Edition No. 1 March 2019 Doing Business Guide This guide has been produced by the Morison KSi New Zealand member About This firm for the benefit of their clients and associate offices worldwide who are Guide interested in doing business in New Zealand. Its main purpose is to provide a broad overview of the various things that should be considered by organisations when setting up business in New Zealand.

The information provided cannot be exhaustive and – as underlying legislation and regulations are subject to frequent changes – we recommend anyone considering doing business in New Zealand or looking to the area as an opportunity for expansion should seek professional advice before making any business or investment decision.

While every effort has been made to ensure the accuracy of the information contained in this guide, no responsibility is accepted for its accuracy or completeness.

The information in this guide is up to date as at the edition date.

For more information, please contact:

Hayes Knight www.hayesknight.co.nz

Business Advisory Taxation Tristan Dean Phil Barlow Business Advisory Director Director E: [email protected] E: [email protected] T: +64 9 448 3231 T: +64 9 448 3233

Hayes Knight office locations Level 1 Level 2 5 William Laurie Place 31-33 Great South Road Albany Newmarket 0632 Auckland 1051 T: +64 9 414 5444 F: +64 9 414 5001

While every effort has been made to ensure the accuracy of the information contained in this booklet, no responsibility is accepted for its accuracy or completeness. www.morisonksi.com Edition No. 1 March 2019 Contents

Introduction 1 Business Structures 3 Labour and Personnel 6 International Mobility 9 Taxation System 11 Banking and Finance 14 Reporting Requirements 17 Agencies Providing Assistance 20 Grants and Incentives 22 Why New Zealand? by population and geographic area Introduction is Auckland. The dominant cultural Given its stable and globally groups are of European, Maori and competitive economy, and efficient Asian descent. Other smaller groups tax regime, New Zealand is a highly include Pacific Islanders and many attractive country to do business in. other ethnicities, which has resulted in an ethnically diverse population. In recent surveys, New Zealand has consistently ranked as one of the English is the everyday language best countries to do business in. spoken in New Zealand; Maori is the New Zealand is recognised as the other official language. most business-friendly environment in the world: the Doing Business Political system 20191 report by the World Bank ranks New Zealand 1st out of 190 New Zealand is an independent countries for the best place in the member of the British world to do business. It is also Commonwealth. Queen Elizabeth ranked as the easiest place in the II is the Head of State, her world to start a business. representative in New Zealand being the Governor General. New Zealand’s location is a great base for doing business in the Asia Parliament is the governing body of Pacific region and globally. It has New Zealand. Parliament is composed many free agreements in place of a single legislative chamber with major economies around the consisting of the House of world, along with closer economic Representatives, which generally has partnerships and economic co- 120 members. The House is elected operation agreements. New for a maximum 3-year term using a Zealand has excellent transport and mixed member proportional (MMP) distribution links. system. MMP is a form of proportional representation where voters each New Zealand is well known for cast a party vote to choose the being a friendly place and given its political party, and an electorate climate, beautiful landscape and vote to choose which individual great living conditions, is a fantastic from their electorate they want to place to live and prosper. be their Member of Parliament.

It is a country that is very Education, social welfare services, welcoming of investors. police, and fire control are under the control of the central government. Geography Territorial councils administer local and community services such as New Zealand is situated in the water supply and rubbish collection. South Pacific Ocean, 1,600 km southeast of Australia. The country Legal system consists of two large islands, the (115,000 km2) and The New Zealand legal system (151,000 km2), together is based on the English common with a number of smaller islands, law system. The judicial system some close to its shores and others comprises three main tiers: the hundreds of kilometres away. lower District Courts, the upper High Courts, and the Court of The population of New Zealand is Appeal, with a further and ultimate 1. http://www.worldbank.org/content/dam/ doingBusiness/media/Annual-Reports/ almost 4.8 million. The capital city appeal to the Supreme Court. English/DB2019-report_web-version.pdf is , but the largest city Until the establishment of the www.morisonksi.com New Zealand 1 Supreme Court (in January 2004), New Zealand’s highest Court of "New Zealand is a free Appeal was the UK Privy Council. market economy that Although there are a number of specialised tribunals and courts competes globally. Its (such as the Environment Court and inflation rate is one the Taxation Review Authority) that have judicial functions, in almost all of the lowest in the cases their decisions can be subject industrial world" to appeal to a higher court.

The economy partners being Australia, China, Japan, Singapore, the UK and New Zealand is a free market the USA. economy that competes globally. Its inflation rate is one of the lowest in New Zealand has a very close the industrial world. trading relationship with Australia, governed by the Australia– New New Zealand’s gross domestic Zealand Closer Economic Relations product (GDP) was NZ$ 289 billion (CER), which has for the year ended March 2018. removed most restrictions on trade In the recent World Bank Doing between the two countries. CER Business survey2, New Zealand was includes undertakings to ensure that ranked as the best country in terms New Zealand is guaranteed access of ease of doing business in the to the Australian market in a number world. New Zealand has also been of industries and to ensure that ranked the 1st least corrupt country, trade develops under conditions of by Transparency International in its fair competition. Corruption Perceptions Index 20173. Foreign investment is welcomed New Zealand has a range of and the government is keen to manufacturing and sectors, promote economic development, which complements a very efficient business, and employment growth, agricultural sector. The economy is as illustrated by the government’s heavily trade-orientated, with the Grown and Innovation Framework, agricultural, horticultural, forestry, which aims to return New Zealand mining, energy and fishing sectors to the top half of the OECD in terms playing an important role in the of GDP per capita. sector and in employment. Overall, the dairy sector continues New Zealand has a freely floating to account for the New Zealand’s exchange rate that typically largest export earnings. fluctuates in line with currencies of its major trading partners, especially New Zealand’s dependence on Australia, Japan and the USA. trade means that it is sometimes vulnerable to fluctuations in New Zealand does not operate commodity prices and to its trading any foreign exchange controls or partners’ economic performance. restrictions on either inward or Despite this, New Zealand is a low- outward flow of funds, nor is there risk place to do business, due to the any requirement to report the long-term stability of its economy transfer of funds. 2. http://www.doingbusiness.org/en/ rankings and political climate. 3. https://www.transparency.org.nz/2017- corruption-perceptions-index-ranks-new- New Zealand has worldwide trading zealand-number-one/ relations, its most important trading www.morisonksi.com New Zealand 2 A foreign investor may conduct from taking part in the management Business business in New Zealand under the of the partnership. entities described below. Structures Trust Sole proprietorship A business may be carried on A sole proprietor is an individual, by a trust. A trust can be set up therefore no separate legal entity is whereby the trustee (or trustees) involved. The business is operated owns the business assets and by the individual through the carries on the business on behalf individual. As no distinction is made of the beneficiaries of the trust. between the business assets and A trust does not have separate the personal assets of the individual, legal existence like a company. All the individual is personally liable in transactions in respect of the trust all aspects of the business. There are undertaken by the trustees. is no system in New Zealand of A trust is, however, required to registering a business name except file a tax return; and in certain the reservation of a company name. circumstances, the trustee is Accordingly, there are no special required to pay tax. steps required to become a sole proprietor. Joint venture

