New Zealand was ranked first, among 190 economies in the world, in the ease of doing business according to the World Bank’s Doing Business 2020. More and more investors and businesses are taking advantage of the country’s stable, transparent and highly-attractive business environment.
Wherever your business takes you, it is of fundamental importance for an employer to understand the tax obligations where the business is. To help employers and HR leaders grasp the basics of New Zealand’s tax system, Links has put together some essentials of what you need to know about New Zealand tax rates and corporate taxes.
Please note that this page serves as a general guide only, for more details on New Zealand’s tax system, please visit official government websites:
Tax Obligations as An Employer in New Zealand
As an employer in New Zealand, certain tax obligations must be fulfilled. Here are some tax-related responsibilities you should expect:
Withhold Pay-As-You-Earn (PAYE) Tax
As an employer, you are responsible for withholding tax payments from the employee’s income. In New Zealand, employees have different tax codes depending on their work type and other financial or life situations such as a student loan, and employers will deduct tax based on that code.
Employees should give the employer a completed tax code declaration, form IR330, in order for the employer to know the deduction amount. Should the employee fail to provide the employer with a completed IR330, the employer will need to deduct PAYE at a rate of 45%. Contractors receiving schedular payments from an employer should also provide the employer with a completed IR330C.
Maintaining Payroll and Transaction Records
An important New Zealand tax obligation for employers is to maintain accurate and complete business records. Records must be in English or Māori and kept for at least 7 years. If an employer or business owner chooses to keep records on a computer, he/she must store the records in a format compliant with the Inland Revenue’s requirements. These records should include:
- PAYE records (including copies of PAYE payment information, Tax code declaration (IR330) forms completed by employees, Tax rate notification for contractors (IR330C) forms completed by contractors)
- Credit and debit notes
- Record books and wage books
- Income and expenses records
Making KiwiSaver Contributions
KiwiSaver is a government initiative to help employees with their retirement. All employees under the age of 65, and is a New Zealand citizen or entitled to live in the country indefinitely and is generally residing in New Zealand are eligible to join the scheme. Those under 18 will require parental consent to join. Employees holding a temporary or work permit are not eligible to join KiwiSaver.
Employers are liable to enrol eligible new employees in KiwiSaver, deduct KiwiSaver contributions from the employee’s gross income and make compulsory employer contributions to the scheme. The employer is then required to remit the contributions, along with PAYE tax returns, to the Inland Revenue.
The defaulted contribution rate is 3%, but the employee can also decide to contribute more at a rate of 4%, 6%, 8% or 10% of their salary. Employer’s compulsory contributions for KiwiSaver, which must be paid on top of the regular salary, stand at a rate of 3% of the employee’s gross pay. However, an employer is not required to contribute to KiwiSaver if they are already contributing to another eligible superannuation scheme.
Work out how much PAYE or KiwiSaver deductions should be withheld from wages with the PAYE/KiwiSaver deductions calculator.
A system introduced in 2019, instead of filing employees’ PAYE tax monthly, all employers in New Zealand must now use the payday filing system to report PAYE information to the Inland Revenue every time they pay their employees. Employers are required to file electronically within 2 working days of each payday or 10 working days of each payday if choosing to file by paper.
New Zealand employees can make donations to charities through an employer’s payroll system. Each donation made will earn the employee tax credits when the employer remits the donation to an approved charity. Should an employer fail to pass on the donation, the amount will become PAYE debt for the business with possible interest charge and penalties.
New Zealand’s Fringe Benefits Tax (FBT)
Fringe benefits tax is applied once an employer gives his/her employees a fringe benefit. There are four main groups of fringe benefits:
- Motor vehicles available for personal use
- Free, subsidised or discounted goods and services
- Low-interest loans
- Employer contributions to sickness, accident or death benefit funds, specified insurance policies, and superannuation schemes not subject to employer superannuation contribution tax (ESCT)
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New Zealand Corporate Taxes
New Zealand Corporate Income Tax Rate
New Zealand’s tax on corporate income is at a standard rate of 28%. This rate also applies to non-profit organisations registered and incorporated under the Incorporated Societies Act 1908.
Companies considered as a New Zealand resident for tax purposes, except look-through companies, must file an IR4 income tax return annually. A company is regarded as a resident for tax purposes if it is incorporated or headquartered in New Zealand, or the directors manage the business within the country. The standard accounting year for most businesses is from 1 April to the following 31 March.
Goods and Services Tax (GST)
A majority of products and services are subject to a 15% goods and services tax (GST) in New Zealand. Business owners with a turnover or expected turnover of NZ$60,000 or more in a year need to register for GST with Inland Revenue before they can add GST to their prices. GST returns can be filed monthly, every two months or every six months.
Employees’ Income Tax in New Zealand
As an employer, it is crucial and a responsibility to understand and facilitate your employee’s tax obligations in addition to your own. In New Zealand, tax on individual income comes at a progressive scale, ranging from 10.5% to 33%.
Inland Revenue’s Tax Calculator is a useful tool for computing annual personal income tax.
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