For many, New Zealand has everything needed to become the perfect place; nature, a western lifestyle and English as its official language. If I tell you now that you could live there for 4 years without paying taxes, what would you think?
Unlike many other member countries of the OEDC, New Zealand offers very favourable economic conditions. It´s no coincidence that New Zealand has been in the top positions in various economic and individual freedom rankings for several years. New Zealand is considered the nation with the greatest personal freedom, and occupies first places, after Hong Kong and Singapore, in economic freedom, besides from being one of the countries where it’s easiest to start a business.
Isolated from the rest of the world, the two main islands of New Zealand offer us impressive nature, as well as many options when it comes to deciding the type of life we want. I lived in New Zealand for more than a year and I really enjoyed it there.
If I had known back then about the excellent conditions offered by the country, I might have stayed there, at least for a while longer. Since that day I haven´t been able to set foot in the country again, mainly because of its distance from the rest of the world and my many trips, but I hope I can go back there soon, it might even be an option for my fiscal residence.
The reason for this is mainly due to a small clause in New Zealand legislation that makes immigration to the huge islands especially intriguing. Although New Zealand is a country of residence taxation, in the case of foreigners you can enjoy a kind of territorial taxation that allows your income coming from outside the country to be tax-free.
Transitional Resident Regime and taxation in New Zealand
The 2004 income tax law includes regulations on the so-called temporary residence regime, which were further refined in 2006. Temporary residence is equivalent to a temporary stay and implies that it´s possible to benefit from tax exemption on income obtained abroad for up to 48 months in New Zealand.
The regime of tax exemption on foreign income can be used, but it´s not obligatory to do so. Those who don´t have income abroad will also be better off taxing their income from anywhere in the world in New Zealand and taking advantage of all tax-free amounts.
Those who make use of this regime will be able to manage their foreign companies without problems for up to four years, because the New Zealand CFC rules don´t affect temporary residences. The only requirement is to be newcomers to New Zealand or not to have been part of this regime in the last 10 years.
Of course, by making use of this tax regime, you will be required to pay taxes. In this sense, New Zealand has similar regulations to Canada, UK, Ireland and many other countries. You must pay taxes in New Zealand if you stay in the country for more than 183 days or if you have a permanent home there.
While the law still presents some technical details, in practice the temporary residence regime is clear and unambiguous. Foreigners can live tax-free in New Zealand for up to four years, at least on their foreign income. Given that you can obtain permanent residence after four years, and almost citizenship, this temporary tax exemption is only interesting.
At the end of the day, permanent residence obtained after a two year stay doesn´t automatically lead to the requirement to pay taxes, only if you have a permanently available home or you´ve stayed there for a minimum of 183 days.
In practice, you can obtain lifelong permanent residence in a short time, without any fiscal disadvantages, and return to New Zealand at any time. Although it becomes increasingly difficult with age to obtain a residence permit in New Zealand, the country also becomes increasingly attractive at the same time.
It can be very worthwhile to qualify for tax-free permanent residence in New Zealand when you´re young.
Taxes and social security in New Zealand
Especially at a certain age, when one wants to retire as a successful entrepreneur, New Zealand is attractive in the long-term tax aspect. It´s one of the few countries in the world that still offers extensive tax exemption on stock market profits inside and outside the country.
The remaining tax legislation of New Zealand is very complex, so we´ll just give you a general outline here. General taxation in New Zealand is applied to income obtained worldwide and is quite fair in comparison with that of other OECD countries.
In the 80s, New Zealand still held a world record of income taxes of up to 66%, now, income is taxed progressively, up to a maximum tax rate of 33%, which is applied to income starting from an amount of 70,000 NZ dollars.
The New Zealand dollar – a very attractive currency, by the way – currently stands at €0.59. Taxes are charged respectively on the amount within a tax category (instead of applying the maximum percentage on the total of the amount deposited), which decreases the effective tax rate.
If a tax rate of 30% is applied on amounts from 48,000 to 70,000, this means that only those 22,000 are taxed at 30%. The first 14,000 are taxed at 10.5% and 14,000-48,000 at 17.5%.
Therefore, the effective tax rate with an income of 70,000 NZ dollars is close to 14,000 NZ dollars, or 20%.
However, when we talk about taxes we mustn´t forget compulsory social security, which can considerably increase a lower tax burden.
Among more highly developed countries, New Zealand offers the advantage of having a relatively uncumbersome welfare state. Therefore, except for accident insurance for employees and freelancers, there is no mandatory contribution for residents of New Zealand.
Accident insurance, from 1.45% of income up to a maximum of 122,000 NZ dollars, is quite acceptable and offers real added value.
New Zealand is especially appealing for people of old age, not just because of its pleasant climate, but also because it has no inheritance or donation taxes.
Additionally, profits on the stock market are tax-free, with only a few exceptions, such as speculative land sales. There are no longer national taxes on real estate in New Zealand (but there are local taxes on homeownership).
The taxation of interest and dividends is made in accordance with a complex imputation system that we won´t explain here. But, in general, normal income tax is applied, in which the already paid taxes of companies can be calculated.