Partnership A joint venture is an arrangement between two or more entities Partnerships are defined in the who contribute resources for a Partnership Act 1908 as the relation specific purpose, usually for a that exists between persons who limited duration. A joint venture carry on a business in common with will not be jointly and severally a view to profit. A partnership is liable unless the nature of the not a separate legal entity. Partners joint venture so prescribes. A joint are jointly and severally liable venture is itself not subject to tax for the partnership’s debts and and is not required to file an income have unlimited liability. Individual tax return, unless it elects to be partners are taxed on their share treated as a partnership for income of partnership income at their tax purposes. A joint venture is a individual tax . separate taxable entity for GST purposes and must file GST returns Limited partnership on its own account. For more information on GST, see the section A limited partnership is a separate on Taxation. legal entity that provides the protection of limited liability for Look-through company its limited partners, but is taxed in the same way as a traditional The look-through company regime partnership. A limited partnership was introduced from 1 April 2011 and must be registered and have a effectively replaced the qualifying partnership agreement, at least one company and loss-attributing general partner and one separate company regimes (however, limited partner. The general existing qualifying companies can partner is liable for all the debts continue). A look-through company and liabilities of the partnership, is transparent for tax purposes. while the limited partner’s liability is Income and expenses pass through limited by their contribution to the to the owners and are taxed at partnership and is also prohibited the owner’s marginal . To www.morisonksi.com New Zealand 3 become a look-through company, Branch of an overseas • Consent of the shareholder (for the following requirements must be company each shareholder) met: • The notice reserving the Before conducting business in company’s name • The entity has separate legal New Zealand, overseas companies • A copy of the constitution, if the existence separate from its must ‘reserve’ their name with the company is to have one. members Registrar of Companies. An overseas • The entity is resident in New company must then register with Applications to the Registrar must Zealand for tax purposes the Registrar of Companies within also include: 10 working days of commencing • The entity has five or fewer business. Registration includes filing: owners • The name and residential address of each director • All owners have look-through • A certified copy of its certificate interests of incorporation and articles and/ • Similar details for the proposed or constitution shareholders, and the number of • A valid election is filed with the shares to be issued respectively Inland Revenue. • A list of its directors and the to them name of a person in New Zealand Company authorised to accept process • Details of the registered office notices on its behalf. and address for service of Companies in New Zealand are documents, both of which must The overseas company may also governed by the Companies Act be in New Zealand. be required to obtain the Overseas 1993. A company is a separate Investment Office’s prior consent. legal entity capable of holding A New Zealand company must have assets in its own name. Company at least one New Zealand resident There is no requirement that New shareholders’ liability may be either director. There is one exception to Zealand directors sit on the board of limited or unlimited, and normally this, in that person can also be a an overseas company. companies are registered with person resident in Australia where shareholder liability limited to that person is also a director of an A branch is not a separate legal the share issue price. To become Australian company. entity from the overseas company. incorporated under the Companies Act 1993, the only requirements are: Shareholders of companies Overseas companies must incorporated in New Zealand prepare separate audited financial • A name automatically receive limited statements for their New Zealand liability. • One or more shares branch and file these, together with • One or more shareholders separate financial statements for Starting a business their worldwide operations, with the • One or more directors, of whom Registrar of Companies. Once an operating structure is at least one director must either chosen, a few other matters must be —— live in New Zealand; or Subsidiary addressed. —— live in an enforcement country and be a director As with a branch, the company name Naming the business who is registered in that must be reserved and the relevant enforcement country administrative documentation must With tens of thousands of (currently, Australia is the be registered with the Registrar of businesses operating in New only enforcement country Companies. Once the name has been Zealand, it is quite possible that your per Regulation 12 of the approved and reserved with the preferred choice could already be Companies Act 1993 Registrar, the following incorporation in use or contain banned words or Regulations 1994) documents must be filed: phrases. There are two places to • A registered office and address check if you can use your intended for service. • Consent to act as a director, and business name: The Companies a certificate for each director Office, or the Intellectual confirming that they are not Office of New Zealand (IPONZ). disqualified from acting www.morisonksi.com New Zealand 4 The Companies Office their own IRD number. To get an IRD number, a New Zealand bank "When a business starts It is possible to reserve a business account is also typically required. employing staff, they name on the companies register for Visit www.ird.govt.nz. 20 days; during this time, it is must register as an impossible for others to reserve the Register with the Companies Office employer with the IRD. same or a similar name. Reserving a company name costs (at the time of In addition to registering with the Upon registering, the print) NZ$ 11.50 and can be done IRD, companies are required to be business is typically online. That name only becomes incorporated with the Companies permanently secured once the Office. While companies require asked whether they company is registered. The an IRD number, rather than also wish to register Companies Office is also the place to going through the IRD this can for fringe benefit tax find government restrictions on the typically be obtained through the types of names you can use. Visit Companies Office when a company (FBT) and the employer www.business.govt.nz/companies/. is registered for incorporation. superannuation This can be done online at the IPONZ Companies Office website (www. contribution tax business.govt.nz/companies/). (ESCT)" This is the organisation where copyright, patents and trademarks Register for goods and services tax on original commercial assets – Registering for licences, consents including business names – are Businesses must register for GST (via and permits registered. The IPONZ database can the IRD) once they reach (or expect be used to determine whether a to reach in the next 12 months) New Zealand’s regional councils preferred business name is already an annual turnover of more than and other regulatory bodies can being used as a commercial asset. NZ$ 60,000. Once registered, also impact upon the running and IPONZ is also where logos and any the business collects GST for the set-up of a business. For example, unique combination of words and government on the goods and ‘work from home’ businesses, images that make up a business services it sells, and can then claim cafés and bakeries first have to brand can be registered as a trade GST back on the goods and services obtain a licence from their regional mark, thus preventing others from bought for the business. Businesses council. The local councils are also copying it. Visit www.iponz.govt.nz. with a turnover under NZ$ 60,000 responsible for regulating health may choose to register voluntarily. and safety standards for all business Note: Unlike companies, sole traders See the section on Taxation to find and building permits. They should and partnerships don’t have any out more about GST. therefore always be the first point protection over their business of contact before starting the names. However, they can apply Register to become an employer business. Some industries also have for a trade mark from IPONZ for to abide by a specialist regulatory their brand or logo to give them When a business starts employing authority that regulates product exclusive rights to use it in a unique staff, they must register as an and service standards, the use way. employer with the IRD. Upon of environmental resources, and registering, the business is typically anything else that might concern Registering your business asked whether they also wish to public safety by ensuring that register for fringe benefit tax (FBT) businesses adhere to the relevant Register with the Inland Revenue and the employer superannuation standards and codes of practice. Department contribution tax (ESCT). See the Visit http://www.business.govt.nz/ sections on Taxation and Labour laws-and-regulations/regulatory- All businesses in New Zealand are and Personnel to find out more authorities.www.hayesknight.co.nz required to register with IRD for about these. Businesses that only 11 tax purposes. Businesses operating hire contractors are not required to under a sole trader and partnership register as an employer unless the structure can lodge the business’s type of work undertaken by the income under the owner’s personal contractor falls under the schedular IRD number. Partnerships must have payments regulations. www.morisonksi.com New Zealand 5 Labour relations in New Zealand their members’ individual rights at Labour and are governed by various legislation, mediations and court proceedings. the primary statute being the Employers cannot unreasonably Personnel Employment Relations Act refuse union access, even for 2000. This Act places emphasis purposes of recruitment. on collectivism, although union membership is voluntary. The main 90-day trial period features of the Act are: Small employers (i.e. businesses • Employers must comply with with <20 employees) are able to requirements including those engage new employees on a trial regarding hiring, union rights, period of up to 90 days, provided collective bargaining and strikes this is recorded in the signed and lockouts employment agreement. During • All employment agreements must this 90-day period, the employee be recorded in writing can be dismissed and cannot raise a personal grievance on the grounds • Good faith is to be exercised in the of unjustified dismissal. While an process of bargaining collective employer is not required to provide employment agreements, written reasons for an employee’s requiring the parties to: dismissal, there is an expectation —— not mislead or deceive each that an employer, acting in good other faith, would inform the employee as to why they have been dismissed. —— be active and constructive —— be responsive and KiwiSaver communicative in their employment relationship. The KiwiSaver scheme is a voluntary work-based savings initiative If an employer proposes a aimed at helping restructure or sale of the business, with their long-term saving for then they have a (of good faith) retirement. KiwiSaver came into to give each affected employee effect in July 2007. information about the relevant proposal and an opportunity for KiwiSaver is said to be work-based that employee to provide feedback for two reasons: employers are or comment on the proposal before expected to provide information any decision is made. about KiwiSaver to their employees, and KiwiSaver contributions come Although union membership is not directly out of an employee’s pay. compulsory, unions have specific rights of access to workplaces. Contributions can be deducted Employers must recognise that the from the employees pay at the union represents their employees. rate of 3%, 4% or 8%. Employees nominate the rate of their employee Unions deductions. The chosen rate can be change at any time. In New Zealand, union membership is voluntary; but if an employee Where an employee has elected wants to be involved in a collective into a KiwiSaver scheme, employers agreement and to bargain are also required to contribute the collectively, they must be a member equivalent of 3% of their employee’s of a union. Union representatives gross salary or wages to their have specific rights of access to employee’s KiwiSaver account or workplaces and can represent complying fund. www.morisonksi.com New Zealand 6 A complying superannuation fund Further deductions from pay is a section within a registered may be required to be withheld superannuation scheme that has depending on the employee’s been approved by the Financial circumstances (e.g. repayments of Markets Authority as having met student loans). certain criteria similar to KiwiSaver. Employers are obligated to calculate Fringe benefits ESCT on any employer cash contributions made to a registered The fringe benefit regime is superannuation scheme for an designed to impose tax on the employee. employer in respect of non-cash benefits provided to employees KiwiSaver employer contributions by reason of past, present or are paid with PAYE, while future employment. Fringe benefit any contributions made to an tax (FBT) is generally payable in employee’s complying funds will quarterly instalments by employers still need to be paid directly to the on the value of fringe benefits applicable scheme. provided to employees and shareholder employees. The value of It is worth noting that KiwiSaver fringe benefits is not included in the schemes are managed by private employee’s gross income amount. sector companies called KiwiSaver providers, of which there are Employers with PAYE and ESCT several to choose from. KiwiSaver deductions not in excess of is therefore not guaranteed by the NZ$ 500,000 per annum can pay government. FBT on an annual basis.

