In general, New Zealand tax residents pay tax here on their worldwide income.
Some of the ways a DTA may affect this general rule are:
- the other country or territory may have sole taxing rights so the income is not taxed in New Zealand
- reducing withholding tax in the other country or territory on the income you earn there
- New Zealand may have sole taxing rights and no tax is paid in the other country.
Foreign tax credits for New Zealand tax residents
When you pay tax twice on the same income, once in New Zealand and again in another country or territory, a DTA will usually allow a tax credit where you're a tax resident.
If you're a New Zealand tax resident, you claim foreign tax credits in your tax return and are limited to the lowest amount of the:
- tax paid to the other country
- tax you would need to pay to New Zealand on the same income
- amount allowed in the DTA.
You'll need to show proof of the tax you've paid to the other country. See the Individual tax return guide - IR3G below for information on how to claim a foreign tax credit.
If there is no DTA, New Zealand tax residents will usually be allowed a foreign tax credit with the same limitations as above. The tax paid in the overseas country or territory must be 'substantially the same nature' as income tax in New Zealand.
Interpretation Statement - IS 14/02 - Foreign tax credits - What is a tax of substantially the same nature as income tax imposed under s BB 1 (Tax Technical)
Interpretation Statement - IS 21/09 - Income tax - foreign tax credits - how to calculate a foreign tax credit (Tax Technical)
Ruling - BR Pub 22/01 – 22/05 Income tax – Australian limited partnerships and foreign tax credits
Tax sparing credits for New Zealand tax residents
A small number of DTAs allow tax sparing credits to be claimed in New Zealand in certain situations even though tax has not been paid in the other country or territory.
Agreements change but are currently in place with:
- Viet Nam.
You must complete a disclosure return to claim credits.