Expatriate tax ebook - New Zealand

Basis of taxation
Charge to tax
Residence
Income from employment
Source of employment
Benefits (in kind)
Expatriate concessions
Relief for foreign taxes

Charge to tax
Tax residents of New Zealand are taxed on worldwide income, whereas tax non-residents are generally taxed on New Zealand source income only. These general rules may be modified by certain domestic concessions and tax treaty tax provisions depending on individual circumstances. In addition, from 1 April 2006 individuals who meet the transitional resident criteria are generally eligible for up to 48 months (following the month of arrival) of relief from New Zealand tax on most types of foreign income (refer below).

Residence
Individuals who are physically present in New Zealand for more than 183 days in any 12 month period will become tax resident of New Zealand from their first day of presence within that relevant 12 month reference period (i.e. tax residence status applies retrospectively). In determining whether the test is satisfied or not, please note that part days of presence in New Zealand count as whole days.

Individuals with New Zealand permanent place of abode status will also be treated as New Zealand tax resident. The permanent place of abode test looks at the person’s connections to New Zealand, including the person’s residential housing/accommodation arrangements in New Zealand. Exposure to New Zealand tax may be modified under the terms of relevant tax treaties.

From 1 April 2006 a person who becomes tax resident may also qualify as a transitional tax resident if they have not previously been a New Zealand tax resident or have been non-resident for at least 10 consecutive years. Transitional residents qualify for specific income tax exemptions in respect of foreign (non-New Zealand) source income - refer to expatriate concessions below.

To become a tax non-resident an individual needs to:

• be absent from New Zealand for more than 325 days in the twelve-month period following departure; and
• lose New Zealand permanent place of abode status.

In determining whether the test is satisfied or not, please note that part days of presence in New Zealand count as whole days.

Income from employment
Taxable income from employment includes salaries, wages, bonuses, lump sum payments, the benefit of employer-provided accommodation, and benefits arising under employment-related share purchase schemes and option schemes. Certain payments to or on behalf of employees may qualify for tax-free treatment. For example, payments that compensate an employee for certain categories of work-related expenditure.

Source of employment
New Zealand has very broad sourcing rules which need to be considered carefully in some cases. However, it is generally true that employment income is deemed to be sourced in the country in which the employment services are performed.

Benefits (in kind)
Employee fringe benefits are subject to fringe benefit tax (FBT). This tax is imposed on employers. Common examples of benefits subject to FBT include motor vehicles, low-interest loans and discounted goods.

Expatriate concessions
Non-resident employees may be exempt from New Zealand tax on income relating to the performance of short-term employment duties in New Zealand (depending on specific circumstances).

From 1 April 2006 transitional residents are exempt from New Zealand tax in respect of their foreign-source income apart from any foreign employment income or service income derived during their transitional resident exemption period.

The transitional resident exemption provides significant tax planning opportunities and can apply for up to 48 months following the month of arrival. In some limited circumstances the exemption can be for a period of up to a total of 60 months following the month of arrival. Specific advice should be sought in advance to ensure planning opportunities are maximised. Transitional residents who have offshore losses can elect out of the foreign income exemption. Individual’s considering such an election should obtain specialist advice.

Relief for foreign taxes
New Zealand tax residents are given credit for foreign tax paid on foreign-source income. In general terms the tax credit recognised in New Zealand will be limited to the lesser of the foreign tax paid or the New Zealand tax applicable to the foreign income.

Information about New Zealand:

introduction

facts and figures

basis of taxation

what taxes?

tax planning opportunities