Managing Pay As You Earn (PAYE) or withholding tax obligations for cross-border workers has always been fraught with difficulty.
Foreign employers and New Zealand businesses who bring workers to New Zealand often face uncertainty in managing their tax obligations. These uncertainties include whether there is a need to register for PAYE, for example, foreign employers may not know at the outset whether their workers will be subject to New Zealand tax as they may qualify for an exemption. Likewise, it is often unclear at the outset whether non-resident contractor withholding tax (“NRCT”) needs to be deducted from payments to contractors coming to work in New Zealand. Many tax obligations are triggered if a person is in New Zealand for more than 92 days in a 12-month period (using domestic law) or more than 183 days (when considering double tax agreements).
Concerns have been raised that if the day count test is breached, the retrospective effect of the test results in the worker being subject to income tax from the first day of their presence in New Zealand. This means foreign employers and New Zealand businesses face additional compliance costs to correct the tax position and can potentially incur penalties and use of money interest charges.
Remote work arrangements have heightened these concerns as foreign employers often do not have a presence in New Zealand and many may not have systems to manage their employee tax obligations in New Zealand.