For more information about Occupational health and safety KiwiSaver, visit www.ird.govt.nz/ /employers/. The main purpose of Health and Safety at Work Act 2015 is to Deductions from pay provide for a balanced framework to secure the health and safety Employers are required to withhold of workers in the workplace by tax from wage and salary payments eliminating or minimising risks arising and return this to the Inland from work, so protecting workers Revenue Department (the PAYE and other persons against harm to regime). The rate of withholding their health, safety and welfare. depends upon the relevant employee’s individual tax rate. The Employers have a general duty to employer must also withhold the ensure workplace safety. employee’s Accident Compensation Corporation earners levy and The Act allows for premises to be may be required to make other inspected and improvement and withholdings. prohibition notices may be issued to stop activities. Failure to comply If the employee is a member of with the Act is a criminal offence, a KiwiSaver retirement savings with fines of up to NZ$ 3 million scheme, the employer will be and/or 5 years’ imprisonment. required to withhold the employee’s contribution (usually 3% of gross Workers’ compensation pay) and will be required to make a compulsory employer contribution Under New Zealand domestic (a minimum 3% of the employee’s law, there is no right to sue for gross pay). www.morisonksi.com New Zealand 7 damages for accidental injury. Sick leave Instead, New Zealand’s Accident "Since 1 July 2018, Compensation Corporation (ACC) For most employees, there is a government-funded operates a comprehensive scheme minimum provision of 5 days’ paid focusing on the needs of the injured sick leave a year after the first 6 paid parental leave person. The system removes the months of continuous employment entitles primary need to determine liability before and an additional 5 days’ sick leave compensation is provided to after each subsequent 12-month caregivers to receive accident victims. period. Exceptions are covered up to 22 weeks’ paid under ‘The Effect of Various Work Both employers and employees Patterns’ in the Holidays Act 2003. leave. This will increase are required to contribute to the to 26 weeks from 1 July scheme, so as to cover work and New Zealand employers are entitled 2020" non-work accidents. The employer’s to ask for proof of sickness or injury account is funded by an annual levy at any time. If the employee has imposed on the employers and self- been away from work for <3 days, employed people. The employee’s then the employer must reimburse The maximum level of payment is or earner’s levy is collected under the employee for the cost of NZ$ 564.38 per week before tax. the PAYE system. obtaining the proof (e.g. doctor’s visit). If the employee has been Employees are entitled to either Holidays and leave away for ≥3 consecutive days, then their gross weekly rate of pay they meet the costs. (before tax) or NZ$ 564.38, In New Zealand, this is governed whichever is lower. For more by the Holidays Act 2003, which Bereavement leave information on parental leave, visit outlines minimum legal entitlements www.dol.govt.nz. as summarised below. On the death of an immediate family member, employees are For public holidays, alternative Annual holidays entitled to up to 3 days’ paid holidays, sick leave and leave. Where there is more than bereavement leave, an employee is All employees are entitled to one bereavement, the employee entitled to either their relevant daily ≥4 weeks’ paid holidays a year. is entitled to 3 days’ bereavement pay or average daily pay. This entitlement comes into effect leave in respect of each death. on their first and subsequent anniversaries after starting work In the event of a death outside with an employer. Annual holidays the immediate family that causes can be taken at any time agreed a person to suffer bereavement, between the employer and the up to 1 day’s paid leave may be employee. All employees must be taken if the employer accepts given the opportunity to take at that the employee has suffered least two of the 4 weeks’ holidays bereavement. For more information, consecutively, if they wish. visit www.dol.govt.nz.

