New Zealand tax: Reminder of Nonresident Contractor Tax obligations

It is relatively common for New Zealand businesses to engage nonresidents to perform work or provide services in New Zealand. For example, a nonresident contractor might visit New Zealand to assist with an installation project or to provide services. In certain situations, New Zealand companies may have obligations to withhold tax (generally at 15%) from contract payments made to a nonresident – this tax is known as the nonresident contractor tax (NRCT).

Liability for NRCT will arise where work is physically performed in New Zealand, services are rendered in New Zealand or where a nonresident provides personal property for use in New Zealand (e.g. the lease of equipment for use in New Zealand). The payor generally must withhold the amount of tax from contract payments made to the nonresident contractor and remit that amount to the New Zealand tax authorities (i.e. Inland Revenue).

The following types of payments are specifically excluded from NRCT:
- Royalties (as defined);
- Payments that merely reimburse a non-associated party for costs; and
- Payments for labor-only building work.

NRCT is not required to be withheld by the payor in the following circumstances:
- When the nonresident is entitled to full relief from tax under a tax treaty and is present in New Zealand for no more than 92 days in a 12-month period; or
- When the total contract payment paid in a 12-month period is NZD 15,000 or less; or
- When the nonresident produces a valid certificate of exemption to the payor (e.g. a nonresident can apply to the

New Zealand Commissioner for an exemption certificate when the nonresident and the income type are eligible for treaty relief under a tax treaty).

Generally, it is longer term, large value contracts that are most at risk. Failure to withhold NRCT will result in the Inland Revenue grossing up the payment made to the nonresident contractor. The Commissioner can recover any deficient tax from the payor, the nonresident or both parties concurrently. Where a nonresident contractor has left New Zealand, the Commissioner is likely to seek payment from the payor because that will be the easiest way to collect the tax. The New Zealand party to such contracts needs to be mindful of the NRCT rules and inquire as to whether any exemptions may be relevant, determine what rate applies or if exemption certificates should be requested before payments are made. It also pays to be aware of this issue when negotiating contract payments so any taxes can be taken into account.