New Zealand: Corporate Taxation for Resident Multinationals

A company is deemed to be tax resident in New Zealand if it is incorporated in New Zealand, or if its head office or centre of management is in New Zealand, or if control of the company by its directors (or persons acting in that capacity) is exercised in New Zealand.

'Company' means a limited company, a unit trust or an incorporated society. A company with five or fewer individual resident shareholders may elect to be treated as a 'qualifying company', which has 'pass-through' tax treatment.

Resident companies are liable to New Zealand income tax on their worldwide income.

The rate of corporate income tax is 30% (reduced from 33% in 2008). There are withholding taxes, usually at 15%, on most types of payment to non-resident individuals or companies (see below for the treatment of dividends). These withholding taxes are creditable against domestic corporate income tax.

Dividends received from foreign companies do not attract income tax, but instead are liable to Foreign Dividend Withholding Payment (FDWP) at 30%. Foreign tax credits are available against FDWP if:

• the receiving New Zealand company owns more than 10% of the foreign company;
• the foreign company is located in a country on what is known as the 'grey list' (Australia, Canada, Germany, Japan, Norway, Spain, the UK and the USA); and
• it can be proved through what is termed a 'tracking account' that tax has been paid on the profits out of which the dividend is being paid.

Conduit relief may be available against FDWP, meaning that the foreign dividends are exempt from the tax to the extent to which the receiving company's shareholders are themselves non-resident in New Zealand.

FDWP itself gives rise to a tax credit which can be passed on with any dividends paid by a New Zealand company to its resident shareholders.

Domestic New Zealand tax losses may be used as a credit against FDWP. Tax losses may be carried forward without limit unless there is a change of ownership.

Other types of foreign income are taxable in the normal way; foreign tax credits are available up to the level of the New Zealand tax which would have been payable on the income in question.

New Zealand permits group consolidation for 100% subsidiaries, and operates a 'group relief' scheme for 66% owned subsidiaries under which losses may be swapped between group subsidiaries.

Capital gains arising in the normal course of business are treated as regular corporate income and taxed as such. There is no separate capital gains tax for companies.

There are transfer pricing and thin capitalization rules.

There are Controlled Foreign Company (CFC) and Foreign Investment Fund (FIF) rules under which a New Zealand resident company is taxed on its share of the underlying income of a foreign company or fund. The CFC and FIF rules do not apply to foreign companies or funds in the 'grey list' countries (Australia, Canada, Germany, Japan, Norway, Spain, the UK and the USA). From 2009, trading income will be exempt from the CFC rules.

Dividends Paid To Foreign Shareholders

Non-Resident Withholding Tax (NRWT) of 30% applies to dividend payments made to a foreign shareholder unless a Tax Treaty applies; however the rate falls to 15% if the dividends paid are fully imputed (ie they are paid out of fully-taxed income).

Under a mechanism known as the foreign investor tax credit (FITC), the New Zealand company paying the dividend pays a supplementary dividend sufficient to fund the recipient's NRWT liability, thus putting the foreign shareholder in the same position as a domestic shareholder (who will receive a fully-imputed dividend).

Double Taxation Treaties

New Zealand has double tax treaties with virtually all of its major trading partners. At the time of writing, these include: Australia, Belgium, Canada, China, Denmark, Fiji, Finland, France, Germany, India, Indonesia, Ireland, Italy, Japan, Korea, Malaysia,
The Netherlands, Norway, The Philippines, The Russian Federation, Singapore, South Africa, Sweden, Switzerland, Taiwan, Thailand, The United Arab Emirates, The United Kingdom and the United States The majority of these follow the OECD model treaty, and in all of New Zealand's full treaties, there is usually a 'tie-breaker' clause to deal with those who might otherwise be treated as residents of both Australia and the treaty country.

In November, 2005, New Zealand and Australia signed a protocol updating the 1995 double tax agreement between the two countries.

“Our double tax agreement with Australia is our most important tax treaty, given the significance of our economic relationship and trans-Tasman investment, so it is essential that it is kept up to date,” New Zealand's Revenue Minister Peter Dunne stated.

Mr Dunne went on to explain that: "Whether we negotiate a completely new double tax agreement between the two countries is still under review. It will depend in part on whether New Zealand is willing to lower the withholding rates covered by the agreement, a decision the government expects to make next year."

"In the meantime, the protocol signed today makes urgent administrative changes to the agreement to ensure it works to maximum benefit for both parties."

“The protocol updates the article in the agreement governing exchange of information and inserts a new article to allow assistance with tax collection. These changes will assist the extension of Australia’s Wine Equalisation Tax Rebate to New Zealand wine producers who export to Australia."

“It also ensures that Australia does not lose priority over New Zealand’s 28 other treaty partners to negotiate lower treaty withholding rates should we decide to reduce them."

“The amended agreement will be given effect in both countries once they have introduced the necessary domestic legislation, which in New Zealand’s case will be an Order in Council, probably early next year."