Cross-border workers and businesses in NZ often find it challenging to navigate the NZ tax rules. If there are errors or oversights, it can be costly to remedy. To address this, NZ government introduced a new tax bill – Taxation (Annual Rates for 2022-23, Platform Economy and Remedial Matters) Bill (No 2) on the 8 September 2022. In this tax bill, one of the proposed changes affects employers and employees involved in cross-border employment arrangement and payers of non-resident contractor payment. This includes cross-border secondees, short-term business travelers, remote workers and individuals who work abroad but retain their NZ tax residency and pay NZ tax on their worldwide income.
Key changes
We outline below some of the proposed changes. The proposed changes take effect either from 1 April 2023 or 1 April 2024.
1. Transfer of employment tax obligations from employer to employee – Where a non-resident employer does not have employment tax obligations (e.g. due to lack of sufficient presence in NZ) the obligations to pay and report employment tax are transferred to the employee. We will release another blog soon re the NZ tax issues to consider when working remotely for overseas companies from NZ.
2. 60 -days grace period – Allow employer to meet or correct employment tax obligations within a 60-day grace period where they have taken reasonable measure to manage their employment-related tax obligations and the employee has
- Remained in NZ in excess of the tax exemption period stipulated under NZ tax law or tax treaties (commonly 92 days under NZ tax law or 183 days under most double tax treaties); or
- Employee received an extra pay.
In these situations, the employer would not be subject to interest and penalties for non-compliance.
3. Annual PAYE arrangement – Employers of certain cross-border workers can account for pay-as-you-earn (PAYE) tax on an annual basis. An application must be made to the IRD for an agreement that employment taxes are accounted for by 31 May following the end of the tax year, rather than the default employment tax filing and payment rules that apply to NZ based employers. The agreement will only be made where there are “special circumstances”. IRD will develop guidance to clarify when this concessional treatment can be applied.
4. Safe harbour for non-resident employers – Non-resident employers who have incorrectly determined they do not have NZ employment tax obligations due to a lack of sufficient presence in NZ would be protected from penalties and interest, provided they meet certain conditions.
The conditions include
- the employer has two or fewer employees present in NZ at any point in the income year;
- or pays $500,000 or less of gross employment related taxes in NZ in an income year and has arranged for their employment related tax obligations to be met by another person; or
- has communicated to the employee that the employee must meet the obligations directly.
5. Non-resident contractor taxes (NRCT) – There has been several proposed changes to NRCT.
Firstly, the tax bill introduces a similar 60-day grace period to payers of non-resident contractor payment, to allow them to meet or correct their non-resident contractor tax obligations without being subject to penalties or interest. A payer seeking to rely on the concession would have to demonstrate that they have made reasonable enquiries or took reasonable steps to meet their obligations.
Secondly, allowing a payer to nominate a different taxpayer (e.g. parent company or an associated entity) to meet their NRCT obligations.
Thirdly, introducing a “single payer view” mean the payer only had to consider their contracts (and contracts with related entities) with the non-resident contractor in determining the days a non-resident contractor is present in NZ for the purposes of the 92 days presence rule or determining the total value of contracts under the $15,000 rule. Currently, payers are required to obtain details of all contracts the non-resident contractor has undertaken in NZ and in practice this has been difficult for payers to manage.
Lastly, allowing certificates of exemption to have retrospective effect by allowing payments made before the exemption is issued to be covered. This would only apply to payments made 92-days before the person applied for an exemption.
6. Increased NRCT reporting requirements – More comprehensive monthly reporting requirements has been introduced for NRCT. Details of payment made to non-resident contractors must include:
- Names of payer and payee
- Date of payment
- Whether schedular payment is paid within a grace period
- Contact address of payer and payee
- Tax file number of payee (or their foreign tax identification number)
- Gross amount of payment and amount of withholding tax deducted.
The information is due for filing with IRD by 15th day following end of each calendar month.
Other proposed changes
Other proposed changes include
- making employer contributions to foreign superannuation schemes subject to PAYE rather than Fringe benefit tax (FBT).
- eliminate FBT liability where employee has ceased to live and/or work in NZ except to the extent the benefits relate to the time spent working in NZ.
- Clarify “non-resident entertainer” are excluded from the definition of
“non-resident contractor”.
Final comments
Overall, its good to see incremental improvements and positive changes to the current tax law. If you need assistance with the above, feel free to contact us here. We are offering a free consultation for new clients to discuss their situation and how we can add value and assist. Visit “Income tax, GST, PAYE and FBT return” and “International tax and cross-border tax” pages for more information.
DISCLAIMER No liability is assumed by NZ International Tax & Property Advisors for any losses suffered by any person relying directly or indirectly upon any material within this website. It is recommended that you consult your advisor before acting on this information.
