A Week in Review

Richard AshbyPartner, Gilligan Sheppard

Non-resident employer’s operational statementNon-resident employer’s operational statement

IR has released draft operational statement ED0223 titled – Non-resident employers’ obligations to deduct PAYE, FBT and ESCT in cross-border employment situations.

The stated purpose of ED0223 is to clarify the approach to take with regards to a non-resident employers’ obligations to deduct PAYE, FBT and ESCT in certain cross-border employment situations.

The key trigger-points are twofold:

  1. Firstly, establish whether the employer has made themselves subject to NZ tax law by having a ‘sufficient presence’ in New Zealand; and if so,
     
  2. Secondly, determine whether the services performed by the employee are properly attributable to that New Zealand ‘sufficient presence’.

In establishing whether the employer has a ‘sufficient presence’ in New Zealand, IR provides several guiding principles –

  • having a trading presence in New Zealand, such as carrying on operations and employing a workforce for the purpose of trade;
     
  • having a New Zealand permanent establishment (‘PE’), a New Zealand branch, contracts that are entered into in New Zealand and performing contracts in New Zealand with employees based here; or,
     
  • having a New Zealand address for service.

It should be noted that IR’s draft view is that just because the employee may be in New Zealand performing the service for the non-resident employer, will not alone subject the non-resident employer to PAYE, FBT or ESCT obligations, particularly where the ‘sufficient presence’ threshold has not been met.

Got your answer? If only life was that simple, because even if you have satisfied the two components, before you proceed to register your non-resident employer with IR, you then need to check:

  • where non-resident employees are involved, will the amounts received by them from the employer be deemed to be an amount of ‘non-residents foreign sourced income’ (income not treated as having a New Zealand source under section YD 4);
     
  • will the income be exempt from New Zealand tax under section CW 19 (visits less than 92 days); or,

     

  • will the income be exempt from New Zealand tax via application of a relevant DTA (often applicable where employee in New Zealand <184 days in any 12 month period).

FBT and ESCT payment obligations will usually follow the PAYE treatment, however as a general rule, if the non-resident employer has not made themselves subject to New Zealand’s taxing jurisdiction (due to lack of ‘sufficient presence’ in New Zealand, then they are unlikely to have any employer related New Zealand tax obligations.

Should you wish to make a comment on ED0223, the deadline is 1st September 2020.