Public holidays Parental leave

All employees are entitled to a paid The Parental Leave and day off on a public holiday if it Employment Protection Act 1987 would otherwise be a working day. provides for both parents to take Public holidays are separate from specified periods of parental leave and additional to annual holidays. (unpaid) on the birth or adoption For more information on paying of a child. Since 1 July 2018, employees who work on public government-funded paid parental holidays and alternate holidays for leave entitles primary caregivers to working public holidays, visit receive up to 22 weeks’ paid leave. www.dol.govt.nz. This will increase to 26 weeks from 1 July 2020. www.morisonksi.com New Zealand 8 Visa requirements if they do not meet any other International criteria for residence. New Zealand has a reasonably Mobility open-door immigration policy, Long-term business visa particularly for skilled migrants and for entrepreneurs with the resources Individuals wanting to establish their and capital to contribute to the own business, or to buy a minimum economy by setting up a business in 25% stake in an existing business, New Zealand. can apply for a long-term business visa or permit. As well as satisfying If you are not a New Zealand/ English language, health and Australian national, you will need a character requirements, applicants visa to work in New Zealand. Visa must have: types include: • Sufficient funds to support their • Temporary work visa business, themselves and their family • Long-term business visa • A sound business plan, with • Residence visa. realistic financial forecasts, that shows how the grant of the visa Applicants for any visa must be of will be of benefit to New Zealand good character and hold a valid by passport that expires ≥3 months after the proposed date of —— creating new employment departure. opportunities; —— saving a failed or failing Temporary WORK VISA company;

Work visas are time-limited and —— improving ; or can be issued for a period of up to —— introducing new (or 3 years. To qualify, foreign nationals expanding on existing) must have a job offer: business concepts, technologies, services or • For an occupation on the skills products. shortage list; or • Relevant business experience • From a New Zealand employer or other expertise, including who occupational registration where —— is accredited or has approval appropriate to recruit foreign workers; or • A good record: no business —— can prove there are no failures in the previous 5 years, suitable New Zealand and never any involvement in applicants for the job. business fraud or wrongdoing.

An applicant may also be eligible The long-term business permit is when coming here for a specific issued initially for 9 months, but will purpose that will be of benefit to be extended to 3 years provided New Zealand. the holder has started the business within the initial visa period. Employees of a business which is Two years after establishing the relocating to New Zealand can also business, the applicant may begin apply for a work permit and, later, an application for residence under for residence under the ‘Employee the entrepreneur category. of a Relocating Company’ category,

www.morisonksi.com New Zealand 9 Residence visa "Persons who have a The main paths to New Zealand successful business residence are through the following categories: and who have decided that they wish to • Skilled migrant live in New Zealand • Investor permanently can apply • Entrepreneur directly for a residence • Family. permit under the Skilled migrant category entrepreneur category"

