New Zealand Accountants

Non-Resident Withholding Tax: Rules

Where a New Zealand tax resident pays interest to an offshore lender there is a requirement to deduct non resident withholding tax or NRWT from the interest.

The default NRWT rate on interest is 15% but this can be reduced to 10% if the double tax agreement between New Zealand and the country of the lender says so.

NRWT is therefore a significant issue for people as in most cases it is the borrower that has to bear the cost. Whilst the tax is designed to be a New Zealand tax levied on the lender, there are not many lenders who will accept interest payments 15% below what is required. Why? Because part of it is being withheld and remitted to the New Zealand IRD here.

Following this, exceptions to NRWT are important and there are a number of exceptions that you should be aware of.

First, it is possible to apply for what is known as ‘approved issuer status’ which means that the interest payments are not subject to NRWT but are subject to a 2% approved issuer levy.

Further, if you qualify for the transitional migrant rules then during the 48 month period in which you have the exemption from accounting for offshore income you also have an exemption from having to account for NRWT.

Finally, interest payments to certain Australian based banks are not subject to NRWT if the bank is operating through New Zealand in a branch. The logic behind this rule is if you have a bank such as Westpac and you are making payment to Westpac Australia you are effectively making payments to the same company that operates in New Zealand (as Westpac New Zealand is a branch of Westpac Australia).

If all of this sounds confusing or involved, we understand. As New Zealand Accountants We specialise in helping clients all around the world to minimise their tax (legally) when dealing with their affairs in New Zealand.