NRCT reform: less detective work for New Zealand businesses engaging offshore contractors

By Jayesh Dahya & Mila Robertson

Currently, engaging a non-resident contractor can require a New Zealand business to know far more than just what is happening under its own contract with the non-resident. It usually requires seeking confirmation of the non-resident’s total time in New Zealand across all engagements and determining how much the contractor has been paid by other New Zealand customers.

In other words, applying the non-resident contractors’ tax (NRCT) rules can involve a degree of detective work, with the New Zealand payer potentially bearing the cost if the information it receives is incomplete or incorrect.

NRCT is an interim tax deducted on gross payments and administered via the schedular payment rules through the PAYE system.

Current automatic exemptions from NRCT

Currently, there are two exemptions from NRCT that are considered when making a payment to a non-resident contractor who is doing work in New Zealand. These are:

• The 92-day rule, where non-residents must have been in New Zealand for 92 days or fewer for all jobs they undertake in New Zealand in a 12-month period (and be exempt from New Zealand tax under a Double Tax Agreement)
• The monetary threshold, which is currently $15,000 and means that total payments to the non-resident in a 12-month period must not exceed $15,000.

Both exemptions require the payer to understand the non-resident contractor’s total payments and presence in New Zealand, not just those under the payer’s own contracts, which can be challenging information to gather.

As the $15,000 threshold has not increased since 2003, its value has eroded over time, meaning that largely only the 92-day rule is relied on.

Changes are coming

Things aren’t all bad in the NRCT space. Inland Revenue has been aware of these issues and over time has been making strides to improve the system and its workability for payers. In 2020, changes were considered to the exemptions detailed above, however the relaxation of these exemptions came with some very detailed reporting requirements.

This time around, the Taxation (Annual Rates for 2026–27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill (the Bill) proposes a handful of simplifications to the NRCT rules which are set out below, without the information reporting requirements. These changes are proposed to apply from 1 April 2027.

The single payer view

This will be the biggest sigh of relief for the tax community, as it legislates what is already the practical approach to managing this tax. That is, looking just at the contract between the payer and the non-resident, rather than examining the non-resident’s total New Zealand presence.

Increasing the monetary threshold

The monetary threshold is set to increase from $15,000 to $75,000 under the Bill. This should provide material benefit for smaller contracts that are likely to be exempt from New Zealand tax anyway (due to the non-resident not having sufficient presence in New Zealand).

Excluding low-risk entities from NRCT

Another common-sense approach being adopted in the Bill is to exclude low-risk entities from NRCT. This applies where non-residents have an established ‘taxable’ presence in New Zealand, meaning that an interim tax like NRCT is not required, as they will file tax returns like other New Zealand entities.

The proposed exclusion would apply to entities that:

• Have an IRD or GST number
• Have been registered with the Companies Office for at least 24 months before the contract payment.

This will mean that branches of overseas entities and other low-risk entities that meet the above requirements will not have NRCT deducted from payments made to them.

A reminder of other good things in the NRCT space

As noted above, changes have been made over the past few years to improve the NRCT regime. We thought it would be useful to include a reminder of these changes below, as we still see some confusion in these areas:

• There is a 60-day grace period for a payer to meet or correct their NRCT obligations where, at the time a payment is made, it is not clear that NRCT withholding is required and a liability to NRCT subsequently arises.
• Allowing nominated taxpayers to meet the NRCT obligations of a non-resident contractor. This is intended to simplify compliance for non-residents who may have activities in New Zealand through different businesses. Each person, however, would be jointly and severally liable for the amount of tax due under such an arrangement. For the purposes of obtaining certificates of exemptions, a nominated person can establish a good compliance history for the non-resident contractor.
• Allowing certificates of exemption to have retrospective effect by allowing payments made before the exemption is issued to be covered. This would apply only to payments made in the 92 days before the person applied for an exemption.

We are hopeful that the proposed changes to the NRCT rules will make them materially easier for New Zealand businesses to comply with when doing business with non-residents, with less detective work required.

As always, if you have any questions about the application of the NRCT rules, please contact your usual Deloitte tax advisor.