Deducting RWT (resident withholding tax) from dividends
Generally, you must deduct RWT tax from all dividends your company pays out to its New Zealand shareholders, if the imputation credits attached do not cover the full 33% tax due on the gross dividends. (See Imputation basics or our booklet Resident withholding tax (RWT) on company dividends (IR284) for more details.)
Exception
You do not need to deduct RWT from dividends your company pays to any shareholder who holds a certificate of exemption from RWT. (See Tax deducted from interest and dividends for details.)
Note
Dividends you pay to non-NZ resident shareholders has non-resident withholding tax (NRWT) deducted.
Registering as a payer of RWT
Unlike paying RWT for interest, you do not need to specifically register in advance as a payer of RWT on dividends. We register you automatically when you submit your payments.
Important
Be aware that, from the start of the 2008/09 income year, existing companies that have not previously needed to deduct RWT from dividends may need to begin doing so, to cover the difference between any imputation at the new company income tax rate (30%) and the RWT rate payable on dividends (33%). See the CTR change details below for more details.
How much RWT to deduct
The rate of RWT payable on dividends is 33% of the gross dividend amount. However, when a New Zealand company distributes dividends to its New Zealand shareholders, it can offset any imputation credits and FDPs (foreign dividend payments) attached to those dividends against the same amount of RWT due. See the Imputation guide (IR274) for more details.
Example
A dividend is imputed at 30:70. The imputation credits represent a tax component of 30% of the gross dividend amount (or 42.85% of the dividend's cash value). The company needs to deduct only a further 3% from the dividend as RWT to bring the total tax component up to 33% of the gross dividend.
Due dates for payment
Once you have deducted the RWT you need to send it to us by the 20th of the month following the deduction. To pay, you need to complete and file a RWT on dividend return (IR4K).
RWT information you must give to the people you pay dividends to
You must supply a shareholder dividend certificate to each shareholder you pay dividends to - with or without RWT deducted. The Imputation guide (IR274) lists the information required on this certificate. If you deduct RWT from that dividend, you also need to include RWT information on the certificate. Our RWT on company dividends guide (IR284) lists the information required.
How the company tax rate change affects RWT on dividends
The income tax rate reduces from 33% to 30% for the 2008/09 income year and onward, for all entities that pay tax at the company tax rate. (See Taxing companies for a list.) This also reduces the ratio of imputation credits (and/or FDP credits) that companies can attach to dividends they distribute to shareholders. It reduces from 33:67 to 30:70, ie they can attach a maximum of $30 imputation credits to each $70 of dividends distributed.
This reduction affects RWT, because the RWT tax rate payable on dividends remains at 33% of the gross dividend amount. This means that, although a company can attach imputation (and FDP) credits to cover some of the tax payable on the dividend it distributes, it generally needs to withhold a further amount of RWT from the dividend amount to cover the difference between:
- any tax credits attached (maximum 30% of the dividend amount), and
- 33% of the gross dividend amount.
If you impute any dividends you pay to your shareholders, but your company has not paid RWT before, you generally will need to start doing so when you distribute your first dividends at the new maximum ratio of 30:70. However, for a limited time, you may be able to continue imputing dividends up to the old maximum of 33:67 during the rate changeover window, which has been provided to let you use up any imputation credits that relate to company income tax at 33%.
Using this option will affect whether and how much RWT you need to deduct from each dividend. See Key messages about the 2009 change of CTR and our fact sheet Imputation and the company tax rate change (IR237) for more details.
Date published: 16 Mar 2008
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