New Zealand Update: Cross border employment: to deduct, or not to deduct?

The IRD has released a draft operational statement clarifying the obligation of non-resident employers to deduct taxes (PAYE, FBT and ESCT)

We have recently had a number of non-resident employer clients querying their obligations to deduct PAYE (income tax) from the wages and salaries of their employees based in New Zealand. In many of these cases, the employees are New Zealand citizens/residents who have returned to New Zealand for the foreseeable future due to the COVID-19 pandemic, but are continuing to provide their services to their overseas employer normally, albeit remotely.

The IRD has released a draft operational statement clarifying the obligations of these employers. In summary, non-resident employers will only have an obligation to withhold PAYE and return FBT and ESCT if they have a sufficient presence in New Zealand to be subject to New Zealand tax law, and the employee’s services are attributable to the employer’s presence in New Zealand. No withholding obligations will arise where the employee is a non-resident and the payment is exempt income or where relief is provided by a Double Taxation Agreement.

A non-resident employer may have a sufficient presence if it has a trading presence in New Zealand and a workforce performing services attributable to that trading presence. However, merely having an employee present in New Zealand who is only performing services attributable to the employer’s overseas activities will likely not constitute a sufficient presence.

This Operational Statement has not yet been confirmed by the IRD. However, if issued it will provide helpful clarity to overseas employers. Overseas employers will still have to address the employment law and immigration issues potentially arising from having an employee based in New Zealand.

By Quigg Partners, New Zealand, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact newzealandlabor@transatlanticlaw.com

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