Skip to main content

Considering business expansion into New Zealand? Here’s what you need to be aware of…

Tax Alert - August 2022

When a business starts expanding its activity into New Zealand, it might find that tax issues arise quickly. Something as innocuous as a customer requiring you to provide a GST number, or fill out an IR330C, can seem like a small thing. However, this may be just the tip of the iceberg for your New Zealand tax obligations. We recommend getting advice on the tax implications of doing business in New Zealand. You may be triggering New Zealand liabilities without even realising you are doing so.

By Emma Marr & Kayla White

Your New Zealand customers may be the first to advise you of your New Zealand tax obligations, which can be a useful prompt to seek New Zealand tax advice and assistance to register with Inland Revenue and manage your New Zealand taxes for the duration of your activities in New Zealand.

Talking to a tax advisor about your New Zealand activities can assist in identifying all the intricate areas of New Zealand tax that will be applicable in each unique circumstance. A business may initially seek New Zealand tax assistance by simply registering with Inland Revenue to provide an IRD number in order to receive payment for services, but then learn that their activities and presence are creating obligations in other areas of New Zealand taxation.

Read on for five tax issues you should think about if you are expanding your business into New Zealand.

GST is often the canary in the mine, as this can be the first tax that a non-resident business is forced to consider when doing business in New Zealand. It is not uncommon for a New Zealand customer to be the catalyst for a non-resident supplier to register with Inland Revenue, by requesting that the non-resident provide them with a GST number. It is also very easy for a non-resident business with New Zealand customers to unwittingly have a New Zealand GST liability. There are cases where it is beneficial for a non-resident doing business in New Zealand to register for GST so it can recover GST on its costs incurred in New Zealand. The rules applying GST to non-residents are complex and can apply to businesses with little or no physical presence in New Zealand, and for activity of relatively short duration.

The second canary in the mine is non-resident contractors’ tax (NRCT), and with NRCT is usually the New Zealand customer that first raises this tax with a non-resident.

New Zealand residents making payments to non-resident contractors have an obligation to deduct NRCT and can face penalties for getting it wrong, so they are motivated to make sure they are getting this right. Depending on the terms of the contract between the parties, NRCT can be a cost to either the payer or the payee, and the cost can be significant. If the activities a non-resident business carries on in New Zealand are subject to NRCT, registering with Inland Revenue and obtaining an IRD number can assist in reducing the rate of NRCT withheld. Alternatively, businesses may be eligible to apply for an exemption, or special tax rate based on their forecast taxable income while in New Zealand, which can either eliminate or significantly reduce the cost.

An area that commonly presents tax risks for offshore businesses is the movement of people from the business’s home country into New Zealand. Although sending your own employees to oversee jobs in New Zealand may seem like the most straightforward option in terms of knowledge and continuity, it may create additional tax issues, including payroll taxes for the individuals and the company, and can create a taxable presence for the company in New Zealand.

There are various ways to do business in New Zealand, and the option that best works for your business depends on many factors - how long your business intends to operate in New Zealand, the impact of financial reporting obligations (see further below), your businesses’ preference for its global structure, and the tax profile of the planned business.

The two most common structures adopted by non-residents expanding into New Zealand are a branch or subsidiary, although other options such as a limited partnership are available. New Zealand tax rules for branches and subsidiaries are similar in some ways, however, there are some important differences that can determine which of the two structures is the best option. Key issues to consider are how you want to fund the entity, repatriation of profits, how long it will operate, and the tax profile over the term of its time in New Zealand. It is important to carefully consider this at the outset, to help you achieve the most tax-efficient outcome possible.

There may also be registration and financial reporting requirements for the New Zealand business. Overseas companies may need to register in New Zealand with the Companies Office, depending on various factors including their size and the type of activity it has in New Zealand. Both branches and subsidiaries of overseas companies have obligations to prepare, have audited and file financial statements with the Companies Office (that are then publicly available), depending on the size of the business, so you will need to carefully consider the rules and whether they apply to your business.

The key message when considering expansion to New Zealand is that your business may be subject to New Zealand tax obligations that you do not expect, so it is always worthwhile to reach out to a New Zealand tax advisor once you are considering expanding, to ensure you have worked through any fishhooks.

Speaking to a New Zealand tax advisor sooner rather than later is useful in identifying other tax risks with proposed or current activities, and whether there is a more efficient way to structure the New Zealand presence.

If you need any help navigating the tax rules that might apply when you’re expanding your business to New Zealand, contact Emma Marr or your usual Deloitte advisor.

Did you find this useful?

Thanks for your feedback

If you would like to help improve further, please complete a 3-minute survey