NEW ZEALAND Law and Practice Contributed by: David Weavers, Jesse Fairley and Matt Consedine, Russell McVeagh
8.2 Withholding Tax/Qualifying Lender Concepts The concept of a qualifying lender does not exist within New Zealand tax law. New Zealand has two types of withholding tax that apply to interest:
reduced under an applicable double tax agree- ment (typically to 10%). A payer may elect to reduce the rate of NRWT to 0% and instead register for and pay an approved issuer levy (AIL) at a rate of 2% of the gross amount of interest. The AIL regime is not available where interest is derived jointly by a resident and a non-resident or paid between associated persons (unless the approved issuer is a member of a New Zealand banking group) Thin-capitalisation rules in New Zealand apply to both inbound and outbound investment. Broadly speaking, the inbound thin-capitalisation rules can apply to non-residents and New Zealand entities controlled by non-residents. The rules may apply to outbound investment when a New Zealand company has an interest in a controlled foreign company or non-portfolio foreign invest- ment fund. The rules operate to deny interest deductions in circumstances where an entity subject to the thin-capitalisation rules has excessive levels of debt in New Zealand in comparison to its level of worldwide indebtedness. An excessive level of debt is determined according to specific debt- to-asset ratios, known as the “safe harbour” thresholds. For inbound investment, the “safe harbour” thresholds will be breached if the New Zealand group debt percentage is greater than 60% and greater than 110% of the worldwide group debt percentage. or in instances of related party debt. 8.3 Thin-Capitalisation Rules
• resident withholding tax (RWT); and • non-resident withholding tax (NRWT). RWT
RWT must be withheld on payments of inter- est made by New Zealand tax residents or non- residents carrying on a taxable activity in New Zealand through a fixed establishment in New Zealand, to a New Zealand tax resident or a non- resident where: • the non-resident lends the money for the purpose of a business they carry on in New Zealand through a fixed establishment; or • the non-resident is a New Zealand regis- tered bank operating through a New Zealand branch and is not associated with the payer. RWT is required to be withheld at the marginal rate of the payee of the interest (28% for com- panies) or at a default rate of 45% if informa- tion is not provided by the payee regarding the appropriate withholding rates. However, if the relevant payee of interest holds RWT-exempt status, RWT is not required to be withheld on the interest payment (regardless of whether the lending is provided by a New Zealand or offshore branch). NRWT Subject to certain exceptions, New Zealand sourced interest paid to non-resident lenders will generally be subject to NRWT (at a rate of 15% under New Zealand law). This rate may be
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