The skilled migrant category operates on a points system with Entrepreneur category points awarded for qualifications, work experience, age, whether the Persons who have a successful person has a job offer, and other business and who have decided settlement factors. In addition, that they wish to live in New applicants must satisfy health, Zealand permanently can apply character and English language directly for a residence permit proficiency standards. Only those under the entrepreneur category. who meet the appropriate criteria This also requires a minimum are invited to apply for residence. capital investment of NZ $100,000 (excluding working capital) or Investor category NZ $500,000, depending on the category applied for. There are two investor categories: Family category • Investor 1 category (Investor Plus) —— Requires an investment of Applicants may be able to apply NZ$ 10 million for 3 years for residence based on their family connections in New Zealand. The —— No age restriction or English main options are: language requirement —— Must stay in the country for • Partner: Living with a New 44 days in each of the last Zealand resident or citizen 2 years of a 3-year investment creates an opportunity to apply period, or 88 days over the for residence on partnership 3-year investment period. grounds in some circumstances. • Parent: The parents of a New • Investor 2 category (Investor) Zealand citizen or resident may —— Requires an investment of be eligible to apply for residence NZ$ 3 million for 4 years if they have an equal or greater —— The applicant must be aged number of children living permanently in New Zealand <65 years, have ≥3 years’ business experience and have than in any other country. There some English language skills is, however, a limit to these and Immigration New Zealand is not —— Must stay in the country currently looking for expressions ≥146 days in each of the last of interest, until further notice. 3 years of the 4-year period.

www.morisonksi.com New Zealand 10 is imposed under the or not they have such an abode Taxation Income Tax Act 2007. Generally, outside New Zealand; or residents in New Zealand are • are physically present in New System taxed on their worldwide income, Zealand for >183 days in aggregate with a credit available in most within any 12-month period. circumstances for foreign paid. Non-residents are only taxed If an individual is resident in New on income derived from a New Zealand and is also a resident under Zealand source, although the the domestic laws of a country with liability may be reduced under a which New Zealand has a double agreement. tax agreement, the ‘tie-breaker’ provision in that agreement will The tax year runs from 1 April to determine where the individual 31 March. Taxpayers must apply to is resident for the purposes of the IRD for permission to adopt an applying the agreement for the alternative balance date. relief of double taxation. Income for tax purposes is widely A 4-year domestic income tax defined and includes business exemption for foreign-sourced trading profits and most forms of income (excluding employment return on investment. New Zealand or services income) is available for does not have a comprehensive overseas individuals who become regime (although New Zealand tax residents (referred note that a CGT regime is currently to as the ‘transitional resident’ being considered and there is exemption). The exemption does a high probability this will be not apply if the individual has been brought into legislation in the a New Zealand tax resident within coming years). There are, however, the last 10 years. specific provisions that effectively tax capital gains on certain Current income tax rates for transactions. These transactions individuals are shown in Table 1. include: Table 1. Current income tax rates for • Profits from the sale of land in individuals. certain circumstances Tax • Certain royalty payments Annual income bracket (NZ$) rate 0–14,000 10.5% • Profits from the sale of any 14,001–48,000 17.15% personal property acquired with the purpose of sale or pursuant 48,001–70,000 30% to a profit-making scheme >70,001 33% • Gains from any ‘financial arrangements’ (e.g. loans or Taxation of companies deposits) under the accrual regime. Companies are treated as New Zealand tax residents if they meet any of the following criteria: Taxation of individuals • They are incorporated in New Individuals are resident in New Zealand Zealand for income tax purposes if they • They have their head office situated in New Zealand • have a permanent place of • They have their centre of abode in New Zealand, whether management in New Zealand www.morisonksi.com New Zealand 11 • Control of the company by their derived by the trustees will either directors is exercised in New be ‘trustee income’ or ‘beneficiary Zealand, whether or not decision- income’, depending on whether making by their directors is or when it is distributed to a confined to New Zealand. beneficiary. Trustee income is taxed at 33%. Beneficiary income is Similarly, tie-breaker provisions taxed at the recipient beneficiary’s apply for the purpose of double tax marginal tax rate. However, agreements. distributions to beneficiaries who are minors are taxed at a 33% rate in Currently, resident and non-resident most instances. companies are subject to a rate of 28%. Distributions to beneficiaries of things other than beneficiary income The imputation system can also be subject to tax. This will allows New Zealand resident depend on the classification of the companies to pass on to their trust in relation to that distribution. shareholders credits for the New For instance, if the trust is a ‘non- Zealand income tax paid by the complying trust’, distributions of company. The credits attach to accumulated trustee income and paid and taxable bonus capital gains to a beneficiary are issues, including bonus shares in lieu. taxed at a rate of 45%. There are complex rules to determine the New Zealand-resident companies clarification of the trust and the must maintain an imputation credit source of the distribution. account. This is a memorandum account that records tax paid and the Taxation of partnerships and allocation of credits to shareholders. limited partnerships Where resident individual shareholders receive dividends with A partnership and limited imputation credits attached, they partnership are not in themselves may offset these credits against liable for income tax. However, their personal tax liability. Resident they are required to file a tax corporate shareholders may also return for information purposes. offset credits against their tax It is the individual partners in a liability except where the dividend partnership who will be taxed on is exempt from income tax. Non- their share of partnership income resident shareholders cannot at their individual tax rates. Losses benefit from imputation credits incurred by the partnership will under the foreign investor also be passed through directly to regime, but can mitigate partners. There are no restrictions withholding tax on dividends. based on residence and the number of entitlements of the flow through Most inter-company dividends are tax treatment under the partnership taxable. However, dividends may not rules. However, limited partners be taxable to a shareholder when in limited partnerships can be that shareholder is also a company restricted with regard to the amount and is a member of the same wholly of losses they can utilise. owned group of companies as the payer of the dividends. Goods and services tax

