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Dividend

Unless a tax treaty provides otherwise, withholding tax is due on dividends at the standard rate of 30%. However, under domestic law, the withholding tax rate is reduced to:

0% with respect to fully imputed dividends where the recipient holds an interest of 10% or more in the distributing company;
0% with respect to fully imputed non-cash dividends;
15% with respect to fully imputed dividends where the recipient holds an interest of less than 10% in the distributing entity; and
15% with respect to supplementary dividends paid under the foreign investor tax credit regime wherein imputation credits are passed on to foreign investors.

The imputation credit system allows companies to pass on the credit of corporate income tax paid to their shareholders on the dividends paid. Companies paying dividends may do this by imputing credits and attaching them to the dividends paid. Further, New Zealand resident companies are required to maintain an Imputation Credit Account (ICA) to keep track of the corporate tax paid and the tax on dividends passed on to the shareholders or refunded to them.

Withholding Obligations on Transfer Pricing Arrangements

On 30 August 2024, the New Zealand Inland Revenue published Commissioner's statement (CS) 24/02 which deals with withholding tax obligations in transfer pricing arrangements not meeting the arm’s length requirements. The CS clarifies that if the amount paid (or received) is more than (or less than) the arm’s length amount, the excess gives rise to a transfer of value by a company and will be characterized as a dividend (see Sec. 5.6.). Where tax was previously withheld and paid on the basis that the excess amount had been treated as interest or a royalty, the tax previously withheld can be refunded or offset against the dividend withholding tax payable due to the recharacterization.

The deemed dividends will generally constitute non-cash dividends and may be eligible for the following reliefs:

Retrospective attachment of imputation credits;
Fully imputed non-cash dividends are subject to withholding tax at a rate of 0%; and
The withholding tax on the deemed dividend arising from a transfer of property may be removed or reduced if:

the company had taken reasonable steps to ascertain the market value at the time of the transaction;
the excess consideration was later paid/refunded to reflect the actual market value; and
necessary adjustments were made in the accounts of the company and the recipient for the additional consideration or refund.

Interest

Tax is withheld at the rate of 15% from gross interest paid to non-residents. However, a New Zealand resident borrower can opt to pay a 2% approved issuer levy (AIL), in which case no withholding tax is payable on the interest payments made to the non-resident lender. The option of AIL is only available to borrowings from an unrelated lender (such as a foreign bank). AIL cannot be claimed as a credit against the home jurisdiction tax of the non-resident lender. Effective 30 March 2017, AIL is no longer available when a third party is interposed into what would otherwise be a related party loan or where a group of shareholders is acting together as one to control and fund the New Zealand borrower.

Further, effective 30 March 2017, a number of amendments were made to the domestic laws to ensure that interest payments from a New Zealand resident (or a New Zealand branch of a non-resident) to a non-resident are subject to withholding tax or AIL, irrespective of whether that funding is channeled through a branch or an entity that has a branch. This ensures that funding transactions that are economically equivalent have a consistent tax treatment. These changes primarily impact the following transactions:

Offshore Branch Exemption: Non-resident withholding tax or AIL applies to an interest payment from the offshore branch of a New Zealand resident to a non-resident to the extent that the offshore branch lends money to New Zealand residents;
Onshore Branch Exemption: Non-resident withholding tax or AIL applies to an interest payment from a New Zealand resident (or New Zealand branch of a non-resident) to a non-resident if that non-resident has a New Zealand branch unless the interest is derived by the New Zealand branch. These changes do not apply to a New Zealand resident (or New Zealand branch of a non-resident) that pays interest to a non-resident that they are not associated with, and that has a New Zealand branch that holds a banking license; and
Onshore Notional Loans: Non-resident withholding tax or AIL (to the extent it was not already) applies to a notional interest payment from a New Zealand branch of a bank to its head office. This interest payment is equal to the amount already included in the branch’s financial statements and can be claimed as a deduction against the New Zealand income of the branch.

Royalty Copyright

Tax is withheld at the rate of 15% from gross royalties paid to non-residents. The tax withheld is a final tax on royalties relating to literary, dramatic, musical, or artistic works. For other royalties, such as industrial and commercial royalties, this is a minimum tax.

Royalty Patent

Tax is withheld at the rate of 15% from gross royalties paid to non-residents. The tax withheld is a final tax on royalties relating to literary, dramatic, musical, or artistic works. For other royalties, such as industrial and commercial royalties, this is a minimum tax.

Royalty Trademark

Tax is withheld at the rate of 15% from gross royalties paid to non-residents. The tax withheld is a final tax on royalties relating to literary, dramatic, musical, or artistic works. For other royalties, such as industrial and commercial royalties, this is a minimum tax.

Service Management

Generally, withholding tax does not apply under domestic law on payments made by a New Zealand resident for management services.

Service Technical

Generally, withholding tax does not apply under domestic law on payments made by a New Zealand resident for technical services.

Non-Resident Contractor's Tax

A non-resident contractor's tax must be deducted from contract payments made to non-residents at a general rate of 15% (20% if relevant paperwork is not provided) for contract activities undertaken in New Zealand. An exemption applies when the non-resident contractor is provided relief from tax under a tax treaty and is not in New Zealand for more than 92 days in a 12-month period. An exemption also applies if the contract payments amount to less than NZD 15,000 in a 12-month period.

Residential Property Sales

A Residential Land Withholding Tax (RLWT) must be deducted on any gains from the sale of residential property by offshore individuals and companies within the 'bright-line’ period of acquisition, as follows:

2 years for residential properties acquired on or after 1 July 2024;
10 years (5 years for qualifying ‘new build’ properties) for residential properties acquired from 27 March 2021 to 30 June 2024; and
5 years for residential properties acquired from 29 March 2018 to 26 March 2021.

Residential land is defined as:

Land that has a dwelling on it;
Land for which the owner has an arrangement to erect a dwelling; or
Land that, because of its area and nature, is capable of having a dwelling erected on it.

The test does not apply to a property used predominately as a main home, business premises or farmland. In addition, specific rollover reliefs are provided, including:

Disposal of inherited property;
Transfer under a relationship property agreement;
Transfers between associated persons, provided they have been associated for at least 2 years prior to the transfer date;
Transfer of property from an individual (trustee, settlor, and beneficiary) to family trust; and
Transfers to or from look-through companies.

Under rollover relief, the seller will not be taxed at the time of the transfer, and the purchaser is assumed to have purchased the property at the same time, and for the same price as the seller.

A guide explaining the application of bright-line test in detail, including exclusions and rollover relief can be accessed here.

The RLWT amount is generally the lower of the following:

10% of the current sale price;
28% of the gain on sale for company sellers; and
Sale price less any outstanding local authority rates and amounts required to cover any mortgage or other security depending on which party is withholding the tax.

Below is a discussion of domestic withholding tax rules for most of the common cross border payments.

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