Draft guidance on non-resident employers' tax obligations for employees in New Zealand

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Draft guidance on non-resident employers' tax obligations for employees in New Zealand

Sponsored by

sponsored-firms-russel-mcveagh.png
Colombia should build on international experiences

Tim Stewart and Alex Ladyman of Russell McVeagh summarise the draft operational statement released by New Zealand Inland Revenue on non-resident employers' employment-related tax obligations in relation to employees in New Zealand.

Inland Revenue has released a draft operational statement providing guidance as to when non-resident employers are required to deduct tax at source under the pay-as-you-earn (PAYE) system from payments made to employees located in New Zealand. The statement also provides guidance as to when employer superannuation contribution tax (ESCT) and fringe benefit tax (FBT) are payable in respect of benefits provided to such employees.

The statement is timely given that COVID-19 and associated restrictions on travel have seen a number of employees working from New Zealand for non-resident employers who would not otherwise have a presence in New Zealand. The question of when a non-resident employer must account for tax in respect of employees in New Zealand arises more generally, however, and the guidance is not confined to circumstances resulting from COVID-19. 



In summary, Inland Revenue's view is that a non-resident employer will have New Zealand employment-related tax obligations in relation to an employee in New Zealand if:

  • The employer has made itself subject to New Zealand tax law by having a "sufficient presence" in New Zealand; and

  • The services performed by the employee are properly attributable to the employer’s presence in New Zealand.


Defining "sufficient presence"




Inland Revenue considers that an employer will normally have a "sufficient presence" in New Zealand where the employer has a trading presence (i.e. carrying on operations or employing a workforce in New Zealand). An employer would also have a "sufficient presence" in New Zealand where the employer has a permanent establishment or branch in New Zealand, has contracts that were entered into in New Zealand, or performs contracts in New Zealand with employees based in New Zealand. 



A sufficient presence would not arise by reason only of an employee choosing to undertake their employment activities in New Zealand where those activities have no necessary connection to New Zealand. This scenario has become more common, especially in light of COVID-19, as New Zealand citizens employed by non-resident employers choose for personal reasons to work from New Zealand.



Properly attributable



Once a non-resident employer has a "sufficient presence" in New Zealand, the extent of the non-resident employer’s employment-related obligations will be limited to payments properly attributable to that New Zealand presence. Typically, employer tax obligations will arise for such an employer in respect of any employee based in New Zealand. However, employer tax obligations could also extend to work done by employees outside New Zealand (e.g. where the employee is temporarily based overseas investigating the purchase of new equipment to be used in the employer's New Zealand operations).



Other issues addressed by the statement



The statement also sets out Inland Revenue's view that:

  • No PAYE withholding obligations arise where the non-resident employee is exempt from income tax either as a result of an exemption under domestic law or full relief under an applicable double tax agreement.

  • An employer (even if tax resident in New Zealand) is not required to withhold PAYE where the PAYE income payment is paid to a non-resident employee for work performed outside New Zealand.


Legal status of the statement



Currently, the statement is in draft form. It has been released for public consultation with a deadline for comment of September 1 2020. 



Once finalised, the statement will be the advice of Inland Revenue and (although not legally binding) will provide protection against interest and penalties for taxpayers whose filing positions are consistent with it. Further, in respect of core tax, Inland Revenue usually will not take action inconsistent with such advice except on a prospective basis. 




Tim Stewart

T: +64 4 819 7527

E: tim.stewart@russellmcveagh.com



Alex Ladyman

E: alex.ladyman@russellmcveagh.com

more across site & bottom lb ros

More from across our site

Police may be inside the Sydney office for ‘several days’, PwC Australia’s chief executive officer said
The source of additional remuneration received by PwC Australia CEO Kevin Burrowes had been the subject of much parliamentary scrutiny
The Independent Schools Council is bringing litigation against the UK government for what it calls an ‘unprecedented education tax’
But the firm said that ‘difficult market conditions’ led to a slowdown in Asia Pacific; in other news, OECD begins Thailand accession process
The move will provide certainty to taxpayers and reduce the risk associated with pricing transactions for TP, according to India’s Ministry of Finance
Pia Honkala, co-head of Aibidia’s operational TP product, tells ITR how her company works in harmony with advisers like the ‘big four’ to revolutionise clients’ processes
The UK is ‘heading to Scandinavia’ as its tax burden increases and isn’t creating an attractive environment for a wave of investment, experts have told ITR
Japan, South Korea and Germany increased their R&D tax budgets at a much greater rate over a 14-year period, say RCK Partners and the London Business School
Under the proposed directive, multinationals with numerous EU presences would have to make only one filing to comply with pillar two
Robert Venables of Old Street Tax Chambers had previously brought multiple cases against HMRC on behalf of clients
Gift this article