Employer Tax Responsibilities in New Zealand

PAYE (Pay As You Earn)

What is PAYE?

PAYE is the system used in New Zealand to deduct income tax and other deductions from employees' wages or salaries.

Employer Obligations

• Deduct PAYE from employees' gross earnings
• Pay the deducted amount to Inland Revenue
• File employment information returns

Filing Frequency

• Employers must file employment information every payday

KiwiSaver

Employer Contributions

• Contribute a minimum of 3% of an employee's gross salary or wages
• Deduct these contributions from the employee's pay
• Pay the contributions to Inland Revenue along with PAYE

Reporting

• Include KiwiSaver information in the employment information returns

Accident Compensation Corporation (ACC) Levies

Employer Levy

• Pay ACC levies based on the type of industry and total payroll
• Rates vary depending on the risk classification of the business

Reporting and Payment

• ACC invoices are typically sent out annually
• Payments can be made in installments or as a lump sum

Fringe Benefit Tax (FBT)

What is FBT?

FBT is a tax on non-cash benefits provided to employees

Employer Responsibilities

• Calculate and pay FBT on benefits provided to employees
• File FBT returns either quarterly or annually

Common Fringe Benefits

• Company vehicles for private use
• Discounted goods or services
• Low-interest loans

Employer Superannuation Contribution Tax (ESCT)

What is ESCT?

ESCT is a tax on monetary contributions made by employers to their employees' superannuation funds

Employer Obligations

• Deduct ESCT from employer contributions to KiwiSaver and other superannuation schemes
• Pay the deducted amount to Inland Revenue

Payroll Giving

Optional Scheme

Employers can choose to offer payroll giving to their employees

Employer Responsibilities

• Deduct donations from employees' pay
• Pay the donations directly to approved donee organizations
• Provide tax credits to employees immediately in their pay

Record Keeping

Employer Obligations

• Maintain accurate payroll records for at least 7 years
• Keep records of all tax deductions, contributions, and payments
• Ensure records are easily accessible for audit purposes

Penalties and Interest

Compliance

Employers must comply with tax obligations to avoid penalties and interest charges

Late Payments

• Late payment penalties may apply for missed or late tax payments
• Interest may be charged on unpaid tax amounts

Resources and Support

Inland Revenue

• Provides comprehensive guides and tools for employers
• Offers online services for filing returns and making payments

ACC

• Offers resources and support for understanding and managing ACC levies

By fulfilling these tax responsibilities, employers in New Zealand can ensure compliance with local regulations and contribute to the country's social security and healthcare systems.

Employee Tax Deductions in New Zealand

PAYE (Pay As You Earn)

PAYE is the primary method of collecting income tax and ACC levies from employees in New Zealand. It is deducted from an employee's salary or wages before they receive their pay.

Tax Codes

The amount of PAYE deducted depends on the employee's tax code, which is determined by their employment situation and income level. Common tax codes include:

• M: For primary employment
• SL: For employees with a student loan
• S: For secondary employment

ACC (Accident Compensation Corporation) Levy

The ACC levy is a compulsory insurance that covers the cost of accidents and injuries. It is deducted from an employee's wages alongside PAYE.

KiwiSaver Contributions

KiwiSaver is a voluntary savings scheme to help New Zealanders save for retirement. If an employee opts in, their contributions (usually 3%, 4%, 6%, 8%, or 10% of gross pay) are deducted from their wages.

Student Loan Repayments

If an employee has a New Zealand student loan and earns above the repayment threshold, deductions are made automatically through the PAYE system.

Child Support

Employees who are liable to pay child support may have these payments deducted directly from their wages.

Salary Sacrifice Arrangements

Some employers offer salary sacrifice arrangements, where employees can agree to receive a lower salary in exchange for non-cash benefits. These arrangements can affect the calculation of PAYE and other deductions.

Other Deductions

Additional deductions may include:

• Union fees
• Health insurance premiums
• Charitable donations

Calculating Net Pay

After all applicable deductions are made from an employee's gross pay, the remaining amount is their net pay or "take-home pay."

For more detailed information on tax rates and thresholds, refer to the Inland Revenue Department's website.

Value-Added Tax (VAT) Implications for Services in New Zealand

Overview of GST in New Zealand

In New Zealand, the equivalent of Value-Added Tax (VAT) is called Goods and Services Tax (GST). GST is a broad-based consumption tax applied to most goods and services supplied in New Zealand, including imported goods and certain imported services.

