other companies is less than 50% or if the actual ultimate shareholders would each have voting interests of less than 10% in the underlying company. The definition of a listed company includes companies listed on any exchange in the world that is recognized by the Commissioner of Inland Revenue. For carryforward purposes, direct voting or market value interests of less than 10% may be considered to be held by a single notional person, unless such an interest is held by a company associated with the company that has the carryforward.
Resident withholding tax. For dividends paid to a resident company by another resident company that is not in a tax group with the recipient, the payer must deduct a withholding tax equal to 33%, having first allowed for any imputation credits attached to the dividend, unless the recipient holds an exemption certificate.
The Inland Revenue Department provides a public register of all current exemption certificates.
Although this rate does not align with the corporate income tax rate of 28%, any excess tax can be used as tax credits during or refunded through the annual income tax return process.
Foreign tax relief. In general, any tax paid outside New Zealand by a New Zealand resident taxpayer can be claimed as a credit against the tax payable in New Zealand. The credit is limited to the amount of New Zealand tax payable on that income.
C. Determination of trading income
General. Assessable income consists of all profits or gains derived from any business activity, including the sale of goods and services, commissions, rents, royalties, interest and dividends.
A gross approach applies to the calculation of taxable income. Under this approach, a company calculates its gross assessable income and then subtracts its allowable deductions to determine its net income or loss. If the company has net income, it subtracts any losses brought forward or group losses to determine its taxable income.
To be deductible, expenses must generally be incurred in deriving gross income or necessarily incurred in carrying on a business for the purpose of deriving gross income. Interest is generally deductible for most New Zealand resident companies, subject to the thin-capitalization rules, restricted transfer pricing rules and hybrid and branch mismatch rules (see Section E). Interest paid on certain debts that are stapled to shares may be treated as nondeductible dividends.
Changes introduced in March 2022 limit the deductibility of interest expenses on residential investment property from 1 October 2021. Interest deductibility will be phased out from 100% to 0% from 1 October 2021 to 1 April 2025; with 0% interest being deductible from 1 April 2025.
For companies, these rules generally only apply if residential property makes up more than half of their total assets or if five or fewer people own more than half of the company. Relief from the interest limitation rules may be available in certain circumstances, such as for property development, or if the interest expense relates to a property that is a “new build.” The New Zealand government has indicated that the deductibility of interest expenses on residential investment property will be gradually phased back in; however, further details are not yet available and legislation to implement this change had not been introduced as of 1 March 2024.
Deductions for certain business entertainment expenses are limited to 50% of the expenses incurred. Capital expenditures are generally not deductible.
Exempt income. The only major categories of exempt income are dividends received from a wholly owned subsidiary resident in New Zealand, certain dividends received from nonresident companies and certain dividends paid out of capital gains derived from arm’s-length sales of fixed assets and investments on winding up.
A specific exemption applies until 31 December 2024 for income derived by nonresident companies from certain oil and gas drilling and related seismic or electromagnetic survey vessel activities in New Zealand’s offshore permit areas. There is a proposal to extend this exemption until 31 December 2029 contained in draft tax legislation (unenacted as of 1 March 2024).
Inventories. Stock in trade must generally be valued at cost. Market selling value may be used (but not for shares or “excepted financial arrangements”) if it is lower than cost. Cost is determined by reference to generally accepted accounting principles, adjusted for variances between budgeted and actual costs incurred. Simplified rules apply to “small taxpayers,” which are those with annual turnover of NZD3 million or less. A further concession applies to taxpayers with annual turnover of NZD1,300,000 or less and closing inventory of less than NZD10,000.
Depreciation. The depreciation regime generally allows a deduction for depreciation of property, including certain intangible property, used in the production of assessable income. Most assets can be depreciated using the straight-line or the diminishingvalue methods. A taxpayer may elect to apply the pooldepreciation method for assets valued at less than NZD5,000. Under the pool-depreciation method, the lowest diminishingvalue rate applicable to any asset in the pool is used to depreciate all assets in the pool. A taxpayer may have more than one pool of assets. Assets in a pool must be used for business purposes only or be subject to Fringe Benefit Tax (FBT; see Section D) to the extent the assets are not used for business purposes. Buildings may not be pooled.
Property acquired on or after 17 March 2021 may generally be expensed immediately if the cost of the property does not exceed NZD1,000. Different thresholds for immediate deductions apply to property acquired prior to this date.
