New Zealand Accountants

How to Avoid “Double Taxation”

When investing from abroad into New Zealand or from New Zealand abroad you need to ensure that you have a structure that avoids ‘double’ taxation.  As New Zealand Accountants we specialise in helping anyone outside of NZ with their tax and financial affairs.

While it is fair to say that most countries will recognise tax paid in other countries so you do not double pay tax there can be technical exceptions to this rule particularly when corporate structures are involved.

Take an example of a New Zealand investor who sets up a company to invest in Australia (it could also be UK or USA). The company is involved in property related activity and produces taxable profit that is subject to tax in Australia because it has a source there…

At the same time the company is regarded as being a tax resident of New Zealand so has to return the same income in New Zealand. Assuming the company tax rates in both Australia and New Zealand are 30% there would be no further tax to pay in New Zealand as the company would be able to utilise the Australian tax paid as a credit to prevent tax payable in NZ.

Whilst this on the face of it seems to prevent double taxation it is not the end of the story. Why? Because there will be a point in time when the

New Zealand investor wants to extract the profit from the company. When this happens the distribution would be regarded as a dividend and taxable to the New Zealand investor.

Typically dividends from a New Zealand company carry ‘imputation credits’ (which are a form of tax credits) but that is not the case in this example.

Imputation credits only accrue when New Zealand tax is paid, and as the company in this instance will have paid no New Zealand tax, there would be no imputation credits attached. This means the shareholder will be liable for full tax on the dividend…or double taxation!

Gilligan Rowe & Associates can set up low cost structures that are legal, which can prevent this double taxation situation from occurring.

To learn more you can use our free Ask The Experts service or Request a Free Interview by Skype, email or phone by clicking on the button below.