Double Tax Treaty

Double taxation can occur when taxpayers earn overseas income, and both their country of residence and country of source taxes the same income under their domestic tax law.

Source jurisdiction means a country taxes all the income generated within its borders.

Residence jurisdiction means a country’s residents will be taxed on income generated from foreign country(s) and income generated locally.

Inadequate tax planning prior to going in and out of New Zealand may result in an undesirable and unexpected tax outcome.

New Zealand Double Tax Agreement with other countries

Double Tax Treaties are international agreements between two countries or territories. Their main objective is to provide relief from double taxation, as they have an overriding power over domestic tax law. New Zealand currently has a network of around 40 double tax agreements with its main trading and investment partners, including the United States, United Kingdom, Hong Kong, China, Canada and Australia.

Double tax treaty allocates taxing rights between the contracting states, comprising the country of source of the income in question and the country of residence of the taxpayer generating that income. The general approach is the country of residence of the taxpayer is treated as having the primary right to tax the income in question. That principle is modified to the extent that the non-resident taxpayer has a significant connection with the country of source.

Double tax treaty is organised into series of articles. One of the invoked article of the tax treaty is the “Resident” article which is known as the “tie-breaker test”. This article is invoked in cases of dual residency, that is, where a citizen or resident of the foreign county is also a resident of New Zealand. The tie-breaker test contains various tests which helps to determine which country the individual or entity will “tie-break” to.

Another one of the invoked articles of the double tax treaty is the “Permanent Establishment” article. This article allows the country of source to tax the profits attributable to a permanent establishment where the entity is a non-resident in the country of source. A “permanent establishment” is defined under the treaty. It generally means a fixed place of business and this includes, amongst other things, a place of management, office and personnel who have authority to and who habitually exercise the authority to conclude contracts on behalf of the organisation.

In addition, the double tax treaty reduces the tax rates that would be imposed on passive income, including interests, dividends and royalties, that the resident may obtain in another country.

The treaty has arrangements for certain categories of occupation and income, including:

  • Income from employment
  • Income from self-employment
  • Real property
  • Shipping and transport
  • Artists, entertainers and sportspeople
  • Students
  • Directors’ fees
  • Pensions
  • Government services
  • Other income
  • Income from employment
  • Income from self-employment
  • Real property
  • Shipping and transport
  • Artists, entertainers and sportspeople
  • Students
  • Directors’ fees
  • Pensions
  • Government services
  • Other income

If you would like to know more about International & Cross Border Tax, click here.

Foreign Tax Credits Assistance

Please refer to our people for more information on who we are, our experience and how we can help.

We offer a no obligation 30min free consultation where we can discuss

  • how the double tax treaty can provide relief in your case or affect your tax position and obligations;
  • highlight issues and opportunities; and
  • how we can add value and assist.
Book a Consultation