When relocating to New Zealand, regardless of whether it is for personal or professional reasons, the financial and tax aspects of such a move are easy to overlook when there’s so much else to organise and do.
In our latest Mobile Expert Interview, Director of Johnston Law, Julia Johnston, shares her insight into possible tax traps for migrants and expats.
Why is it important to understand possible tax implications when moving to NZ?
Every tax regime is slightly different. It is common for people to move to New Zealand without thinking about their tax affairs. This can be a costly and stressful mistake.
Migrants often retain overseas financial assets and investments and need to understand how New Zealand tax laws apply to these.
Simple things, like having an overseas bank account, can trigger New Zealand tax obligations, as can renting out the previous family home.
It is important to seek specialist advice from a tax professional to fully understand any possible implications given international tax issues are highly complex.
Who is required to pay tax in New Zealand?
All New Zealand tax residents need to pay tax on income they earn anywhere in the world.
Anyone earning money in New Zealand, regardless of their tax residency status, also needs to pay tax on that New Zealand sourced income in New Zealand.
This is so regardless of whether they're an individual, business, or organisation.
Does a migrant's immigration status affect what tax they pay?
It is important to know that tax residency is different from immigration status.
A person’s immigration status determines whether they can stay in New Zealand and what they can do here.
Tax residency status determines what taxes they'll pay in New Zealand as either a non-resident taxpayer or a New Zealand tax resident.
To be considered a NZ Tax resident under domestic law, either of these must apply:
- An individual has been in New Zealand for more than 183 days in any 12-month period.
- An individual has a permanent place of abode in New Zealand - this is an extremely complex concept, but to summarise this simply, it is a place to stay which has some level of permanence, whether rented or owned.
What does it mean to be a NZ tax resident?
A New Zealand tax resident will generally pay tax in New Zealand on their worldwide income.
This means they are required to include all of their income in their New Zealand income tax return, regardless of where that money was earned, or where it is kept.
Examples of worldwide income can include rental income from an overseas property, dividends from overseas shares, interest from bank accounts.
What if a new arrival to NZ is also registered for tax in another country?
It is important to seek advice and guidance if this is the situation to determine if there is any structuring that could be used to mitigate taxes, and to determine if a Double Tax Agreement (DTA) applies.
A DTA affects how income is taxed, and can provide relief against double tax in certain circumstances. New Zealand has DTAs with 40 of our main trading and investment partners. Where there is no DTA, there is no relief and double tax can arise.
One exemption to this is where someone is a transitional tax resident. Where someone is a new migrant, or a Kiwi returning to NZ after more than 10 years, and they have not previously been transitional tax resident they may qualify for transitional tax residency.
This is highly beneficial as they are relieved from paying tax in New Zealand on foreign passive income for a period of four years from when they first meet the definition of NZ tax resident.
It is important to note that employment or self employment income is not subject to the transitional tax residency exemption. Therefore, remote working while in NZ can lead to full tax obligations in NZ.
Again, it is vital to seek professional advice to determine eligibility and correctly calculate the period of eligibility.
What if someone is moving to NZ to work for a short period of time?
It is possible that someone working for a short period of time may not need to pay tax in New Zealand on that NZ income.
However, if the company or organisation they are working for is considered to have a ‘permanent establishment’ here, then that income is subject to tax in New Zealand.
Whether or not a company has a permanent establishment in New Zealand is a complex area of tax law which leads to many obligations for the company, and advice on this should be sought.
This is particularly important where the new migrant is a director or key staff member of the foreign company.
What advice would you give to someone considering moving to New Zealand?
Enjoy the planning and our beautiful country, but seek tax advice as early as possible to avoid any nasty surprises!
Some issues will take more time to review and resolve than others. If there are business interests overseas it is vital to seek advice prior to becoming New Zealand tax resident in order to take advantage of all available opportunities for restructuring.
The transitional tax residency period provides a valuable opportunity for individuals to consider their investments and how they will be treated after their transitional tax residency expires. This period can be used to restructure tax affairs to ensure you minimise any tax inefficiencies.
However, it is never too late to seek advice to confirm that tax obligations are being met, and restructure for tax efficiency for the future.
Mobile Relocation has a range of settlement support services to suit your candidates and your business - from baseline support to meet Immigration New Zealand’s AEWV Accreditation requirements through to personalise programmes to support your most valued international employees.
Contact our Principal Bridget Romanes for more information.
Bridget is a New Zealander who has lived and worked as a diplomat in Singapore and India. After experiencing all facets of the relocation experience, she founded Mobile to work with private individuals moving to NZ and leading local and international businesses bringing in offshore talent.