From the 2020-21 income year onward, depreciation is reintroduced for nonresidential buildings. From the 2011-12 income year until the 2019-20 income year, depreciation could be claimed on commercial building fitouts, certain depreciable land improvements and structures other than structures with an estimated useful life greater than 50 years. The New Zealand government has signaled that depreciation for nonresidential buildings will be removed again starting from the 2024-25 income year, but legislation for this change had not yet been introduced as of 1 March 2024.
The rates for plant and machinery vary depending on the particular industry and type of plant and machinery.
Tax depreciation is generally subject to recapture on the sale of an asset to the extent the sales proceeds exceed the tax value after depreciation. Amounts recaptured are generally included in assessable income in the earliest year in which the disposal consideration can be reasonably estimated. If sales proceeds are less than the tax value after depreciation, the difference may generally be deducted as a loss in the year of disposal. However, such losses on buildings are deductible only if they occur as a result of natural disasters or other events outside the taxpayer’s control.
Sales of residential property (that is not the main home) purchased between 1 October 2015 and 28 March 2018 may be taxable if they occur within a two-year “bright-line” period. For agreements to purchase residential property entered into between 29 March 2018 and 26 March 2021, the “bright-line” period is five years. For agreements to purchase residential property entered into on or after 27 March 2021, the “bright-line” period is generally extended to 10 years. Legislation enacted in 2022 retains the five-year period for “new builds” acquired on or after 27 March 2021. The New Zealand government has signaled that the “bright-line” period will be returned to a two-year period from 1 July 2024, but legislation for this change had not yet been introduced as of 1 March 2024.
The offsetting of losses on “bright-line” transactions against other types of income may be limited. For “close companies” (generally if five or fewer people own more than half of the company), additional limitations exist to restrict the offset of losses generated from rental properties (in cases in which rental expenditure exceeds rental income) against income from other sources.
Taxpayers are unable to carry back tax losses to offset against prior years taxable income. An exception applied for the 2019-20 and 2020-21 income years, when taxpayers that met certain requirements had the option of carrying back tax losses incurred in either of those years to the immediately preceding year.
Group losses. Losses incurred within a group of companies may be offset against other group company profits either by election or subvention payments, provided certain requirements are met.
Subvention payments are intercorporate payments specifically made to effect the transfer of company losses. They are treated as deductions to the paying (profit) company and as taxable income to the recipient (loss) company. The loss company and the profitmaking company must be in the same group of companies throughout the relevant period. The required common ownership is 66%.
Wholly owned corporate groups may elect to be consolidated for income tax purposes.
Elective regime for closely held companies. Certain closely held companies can elect to become look-through companies (LTCs) if they have five or fewer shareholders and be taxed similarly to partnerships. The eligibility and membership criteria for this regime include restrictions on the type of shareholder and some restrictions on the earning of foreign income.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax
Rate (%)
Goods and Services Tax (GST), similar to a value-added tax, levied on the supply of goods and services and on imports 15 Fringe Benefit Tax (FBT); paid by the employer on the value of fringe benefits provided to employees and shareholder employees;
Nature of tax
Standard rate 63.93 (If benefits are attributable to particular employees, employers may elect to calculate FBT on the attributed benefits at a range of rates between 11.73% and 63.93%. The rates vary depending on the employee’s cash remuneration inclusive of the fringe benefits. Non-attributed benefits are subject to FBT at a rate of 49.25% [63.93% if provided to major shareholder employees]. As a further alternative, employers may pay FBT at a rate of 63.93% on attributed benefits and 49.25% on non-attributed benefits, [63.93% if provided to major shareholder-employees].)
Accident compensation (ACC) levy on gross salaries and wages; includes an employer component and an employee component; the employer rate varies depending on several factors, such as industry class and whether certain work safety criteria are met Various
E. Miscellaneous matters
Anti-avoidance legislation. Legislation permits the Inland Revenue Department to void any arrangement made or entered into if tax avoidance is one of the purposes or effects of the arrangement and is not merely incidental.
Imposition of penalties. Civil “shortfall penalties” (and criminal penalties) may be imposed in some situations where a taxpayer has breached a tax obligation. Examples of shortfall penalties include penalties for not taking reasonable care, taking an unacceptable tax position, gross carelessness, adopting an abusive tax position and evasion.