GST Rate and Registration

Standard Rate

The standard GST rate in New Zealand is 15%.

Registration Threshold

Businesses must register for GST if their turnover exceeds or is likely to exceed NZD 60,000 in a 12-month period.

GST on Services

Domestic Services

Services provided within New Zealand are generally subject to GST at the standard rate of 15%.

Exported Services

Services exported from New Zealand are typically zero-rated for GST purposes. This means that while no GST is charged on the supply, the supplier can still claim input tax credits.

Imported Services

New Zealand has a reverse charge mechanism for imported services. This applies to GST-registered businesses that receive services from non-resident suppliers.

Special Rules for Specific Services

Financial Services

Most financial services are exempt from GST in New Zealand. However, some financial services may be zero-rated or subject to GST.

Remote Services

From 1 October 2016, offshore suppliers of remote services (including digital products) to New Zealand consumers must register and account for GST if their supplies exceed NZD 60,000 in a 12-month period.

GST Compliance and Reporting

Filing Frequency

GST-registered businesses must file GST returns either monthly, bi-monthly, or six-monthly, depending on their turnover.

Payment Due Dates

GST payments are generally due on the 28th of the month following the end of the taxable period.

Input Tax Credits

GST-registered businesses can claim input tax credits for GST paid on goods and services used in their taxable activities.

GST and Non-Residents

Non-resident businesses may register for GST in New Zealand if they carry on a taxable activity in the country. Special rules apply to non-resident businesses providing services to New Zealand customers.

Recent Developments

The New Zealand government continually reviews and updates GST legislation to address emerging issues, particularly in the digital economy and cross-border transactions.

Tax Incentives for Businesses in New Zealand

New Zealand offers a range of tax incentives to encourage business growth, innovation, and investment. These incentives are designed to support various sectors and activities, making the country an attractive destination for both local and international businesses.

Research and Development (R&D) Tax Incentive

The R&D Tax Incentive is one of the most significant tax benefits available to businesses in New Zealand.

Key Features:

• 15% tax credit on eligible R&D expenditure
• Minimum spending threshold of $50,000 per year
• Maximum claim of $120 million of R&D expenditure per year (or $180 million for overseas R&D activities)
• Available to a wide range of businesses, including those in loss-making positions

This incentive aims to boost R&D spending in New Zealand to 2% of GDP over time.

Depreciation Deductions

New Zealand offers favorable depreciation rates for certain assets, allowing businesses to claim deductions faster.

Notable Depreciation Incentives:

• Temporary accelerated depreciation for new assets
• Immediate deductions for low-value assets (up to $1,000)
• Higher depreciation rates for certain industries, such as agriculture and forestry

Film and Television Production Incentives

New Zealand provides attractive incentives for the film and television industry:

• New Zealand Screen Production Grant: Offers a 20% cash rebate on qualifying New Zealand production expenditure
• Post, Digital and Visual Effects Grant: Provides an additional 5% grant for productions that meet specific criteria

Regional Investment Incentives

To promote economic growth in specific regions, New Zealand offers:

• Provincial Growth Fund: Supports regional economic development through grants and loans
• Regional Business Partner Network: Provides business advice and support, including access to innovation and management capability funding

Startup and Innovation Incentives

New Zealand encourages startup growth and innovation through:

• Callaghan Innovation Grants: Offers various grants for R&D, including Getting Started Grants and Project Grants
• New Zealand Venture Investment Fund: Provides investment for early-stage companies

Environmental and Sustainability Incentives

Businesses focusing on environmental sustainability can benefit from:

• Energy Efficiency and Conservation Authority (EECA) Funding: Offers grants for energy-efficient technologies and practices
• Emissions Trading Scheme (ETS): Provides incentives for reducing greenhouse gas emissions

Export Market Development

To support businesses expanding into international markets, New Zealand offers:

• International Growth Fund: Provides co-funding for market development activities
• Export Credit Office: Offers insurance and financial guarantees to exporters

These tax incentives demonstrate New Zealand's commitment to fostering a business-friendly environment that encourages innovation, growth, and international competitiveness. By leveraging these incentives, businesses can reduce their tax burden while contributing to the country's economic development.