New Zealand

Resident corporations and New Zealand branches of foreign corporations are generally required to withhold tax on payments of passive income. Rates on payments to non-residents under New Zealand's DTAs are set out in the table below.

Notes

1. Resident withholding tax (RWT) applies to both interest and dividends. For companies, unless the recipient holds an exemption certificate, and if the recipient provides an IRD number, the default rate of RWT on interest is 28%. Recipients can elect for the rate of RWT on interest to be 28%, 33%, or 39%. The rate of RWT on interest is 45% where the recipient does not provide an IRD number.
   
   The rate of RWT on dividends paid is 33%, but the tax is reduced by the aggregate imputation and withholding payment credits attached to the dividend or taxable bonus share. Interest and dividends paid between group companies and in certain other limited circumstances are exempt from the NRWT. Where a fully imputed dividend is paid to a corporate shareholder, there is no requirement to withhold RWT or NRWT.

2. Resident corporations paying interest to non-associated, non-resident corporations and individuals need not withhold tax if they have approved-issuer status and the security under which interest is payable is registered with Inland Revenue. In this case, the resident corporation pays a 2% levy (tax deductible) on the interest payments instead of the NRWT otherwise applicable.
3. NRWT is imposed on dividends at the following rates, regardless of the jurisdiction to which the dividends are paid:
   • 0% for fully imputed dividends paid to a shareholder holding 10% or more of the direct voting interests in the company and fully imputed non-cash dividends.
   • 15% for fully imputed cash dividends paid to a shareholder holding less than 10%.
   • 30% in most other cases, subject to any relief available under a DTA.

4. Net interest income is subject to reassessment at the company tax rate where the payer and the recipient are ‘associated persons’, but the NRWT imposed is the minimum liability. NRWT is not imposed where the recipient of the interest has a fixed establishment in New Zealand and the relevant interest is attributable to this fixed establishment, or where the recipient is a bank that has a fixed establishment in New Zealand and is not associated with the borrower.
5. NRWT on dividends is reduced from 15% to 5% for an investing company that has at least a 10% shareholding in the company paying the dividend. The rate reduces to 0% if the investing company holds 80% or more of the shares in the other company and meets other criteria. The NRWT rate on interest is 10% but is reduced to 0% if it is payable to eligible financial institutions.
6. New Zealand and Austria have signed the Second Protocol updating the DTA and First Protocol between the two countries. The Second Protocol is not yet in force. Under the Second Protocol, the NRWT rate on dividends will be as follows:
   • 0% if the beneficial owner of the dividend is a company that directly or indirectly holds at least 80% of the voting power in the company for 12 months and other criteria are met.
   • 5% if the beneficial owner of the dividends is a company that directly holds at least 10% of the voting power in the company.
   • 15% in all other cases.
7. The NRWT on dividends is reduced from 15% to 5% for an investor who holds at least 10% of the shares in the company that pays the dividend. The NRWT rate on royalties is reduced from 15% to 10% generally, with a further reduced rate of 5% for royalties relating to copyright, computer software, and others.
8. The NRWT on interest is reduced to 10% if the interest received is derived from loans granted by banks or insurance companies. In all other cases, 15%.
9. The NRWT on interest may differ in accordance with the rates prescribed by New Zealand legislation for interest paid to ‘associated persons’.
10. The NRWT on dividends is reduced from 15% to 5% for an investing company that has at least a 10% shareholding in the company paying the dividend. The rate reduces to 0% if the investing company holds 50% or more of the shares in the other company and meets other criteria. The NRWT rate on interest is 10% but is reduced to 0% if it is payable to eligible financial institutions.
11. The NRWT rate on dividends is reduced from 15% to 0% for an investor who holds at least 10% of the voting power in the company paying the dividend (subject to certain conditions being met). The NRWT rate on interest is 10% generally and 0% if it is payable to eligible financial institutions.
12. The 0% NRWT rate applies where the foreign company owns at least 80% of the voting rights in the paying company (directly or indirectly) for 12 months prior to the date the dividend is paid and meets other criteria. The 5% rate applies if the foreign company has a direct interest of at least 10% of the voting rights in the paying company.
13. The NRWT rate on dividends will reduce from 15% to a maximum of 5% for an investor who holds at least 10% of the shares in the company that pays the dividend.
14. The standard NRWT rate on dividends reduces to 5% for an investing company that has at least a 10% shareholding in the company paying the dividend.
15. The NRWT rate on dividends is reduced to 5% if the beneficial owner is a company holding at least 10% of the voting power in the company paying the dividends and 15% in all other cases.
16. The NRWT rate on interest is reduced to 10% if it is received by a financial institution or it is paid with respect to debt arising from a sale on credit of any equipment, merchandise, or services. The NRWT rate is reduced to 10% for certain types of royalty.
17. The NRWT rate on dividends is reduced to 5% if the beneficial owner is a company holding at least 25% of the capital of the company paying the dividends and 15% in all other cases. The NRWT rate on interest is reduced to 10% if the interest is paid to a bank and 15% in all other cases.
18. The NRWT rate on dividends is 5% for an investor who holds at least 10% of the shares in the company that pays the dividend; 0% if the investor holds 80% or more of the shares in the company and meets other criteria; 15% in all other cases. The NRWT rate on interest is 10% but is reduced to 0% if it is payable to eligible financial institutions.
19. The NRWT rate on dividends is reduced to 5% if the beneficial owner is a company holding at least 50% of the voting power in the company paying the dividends and 15% in all other cases.

Supplementary dividend tax credit regime

The supplementary dividend tax credit regime applies only to fully imputed dividends paid to shareholders holding less than 10% of the shares in the company and NRWT rates of at least 15%.

Broadly:

• only portfolio investors (i.e. those with less than 10% holdings) with NRWT rates of at least 15% will qualify for relief under the supplementary dividend rules, and
• a zero rate of NRWT applies to dividends paid to non-portfolio shareholders (i.e. shareholders with more than 10% holdings) and to any other dividends subject to lower tax rates, to the extent they are fully imputed.

Exclusions from dividend concept on liquidation of a company

An important exclusion from the dividend concepts is that amounts paid to shareholders on liquidation of a company will not be dividends (and therefore will not be subject to any tax, including WHT) to the extent they represent available subscribed capital (essentially paid-up share capital) plus net realised and unrealised capital gains in the company. This exclusion does not apply where the recipient shareholder is a non-resident company that is related to the New Zealand company paying the dividend.