Controlled foreign companies. New Zealand residents that have an interest in a controlled foreign company (CFC) need to consider the application of the CFC rules. A CFC is a foreign company under the control of five or fewer New Zealand residents or a group of New Zealand resident directors. In general, for purposes of the CFC rules, control is more than 50% ownership. A New Zealand resident with an income interest in the CFC of 10% or more is required to calculate and include in income the attributed foreign income or loss of the CFC unless the CFC is resident in Australia and meets certain criteria or the active-income exemption applies.
Under the active-income exemption, no attribution is required if passive income is less than 5% of the CFC’s or a relevant group’s income. If the 5% threshold is exceeded, any attribution is limited to passive income. The rules defining passive income and calculating the percentage of a CFC’s passive income in relation to total income are complex.
Foreign investment fund system. New Zealand has a foreign investment fund (FIF) system that aims to tax the change in value of a New Zealand resident’s interest in the FIF over an income year. The change in value may include income, capital growth and any exchange fluctuation.
• Certain related-party debt is excluded from the debt amounts used in calculating worldwide group debt percentages in inbound situations.
Similar thin-capitalization rules (often referred to as the outbound thin-capitalization rules) apply to New Zealand residents with income interests in CFCs or with interests in FIFs of at least 10% that are subject to the “active income” method or Australian exemptions from FIF income attribution.
Under safe harbor rules, the outbound thin-capitalization rules do not limit interest deductions on outbound investment if the New Zealand group debt percentage does not exceed 75% and 110% of the worldwide group debt percentage. Additional exemptions with respect to outbound investment may apply in certain circumstances, including situations in which New Zealand group assets (generally excluding CFC investments and certain interests of at least 10% in FIFs) are at least 90% of the worldwide group assets. An alternative safe harbor threshold calculation based on an interest-to-net income ratio may be used in limited outbound circumstances. The apportionment calculation provides an effective de minimis exemption with respect to outbound investment by eliminating any adjustment if annual New Zealand group finance costs do not exceed NZD1 million and provides relief on a tapering basis if those annual finance costs are between NZD1 million and NZD2 million. This de minimis relief may also apply to the inbound thin-capitalization rules in certain circumstances.
A restricted transfer-pricing rule also applies to potentially limit the interest rate that can be applied for tax purposes on crossborder loans (over NZD10 million in total). This rule applies in addition to the thin-capitalization rules. The restricted transferpricing rule for pricing inbound related-party loans determines the credit rating of New Zealand borrowers at a high risk of base erosion and profit shifting, typically no more than two notches below the ultimate parent’s credit rating. The rules remove any features not typically found in third-party debt to restrict the level of deductible interest. Some of the more common features that may be affected include loans with terms of more than five years and the subordination of a loan to other obligations.
Hybrid and branch mismatch rules. Complex hybrid and branch mismatch rules apply in certain situations to prevent the exploitation of differences between countries’ tax rules to create tax advantages. For example, one of the hybrid mismatch rules operates to deny a deduction for a payment made by a New Zealand taxpayer to the extent that the payment funds a hybrid mismatch occurring outside New Zealand if certain requirements are met. New Zealand’s hybrid rules largely follow the OECD recommendations.
OECD Base Erosion and Profit Shifting Pillars One and Two. Draft legislation has been proposed to implement the OECD’s Base Erosion and Profit Shifting (BEPS) Pillar Two rules in New Zealand. As of 1 March 2024, this legislation had not yet been enacted.
In relation to Pillar One, New Zealand will not be adopting the OECD’s simplified and streamlined approach to in-country
baseline marketing and distribution activities (formerly referred to as Amount B under the OECD’s BEPS Pillar One initiative). Existing New Zealand transfer pricing rules and practice will continue to apply to determine arm’s-length outcomes for foreign-owned distributors operating in New Zealand. Small foreign-owned wholesale distributors with revenue under NZD30 million may continue to apply an existing domestic simplification measure. New Zealand-owned distributors operating in foreign jurisdictions will equally need to continue to apply New Zealand transfer pricing rules with respect to their New Zealand tax obligations, regardless of whether the foreign jurisdiction has opted to apply the simplified and streamlined approach.
F. Treaty withholding tax rates
These rates reflect the lower of the treaty rate and the rate under domestic tax law.