Taxation of trusts GST is a imposed on the supply of goods and The trustees of a trust generally services in New Zealand, and on are treated as a taxpayer. Income www.morisonksi.com New Zealand 12 imported goods. Although the tax Exempt supplies • GST imposed on imports. is generally levied at the standard rate (currently 15%), some supplies There are a limited number of The New Zealand Service are taxed at a nil rate (zero-rated) exemptions from GST: collects these duties. The rate of and a small number of specified duty payable is determined by the supplies are exempt from the tax. All • Financial and banking services classification of the goods under the commodities, with the exception of (extensively defined) Customs and Act 1996. money, are subject to GST. • Supplies by charities and other non-profit organisations of GST is not a tax on business profits goods and services received as or turnover but on consumption donations Stamp duty has been abolished in of goods and services, and is New Zealand since 20 May 2009. ultimately paid by the consumer • Residential property rentals and or end user. The tax is paid at each the associated sale or lease of Estate duty step along the chain of ownership, freehold or leasehold residential until the goods or services reach the property No estate or death duties are end user. Registered businesses and • Sale of precious metals, e.g. gold payable in New Zealand. other organisations account for the or silver as a commodity. The GST they have collected, and claim exemption does not apply to the a credit for the GST on business and thin manufacture and sale of jewellery inputs, including capital items such capitalisation and other collectables. as plant and equipment that they have paid. Through the operation New Zealand’s transfer pricing rules of this credit offset system, a net Gift duty attempt to protect the New Zealand figure is returned by registered tax base by ensuring that cross- entities in their GST returns that Gift duty was abolished from border transactions are priced on must be lodged at monthly, 1 October 2011. an arm’s-length basis. New Zealand 2-monthly or 6-monthly intervals. also has thin capitalisation rules that Businesses must register for GST Excise duty disallow certain interest deductions where their annual turnover exceeds for a foreign-owned New Zealand NZ$ 60,000. Excise duty, in addition to GST, group, depending on their debt/ is imposed on certain goods equity ratio. Zero-rated supplies manufactured in New Zealand, being beer, wine, alcohol, tobacco As with most other developed As GST is confined to consumption products and fuels. countries, New Zealand has a of goods and services in New comprehensive international tax Zealand, certain export transactions Customs duty regime. are zero-rated. Zero-rated supplies include: Customs duty refers to a number of imports, including: • Exported goods • Excise duty and excise- • Supply of goods situated out of equivalent duty payable on a New Zealand variety of goods such as alcohol • Exported services such as and tobacco international transportation • Duty imposed on certain imports and freight, services performed under the Act 1988 outside New Zealand and certain services supplied to non- • Anti-dumping and countervailing residents. duties that can be imposed where it is considered that In addition, transactions involving goods are being ‘dumped’ land between two GST registered in New Zealand or they have persons can generally be zero- been subsidised by a foreign rated. government, respectively www.morisonksi.com New Zealand 13 Raising capital in New Zealand management role, which explains Banking and why their return expectations are The most common types of funding higher (30–50% per annum) on Finance available for business development their investment. and growth are summarised below. See www.vcapital.com.

• Personal equity, friends and Banking family: A high proportion of businesses are funded by the The bank manages monetary policy business owner’s own equity to maintain price stability, promotes (capital), i.e. savings and/or a the maintenance of a sound and loan or mortgage raised against efficient financial system, and the owner’s home. Further supplies New Zealand’s banknotes capital can be raised from friends and coins. and family. Personal equity can also include the cash flow or All 26 banks operating in New savings that have built up in a Zealand must be registered with the business. While cost-effective Reserve Bank of New Zealand and funding is available, this often are required by law to disclose their takes an extended period of time financial condition each quarter. The to build up. banks with the largest presence are: • Banks are the second most common source of funding for • ANZ Bank New Zealand Ltd business development. This • ASB Bank Limited funding can take various forms, such as short-term funding • Bank of New Zealand (for instance, an overdraft) to • Westpac New Zealand Limited meet immediate commitments, or longer-term funding for • Kiwibank Limited capital items (such as plant and machinery). Kiwibank Limited is owned and operated through New Zealand’s • Angel investors are people national postal operator, NZ Post. prepared to invest in a promising business venture, often at a The rest are owned by larger relatively early stage of the Australian banks. business life cycle. The investor typically requires some equity The 21 other registered banks are: (ownership) in the business to offset their investment risk and • Australia and New Zealand expects at least a 30% return on Banking Group* their money. See www.bizangels.co.nz or • Bank of Baroda (New Zealand) www.angelassociation.co.nz. • Bank of China Limited* • Venture capitalists are • Bank of China (New Zealand) investment companies or fund • Bank of India (New Zealand) managers that provide cash in return for part-ownership of a • China Construction Bank business. They are typically only Corporation* interested in investments that • China Construction Bank (New exceed NZ$ 1 million due to the Zealand) Limited time and cost associated with due diligence procedures. They • Citibank NA* may also expect to take an active • Commonwealth Bank of Australia* www.morisonksi.com New Zealand 14 • Heartland Bank must, among other things, have ≥50 shareholders. NZAX • Industrial and Commercial Bank also recommends that such of China (New Zealand) Limited companies have annual turnover • JP Morgan Chase Bank* of between NZ$ 5 and 50 million. • Kookmin Bank • New Zealand Debt Market • Coöperatieve Rabobank U.A. (NZDX), for corporate and trading as Rabobank Nederland* government bonds, fixed-income and other debt securities. • Rabobank New Zealand • Southland Building Society The primary regulators of New Zealand’s capital markets are the • MUFG Bank, Ltd* Financial Markets Authority (FMA), • The Co-operative Bank NZX and the Takeovers Panel. • The Hongkong and Shanghai Banking Corporation HSBC* Regulation of foreign investments in New Zealand • TSB Bank Limited • Westpac Banking Corporation* New Zealand’s regulations governing foreign investment are *Branches of overseas-incorporated liberal by international standards. banks. There are no rules on the maximum level of equity interest a foreign Capital markets investor may take in a New Zealand enterprise, except with respect New Zealand has a small but well- to ownership of domestic fishing developed capital market, on which quotas, Telecom and Air New securities are actively traded. The Zealand. New Zealand Exchange (NZX) is the only registered securities exchange The Overseas Investment and regulates three primary markets: Commission (OIC) is a statutory body with responsibility for • New Zealand Stock Market approving certain classes (NZSX), the premier equities of investment proposals by market for large and established prospective overseas investors. enterprises. To list on the NZSX market the company must, There are no restrictions on the among other things, have an movement of funds in or out appropriately qualified board of New Zealand, including the of directors, ≥500 shareholders repatriation of profits. No additional who hold ≥25% of the class of performance measures are imposed securities between them, and on foreign-owned enterprises. An comply fully with NZX disclosure application to the OIC must be and other requirements. NZX made by non-residents planning to also recommends that such invest more than NZ$ 100 million companies have annual revenue establishing a business, or to of at least NZ$ 50 million. purchase an equity share of >25% in a New Zealand company worth • New Zealand Alternative Market more than NZ$ 100 million. OIC (NZAX), for fast-growing approval is also required to invest in small and medium enterprises some land over 5 hectares, islands, (SMEs) looking for additional and any foreshore or reserve land sources of capital. To list on over 0.4 hectares. the NZAX market the company www.morisonksi.com New Zealand 15 Clearance considerations for acquisitions other than those of a "Foreign-owned sensitive nature include: businesses should • The prospective investor’s allow plenty of time relevant business experience for the opening of a • Confirmation that it is their own bank account, which capital at risk has become a slower • Absence of a criminal record that would disqualify the prospective and more complex investor from obtaining process as a result of permanent residence in New Zealand. legislation to combat money laundering It is rare for investment applications and other banking to be declined. regulations" The Fisheries Act 1996 contains specific restrictions on overseas investment in fishing. Only a net very wide, meaning that a large resident may own a fishing quota number of entities will be captured (entitlement to take fish). by this legislation.

