Non-resident withholding tax (NRWT)

Non-resident withholding tax is involved in the New Zealand’s tax collection system to address the practical issue in collecting certain types of overseas income.
Subpart RF of the Income Tax Act 2007 requires that New Zealand based payers must withhold tax amount when they make payment of interest, dividends and royalties to non-residents (foreign investors).
These kinds of payments are called non-resident passive income (NRPI).

If you pay non-resident passive income (INRP), then you are liable for non-resident withholding tax (NRWT). You must register as a payer and deduct non-resident withholding tax from that payment you make.

There are two ways to register as a payer. you can register through myIR secure online services at www.ird.govt.nz or complete payer registration (IR 380).

• IRD number for either your organisation or for each branch
• organisation name or payer name
• trade name, if you trade under a different name from your registered name
• payment start dates
• to work out how often you’ll pay NRWT
• who will be the contact for us.

Source from: IRD https://www.ird.govt.nz/income-tax/withholding-taxes/non-resident-withholding-tax-nrwt/register-as-an-nrwt-payer

Subpart RF provides the domestic rate of NRWT for non-resident passive income (NRPI)：

• Interest     15%
• Royalty     15%
• Dividend   30%

However, if the recipient is a resident of a tax treaty country. These domestic rates were overridden by DTA.

The table below shows how the rate of NRWT differs for treaty country and non-treaty country.

More detail: https://www.ird.govt.nz/income-tax/withholding-taxes/non-resident-withholding-tax-nrwt/deduct-nrwt-at-the-right-rate/nrwt-rates-for-dta-countries

-Example：
F resident Co pays 100 million unimputed dividends to B Co (UK resident). The domestic rate for dividend is 30%, thus B Co will receive 70 million net payment (100 million – 100 million *30%). However, the UK is a DTA treaty country, then the rate of RNWT is subjected to 15%. Thus, B co can receive 85 million net payment ((100 million – 100 million *15%).

The withholding tax rule of dividend, interest and royalty are explained further below.

Its standard rate of NRWT is 30%. If it is the fully imputed dividend, then this rate downs to 15%. In some cases, this rate can be further reduced to 0%, under s RF 11b.

The non-resident withholding tax rate for Interest is generally paid on 15%. In most cases, this rate is overridden by DTA to 10%. For approved issuers, it is reduced to 0%, but approved issuer levy applies (AIL). This levy is calculated at a rate of 2% of the value of the registered security.

Example

The F resident company borrows 100 million from B non-resident company. F resident company needs to pay 15 million NRWT (15% *100 million = 15 million). However, if F register as approved issuer, it does not need to pay NRWT, instead 2 million AIL (2% *100 million = 2 million).

Note: for certain bonds the levy is reduced to 0%.

Register as an approved issuer

If you elect to be an approved issuer, you can register through myIR secure online services at www.ird.govt.nz or complete an Approved issuer levy (AIL) – payer registration (IR396) form. If you want to register more than one security, use the Application to register security or securities for approved issuer levy (AIL) (IR397).

There is some information you need to prepared for registering as an approved issuer:

the expected AIL for each year

a description of security

the issue date of security

the date of redemption

the face value of security in New Zealand dollars

the redemption value

an interest or coupon rate.

Royalties are generally subject to NRWT if it is paid by a resident company to a non-resident. NRWT is 15% for the payment made from cultural royalty, as a final tax. As for an industrial or commercial royalty, the final tax liability is the greater of the withholding tax and the full income tax liability.

If the recipient is a resident of a tax treaty county, the rate is generally only 10% under the applicable DTA.