Setting up a company in New Zealand
Corporate taxation is relatively high in New Zealand, with a 28% rate on profits, but it´s still fairly acceptable thanks to compensations with subsequent dividend payments. It´s mandatory to register with New Zealand Value Added Tax if you have a turnover of 60,000 NZ dollars or more (GST: Goods and Service Tax), which stands at 15%.
We won´t go into any more detail at the moment. After all, temporary residents can manage their foreign business without any problems during the four tax-free years.
After these four years, New Zealand CFC rules are applied and universal income taxes are paid, which doesn´t have to prevent you to manage your foreign companies. Just like in other countries, the rule of effective management governs, which means that a mere dummy corporation abroad isn´t enough.
The headquarters of the company should be a place with offices, workers and managers who make the most important decisions.
In any case, thanks to the numerous attractive double taxation agreements with Hong Kong, Singapore and the Emirates for example, it´s possible that you can still continue to manage a tax-free foreign company as a resident in New Zealand, even after the four years.
At least from a bureaucratic point of view, you won´t find setting up a business in New Zealand too much of a challenge. It´s not surprising that this country is considered to be one of the easiest and fastest in which to establish a company around the world. To set up a capital company, comparable to a limited company (SL), you won´t have to spend more than $150 and you can do it through the Government’s website. The company will be up and running just a few hours after submitting the request.
Your business in New Zealand: A tax-free non-resident with the Look-Through-Company
There are also attractive corporate forms for non-residents in New Zealand; the Look-Through-Company. This LTC, comparable to the North American LLC, is a limited liability company, but the shares owners pay income tax in accordance with their participation fee.
However, if you weren´t required to pay taxes (because you have your residence in Panama, for example), the LTC would be totally exempt from taxes. As New Zealand is a country with such a good reputation, a Look-Through-Company of this type could make a lot of sense.
The LTC is limited to a maximum of five shareholders and must have New Zealand residency.
But this doesn´t necessarily mean that it needs to have a manager with New Zealand residency. At the end of the day, an LTC is only a certain tax status that can be automatically granted to a normal capital company based in New Zealand.
However, the important thing is that the fiscally-transparent LTC status only applies if the company is also not located in another country where effective management is carried out. In order to benefit from the advantageous status of tax transparency the owner of the LTC must reside in countries that don´t follow the effective management regulation, or corresponding offices and effective managers in New Zealand.
In combination with territorial taxation, for example, in Panama, the New Zealand LTC would be completely tax-free even if there wasn´t a manager in New Zealand, because the LTC is not located in Panama either. Finally, it´s recommended in most cases to have a manager who lives in New Zealand, since the rules of effective management apply in many countries.
On the other hand, LTCs are always required to keep accounting (unlike what happens with certain companies in Canada), which implies a certain bureaucracy that is ignored in other fiscally transparent jurisdictions. Anyway, New Zealand LTCs can be very worthwhile in particular cases.
Permanent residency: Emigrating to New Zealand
As we mentioned previously, there are many cases in which it might be worthwhile to obtain permanent residence in New Zealand. Since the beautiful country has relatively restrictive entry conditions.
Especially at an increasingly higher age, in which New Zealand is increasingly discriminating against immigrants, having already acquired permanent residence there can be a good idea. After all, as a self-sufficient country on the other side of the world, New Zealand is also one of the most sought after ports of refuge in the world against global crises.
Permanent residence in New Zealand is valid for an unlimited period of time and can be requested from different types of visas, after having spent 2 years in the country.
During these 2 years you will of course be tax-free as a Transitional Resident. Within these two years you’ll have to spend a lot of time in New Zealand, but if you´re tired of travelling and want to take a break, New Zealand may be a good place for you.
The options of obtaining a residence permit in New Zealand are complex and require the advice of a qualified immigration consultant. New Zealand has strict immigration laws and heavy penalties for those who don´t follow the law. So I advise you to seek professional help with it.
Especially for entrepreneurs who want to invest some money in a business in New Zealand, there are very good options to qualify for an entrepreneurs visa. With an investment of just under €65,000 and the successful presentation of a business plan, you already have your visa.
The funny thing is that, theoretically, it would be possible to stop living in New Zealand after obtaining permanent residence and converting the company, which until now would have been paying 28% of local company taxes, into a potentially tax-free LTC.
New Zealand is, therefore, one of the few countries in the world where you don´t have to pay taxes on company profits (dividends) as a shareholder, not even in the case of a local physical company such as, for example a hotel or any company in the tourism sector.
Returning to the subject of visas. Of course, there are many other visa categories. They are always looking forward to welcoming new specialists in information technology and trades fields in New Zealand, which makes it relatively easy to obtain a residence permit with the corresponding speciality.
Young people under the age of 30 could theoretically obtain permanent residence with a two year Working Holiday Visum.
On the other hand, New Zealand borders are closed for those who don´t meet the specific requirements. In general, the younger and better educated you are, the easier it will be to obtain a residence permit in New Zealand. Certificates of good conduct and medical tests are always a prerequisite.
Anyway, if you´re interested in emigrating to New Zealand, you should contact a qualified immigration consultant. If you need a contact you can write to us and, as always, if something wasn´t clear to you or you want us to help you plan your tax-free life in New Zealand or whatever country, you can book a consultation.