Bank accounts If caught by the Act, entities need to implement comprehensive Foreign-owned businesses should policies and procedures to assess allow plenty of time for the opening and cover potential risk. They of a bank account, which has must demonstrate that they become a slower and more complex are complying with the Act and process as a result of legislation to regulations, and will need to combat money laundering and other report to the relevant statutory banking regulations. supervisors.

Legislation against money laundering and the financing of terrorism

New legislation to combat money laundering and the financing of terrorism took effect in New Zealand on 30 June 2013. The Anti- Money Laundering and Countering Financing of Terrorism Act 2009, a mouthful referred to as the AML/CFT Act by most users, is significant legislation that imposes requirements on many different types of entities.

This Act applies to ‘reporting entities’, defined by the types of transactions they undertake. The type of transactions list has been drafted very broadly and casts the www.morisonksi.com New Zealand 16 Reporting and audit The Financial Reporting Act 2013 is Reporting requirements the umbrella legislation regarding financial reporting requirements in Requirements New Zealand. It defines generally Under the Companies Act 1993 accepted accounting practice and the Financial Reporting Act as applicable financial reporting 2013, every company must keep standards as issued by the external accounting records that: reporting board, the government’s accounting, audit and assurance • Correctly record and explain standard setter. company transactions • Will at any time enable the Requirement to prepare company’s financial position to company financial statements be determined with reasonable accuracy The requirement for companies to • Will enable the directors prepare general-purpose financial to ensure that the financial statements will apply to: statements are prepared in accordance with the provisions • Overseas company and New of the Financial Reporting Act, Zealand subsidiaries of a body 2013 corporate incorporated outside of New Zealand if the total • Will enable the financial assets of the company and its statements to be readily and subsidiaries were more than properly audited for companies NZ$ 20 million, or if total revenue that are required to file financial was more than NZ $10 million statements annually with the per year (assessed over the two Companies Registrar. preceding accounting periods) Further provisions of the Companies • Some large companies that carry Act specify particular types of on business in New Zealand. accounting records to be kept; that ‘Large’ is defined as assets they are to be kept in English, and exceeding NZ$ 60 million, or retained for a period of ≥7 years revenue exceeding NZ$ 30 from the year they were filed. million (assessed over the two preceding accounting periods) Financial statements must be • Companies with ≥10 supplied to shareholders at least shareholders unless, through a every calendar year and must 95% majority vote, the company comply with statutory disclosure opts out of compliance requirements, including an overriding requirement to: • Companies with <10 shareholders if shareholders who hold ≥5% • Present a ‘true and fair view’ of of the voting shares require the the company’s financial position company to comply. at the date of accounts, and of its operations for the period up In addition: to that date • Financial statements must be • Comply with Generally Accepted prepared in accordance with Accounting Practice (GAAP) for GAAP within 4 months of the companies that are required to balance date for Financial file financial statements annually Markets Conduct (FMC) reporting with the Companies Registrar. entities, and 5 months from the balance date for large entities www.morisonksi.com New Zealand 17 • Parent entity financial statements Requirement to register are not required if group financial company financial statements statements are prepared • In respect of the Companies Act, The registration requirement for Section 211 required disclosures overseas companies is restricted in annual reports; the threshold to large overseas companies and has been reduced. Shareholders large companies with 25% overseas who hold ≥95% of the voting ownership. rights will be able to agree to exclude information from In addition, any company that is a the annual report; previously, subsidiary of an overseas entity, unanimous agreement was and that is required to prepare required. financial statements, must register its financial statements. Requirement to audit Large overseas companies and large company financial statements companies controlled by overseas interests must provide a copy The audit requirement applies of their financial statements and to the same companies as noted auditor’s report to the Registrar of above, and the same opt-in/ opt-out Companies within 5 months of the provisions apply. balance date. In addition: Each year, every company must file an annual return of directors, • Large companies (other than shareholders and other matters with those that are required to register the Registrar of Companies. their financial statements) can opt out of the audit requirement through a 95% majority vote Other entities

• Audits must be carried out in Large partnerships accordance with auditing and assurance standards (but the Large partnerships must prepare Registrar can recognise overseas financial information in accordance standards) with GAAP. This information must • An auditor is required to be be audited unless the partnership appointed only if the financial opts out of compliance by passing a statements or group financial resolution by partners who together statements of the company are have contributed ≥95% of the required to be audited. capital.

Auditors of companies are required Charities to be chartered accountants holding a valid certificate of public practice. Charities that have successfully Auditors of FMC entities, essentially registered with the Charities any entity offering debt or equity Commission are not subject to securities to the general public, are income taxation in New Zealand. required to be audited by a licensed They will be required to prepare auditor from a registered audit firm. financial information in accordance The licensing and firm registration is with GAAP, as appropriate for regulated by the Financial Markets charities. Authority. The External Reporting Board governs accounting standards for

www.morisonksi.com New Zealand 18 the different tiers of Public Benefit Consumer protection Entities (PBE), which will include registered charities. These PBE In New Zealand, consumers are accounting standards are based protected by two primary pieces on International Public Sector of legislation: the Fair Trading Act Accounting Standards and modified 1986, and the Consumer Guarantees as appropriate for the New Zealand Act 1993. However, unlike some environment and size of entity. countries, in New Zealand there is no power to stop repeat offenders Securities law from trading.

