NEW ZEALAND Law and Practice Contributed by: Greg Neill, Fred Ward and Callum Burnett, Russell McVeagh
own tax affairs, having regard to their own particular commercial circumstances. LTCs are fiscally transparent companies that are designed as a policy matter to reduce the impact of tax on a decision for a small business to incorporate. LTCs are similar to limited partnerships in the sense that liability is limited for owners or investors, and income tax is dealt with on a “flow-through” basis. However, the LTC rules are targeted more towards closely held companies owned by individuals and are seen as being particularly useful for small start-up businesses, where it is considered likely that the new company will initially make a loss. 1.3 Tests for Determining Tax Residence Companies Under the Income Tax Act 2007 (NZ) (“Income Tax Act”), a company will be deemed to be a New Zealand tax resident if: • its centre of management is in New Zealand; or • its directors, in their capacity as directors, exer - cise control of the company in New Zealand (even if directors’ decision-making also occurs outside New Zealand). Where a company is deemed to be a tax resident in both New Zealand and another country with which New Zealand has a double tax agreement (DTA), the residence of the company for the purposes of applying the DTA will be established in accordance with the relevant residence article of the DTA. New Zealand’s DTAs generally contain a tie-breaker test to make this determination (in most cases being the “place of effective management” test). DTAs subject to the OECD Multilateral Convention to Implement Tax Treaty Related Measures To Prevent Base Erosion and Profit Shifting (MLI) do not contain a conventional tie-breaker test, with the residence of a dual-resident entity instead being determined via mutual agreement • it is incorporated in New Zealand; • its head office is in New Zealand;
dent” or “non-resident” for New Zealand income tax purposes. Instead, the tax residence of the partners is determinative for ascertaining the New Zealand income tax liabilities of the partners. Each partner is separately assessed and there is no joint partnership assessment (although a joint partnership tax return is filed for administrative purposes). Where a partner is an individual, that individual will be deemed to be a New Zealand tax resident if they satisfy the residency tests for an individual (outlined below). Where a partner is a company, tax residency is determined using the residency tests for a company (outlined above). Certain DTAs to which New Zealand is a party (includ - ing DTAs that are subject to the MLI) have provisions that specify when income derived by, or through, a fiscally transparent person may qualify for treaty ben - efits. Sole Proprietorships (Individuals) As income derived from a sole proprietorship is taxed in the hands of the individual, it is the residency sta - tus of the individual which is relevant. Generally, an individual will be deemed to be a New Zealand tax resident if they: • have a “permanent place of abode” in New Zea - land; or • are personally present in New Zealand for more than 183 days in total in a 12-month period. Look-Through Companies LTCs are transparent and akin to partnerships for income tax purposes. This means it is the tax resi - dence of the owners or shareholders which is deter - minative for the purposes of ascertaining the New Zealand tax liability. 1.4 Applicable Corporate and Individual Tax Rates Companies Companies are taxed at a flat rate of 28%. New Zea - land does not have variable corporate tax rates. New Zealand’s imputation credit regime allows income tax paid at the company level to be “imputed”
between the treaty jurisdictions. General and Limited Partnerships
As partnerships are not separate taxpayers for income tax purposes, a partnership cannot of itself be “resi -
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