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E-commerce and tax
Te tauhokohoko ā-rorohiko me te tāke

E-commerce and income tax

Residency of companies

If ... then generally ...
a company is incorporated in New Zealand it is resident in New Zealand.
a company has its head office in New Zealand it is resident in New Zealand.
a company has its centre of management in New Zealand it is resident in New Zealand.
control of the company by its directors, acting in their capacity as directors, is exercised in New Zealand, whether or not decision making by directors is confined to New Zealand it is resident in New Zealand.

Under e-commerce, the company residency test using "centre of management" or "control of the company" may be more difficult to apply. Technology allows information to be transferred easily electronically, decisions can be made during video-conferencing or email with management and/or directors located in different countries.

As the tax outcome isn't clear and will depend on the particular circumstances of each case, you may need to contact us directly with your situation.

Double taxation

Double taxation may arise when the business operations are based in New Zealand but the website is hosted in a foreign country. This will occur if the tax rule of the foreign country means that the income is subject to tax there, as according to New Zealand tax rules, the income is subject to tax in New Zealand.

Double taxation can be lessened by the existence of a double taxation agreement (DTA) between New Zealand and the foreign country.

If a DTA ... then ...

does exist

although the total worldwide income must be returned in New Zealand, a credit:

  • will be allowed against New Zealand tax for the tax paid in the overseas country, and


  • will be limited to the lesser of the tax paid overseas or the New Zealand tax payable on that income.


doesn't exist

there is a possibility of double taxation occurring.

In the absence of a DTA between New Zealand and the foreign country, a tax credit may be allowed for foreign tax paid on foreign sourced income.

Royalties and NRWT (Non-resident withholding tax)

Intellectual property includes copyrights, licences to use, and licences to sell (or royalties).

When a New Zealand resident or a permanent establishment in New Zealand makes payments to a non-resident for the rights to use their intellectual property, the payments are considered to be sourced in New Zealand and are subject to tax here. A resident person making such payments to a non-resident has to withhold NRWT on the payments.

NRWT rate

  • NRWT is ordinarily 15%. However, if there is a DTA, it may be reduced by operation of a royalty article.
  • NRWT is not always a final tax. A non-resident from a non-DTA country may be required to pay tax at 33% of its net royalty income from New Zealand (assuming it's a company), if this liability exceeds 15% of its gross royalty income.
  • DTAs limit NRWT to 10% (or 15%) of gross royalty income, even where NRWT is not a final tax under the domestic law.

OECD report

The OECD released a final Technical Advisory Group report to Working Party No 1 in February 2001, on "Tax Treaty Characterisation Issues Arising from E-commerce" which explains the treatment of a variety of examples of e-commerce transactions.

The examples provided in the report for e-commerce transactions focus on distinguishing the consideration for payment, between:

  • business profits, and
  • the part of the treaty definition of "royalties" that deals with the payments for the use of, or the right to use, a copyright.

The examples have application "across borders" where NRWT may be payable. A number of them indicate the suggested treatment of payments via e-commerce for software and so on.

OECD example - digital product download

If a New Zealand resident downloads digital products for their own use or enjoyment from an offshore website, the essential consideration for the payment is considered to be to acquire the data in the form of a digital signal and not to obtain the copyright. This payment is not considered to be a royalty but a business profits payment.

However, if the New Zealand resident is a book publisher who downloads a digital picture to use in a publication, the consideration is payment to acquire the right to use the copyright, and would be a royalty subject to NRWT.

Income tax treatment of computer software

Please use the table below for the income tax treatment of overseas suppliers.

Type of transaction Overseas supplier with no NZ permanent establishment

Sale of copyrighted article, eg shrink-wrap licence to use the software is not a right to use the copyright

Treated as business income, exempt from income tax in NZ

Multiple copies (eg pay a per user fee for the right to use, not distribute)

Treated as business income, exempt from income tax in NZ

Sale of a copyright right

Treated as business income, exempt from income tax in NZ

Licence of copyright right (eg royalties paid on reproduction or on installation by computer manufacturer. Licensee has the right to use the copyright).

Royalties subject to NRWT at 15% (may be lowered to 10% with DTA)

Lease of a program (eg monthly fee paid for right to use and receive upgrades)

Taxable income subject to non-resident contractors' tax (NRCT), formerly non-resident contractors' withholding tax (NRCWT)

Provision of services (eg supply of modified program or creation of new program).

Treated as business income. Subject to NRCT for those services performed in NZ but with a relevant DTA, income may be exempt.

Supply of know-how (eg expert travels to NZ to assist)

Treated as royalty subject to NRWT at 15% (may be lowered to 10% with DTA)

E-commerce intermediaries and services

Basically the intermediary is anyone that facilitates different groups of buyers and sellers to be engaged in e-commerce (for example, internet service providers).

Types of services and products:

  • hosting services
  • internet connection services
  • technical services to set up e-commerce facilities
  • exchange platforms that bring together buyers and sellers.


Some examples of business income from businesses that use its services, products and facilities are:

  • commission fees
  • service fees
  • subscription fees
  • registration fees
  • advertising fees.


Internet service provider businesses have mainly the following assets:

  • personnel
  • know-how
  • physical assets, for example, computers and software.

Income tax liability

The e-commerce intermediary will be liable to income tax in New Zealand if its business operations are all carried out here. This is largely a question of fact and degree.

If a New Zealand tax resident's operations are all based on a server it owns which is based overseas, this may constitute a permanent establishment overseas which requires a calculation attributing profit to that country. However, worldwide income should still be returned for New Zealand tax purposes and a credit claimed for any foreign tax paid.