In New Zealand the Financial The Fair Trading Act 1986 aims Markets Conduct Act 2013 to protect consumers against (“FMC”) has a primary objective misleading or deceptive behaviour. to facilitate capital market activity The Act is enforced by the to help businesses grow, and and gives promote confident and informed consumers direct rights of action. participation in the financial Anyone providing goods or services markets. The FMC seeks to do needs to be aware of the Act. this by changing the way in which information on investment products The Consumer Guarantees Act 1993 is presented. ensures that certain guarantees are in place around goods and services Where an offer of securities is to protect New Zealand consumers. ‘regulated’ a product disclosure The Act also offers remedies statement (“PDS”) must be (damages and the right to cancel a prepared. The PDS is intended to contract) should goods and services be a fairly streamlined document not live up to these guarantees. focusing on the substance of the investment rather than form. The It is worth noting that the Act does FMC states when investments can not apply to dealings of a business- be offered without a PDS, which to-business nature and that most allows for a more limited disclosure commercial contracts specifically of information to an investor. acknowledge this. The Act only applies to persons buying goods Competition law or services for the purposes of household or domestic use. The Commerce Act 1986 is the key competition statute. It aims to promote competition and prohibits:

• Agreements that have the purpose or effect of substantially lessening competition • Price fixing • Taking advantage of market power to exclude competition • Resale price maintenance • Business acquisitions that are likely to have the effect of substantially lessening competition.

www.morisonksi.com New Zealand 19 There are many government New Zealand Story – Agencies organisations in New Zealand that www.nzstory.govt.nz/ seek to assist businesses to set up Providing and operate in New Zealand. For New Zealand exporters looking for support in communicating their Assistance New Zealand Trade and distinctly attributes to the Enterprise – world. www.nzte.govt.nz/ Immigration New Zealand – NZTE is New Zealan’’s international www.immigration.govt.nz/ business development agency. new-zealand-visas/options/ They exist for one purpose – to start-a-business-or-invest/i- grow your business internationally, bigger, better, faster. want-to-invest-or-do- business-in-nz. Business.govt.nz – www.business.govt.nz/ Immigration New Zealand works with international organisations and industry partners to improve border Business.govt.nz makes it easier security and make immigration for small business in New Zealand easier. They also lead government to understand and comply with strategy designed to help migrants government, and succeed. They settle in New Zealand. do this by packaging content and advice from across government into tools and resources designed New Zealand Now – with small business in mind. They www.newzealandnow. work closely with small businesses govt.nz/investing-in-nz/ across New Zealand, government investment-options/starting- agencies, and private sector a-business businesses and organisations, to understand small-business pain This resource contains information points and how to address them in to assist businesses on how to start the most effective way. up a business New Zealand. Business.govt.nz is part of the Ministry of Business, Innovation and New Zealand Companies Employment (MBIE) and is focused Office – on achieving the government’s www.companiesoffice.govt. Better for Business objectives. nz/

Ministry of Business, A resource for those operating a Innovation and Employment company. The Companies Office – www.mbie.govt.nz/ website is used to incorporate Companies and file of annual The MBIE is the government’s returns. You can also search for leading business-facing agency. New Zealand companies, directors Its contribution to improving the and shareholders and view various well-being of New Zealanders is incorporation documents. summarised in its mission statement: ‘to grow New Zealand for all’. Investing in Auckland – www.aucklandnz.com/ business-and-investment

www.morisonksi.com New Zealand 20 An insight into Auckland, New Zealand’s biggest city.

New Zealand Foreign Affairs and Trade – www.mfat.govt.nz/

MFAT negotiates and defends access to overseas markets, and helps our exporters to be successful and contribute to international solutions. MFAT contributes to solutions for climate change, and helps form global agreements to protect fragile environments. MFAT manages New Zealand Development Assistance, which invests in sustainable development in the Pacific and beyond.

www.morisonksi.com New Zealand 21 New Zealand Trade and Enterprise Grants and (NZTE) is the government department responsible for helping Incentives New Zealand businesses grow and compete internationally via a range of services, programmes and information.

• NZTE Capability Development Vouchers can be used to access subsidised services (up to 50%) that will help build management capability within the business, which in turn may accelerate the growth of your business. These services are primarily delivered through one-on-one coaching or workshops. • Ministry of Science and Innovation (MSI) Research and Development. Business R&D is a key driver of innovation, business success and economic growth. Therefore a range of MSI services are available to help businesses grow through all stages of R&D. Funding can range from NZ$ 1,000 to over NZ$ 1 million. • Industry Capability Network (ICN). The Industry Capability Network (ICN) exists to help local businesses get involved with major projects in New Zealand and Australia. ICN New Zealand also helps the New Zealand businesses it works with to become more capable and build relationships that will take them into other international markets. • The Manufacturing+ Programme offers selected high-growth businesses the opportunity to participate in Manufacturing+ workshops to help them achieve peak performance. Some businesses may also be eligible for more intensive in- house training sessions to help them embed Manufacturing+ principles into their business.

For more information on NZTE and how they assist New Zealand businesses, visit www.nzte.govt.nz. www.morisonksi.com New Zealand 22 The Next Step

To discuss your needs, please contact:

Hayes Knight www.hayesknight.co.nz

Business Advisory Taxation Tristan Dean Phil Barlow Business Advisory Director Tax Director E: [email protected] E: [email protected] T: +64 9 448 3231 T: +64 9 448 3233

Hayes Knight office locations Level 1 Level 2 5 William Laurie Place 31-33 Great South Road Albany Newmarket Auckland 0632 Auckland 1051 T: +64 9 414 5444 F: +64 9 414 5001

Disclaimer: Morison KSi is a global association of independent professional firms. Professional services are provided by individual member firms. Morison KSi does not provide professional services in its own right. No member firm has liability for the acts or omissions of any other member firm

March 2019 arising from its membership of Morison KSi. www.morisonksi.com