(a) Resident withholding tax (RWT)
Interest and dividend income paid to a New Zealand resident taxpayer is subject to RWT (unless the recipient holds a valid certificate of exemption, and subject to certain other exemptions).
RWT is deducted at the following rates:
- 10.5%, 17.5%, 30%, or 33% on interest paid to individuals;
- 28% or 33% on interest paid to companies; and
- 33% on all dividends (except to the extent imputed).
(b) Non-resident withholding tax (NRWT)
New Zealand sourced dividends, interest, and royalties paid to non-residents are subject to NRWT.
The rate of NRWT is:
- 30% in respect of dividends, other than “fully imputed” dividends, for which (as discussed in section 7.2(a)) either the rate is 0% or NRWT is relieved by the FITC regime (and the rate is in any event capped at 15% in most of New Zealand’s DTAs and, in some cases, less);
- 15% in respect of interest (capped at 10% in most DTAs and, in some cases, 0%) unless the non-resident has a New Zealand branch, and subject to the AIL regime (below); and
- 15% in respect of royalties (subject to 5%, 10%, or 15% caps, in DTAs).
Non-Resident Financial Arrangement Income tax rules apply to any interest-bearing loan between a non-resident lender and an associated New Zealand borrower. Those rules effectively require interest, for which the borrower is entitled to a deduction, to be paid to the lender (or for the interest to be capitalised, not merely accrued) with NRWT withheld, within about two months of the end of the income year that follows the income year in which the interest is deductible.
Where a New Zealand tax resident borrows from a non-resident, non-associated lender, the New Zealand resident may, by completing certain registrations, utilise the approved issuer levy (AIL) regime. The AIL regime requires both registration of the borrower as an approved issuer and registration of the loan as a registered security. Under this regime, if the New Zealand resident borrower pays the 2% AIL in respect of the gross interest payment, NRWT is zero-rated. In addition, even if the interest would not otherwise be subject to NRWT (because the non-resident lender has a New Zealand branch), under certain DTAs it can still be beneficial for the New Zealand borrower to pay AIL, depending on the circumstances. AIL is a duty payable by the New Zealand resident borrower and so is not likely to be creditable in a non-resident lender’s home jurisdiction. The levy is deductible to the borrower for income tax purposes. The AIL regime is not available if the non-resident derives the interest jointly with a New Zealand resident.
The AIL regime is unavailable in cases of improper substitution of AIL for NRWT on related party interest, including certain back-to-back loan arrangements and groups of non-resident lenders “acting together”. AIL may itself be zero-rated in relation to payments of interest under certain widely-held New Zealand dollar bonds issued in New Zealand.
(c) Residential land withholding tax (RLWT)
The RLWT regime applies where an offshore person is subject to the “bright-line” test for residential land sales. Under the regime, unless the person obtains an RLWT certificate of exemption, the conveyancer or solicitor involved on behalf of the vendor in the sale is required to withhold the RLWT, being (generally) the lower of 33% of the gain on sale (or 28% for companies), 10% of the purchase price and the amount remaining after certain secured creditors have been repaid.
(d) Other Withholdings
Various other withholdings are required from payments such as directors’ fees, honoraria, salespersons’ commission, and non-resident contractors’ fees.