NRWT and partly imputed dividends

An amendment to the non-resident withholding tax rules covering partly imputed dividends. Applies from 1 Feb 2010.

Section RF 11B of the Income Tax Act 2007

A remedial amendment has been made to the non-resident withholding tax (NRWT) rules to ensure that some partly imputed dividends are not overtaxed compared with the rate that would apply to an equivalent unimputed dividend under a double tax agreement (DTA).


The rate of NRWT that applies to dividends depends on whether the dividend is imputed or unimputed, and whether the shareholder is from a country which has a DTA with New Zealand.

The complication for partly imputed dividends is that DTAs reduce the NRWT that applies to the total dividend (the average rate of NRWT) as opposed to the rate that applies to the unimputed portion (the marginal rate). This means there may be little or no relief of NRWT in respect of the unimputed portion of the dividend.

For example, if a dividend were half imputed and half unimputed, the average NRWT rate would be 15% which would not be reduced further by the DTA. In contrast, if the same amount could be paid as two separate dividends, an imputed dividend and an unimputed dividend, there would be DTA relief on the unimputed dividend so that the average rate on both dividends would be 7.5%.

To correct this inconsistency, the amendment provides for a lower rate of NRWT on the unimputed portion of a dividend when a DTA would have provided for a lower rate if the entire dividend had been unimputed.

Key features

The amendment clarifies how New Zealand's domestic law and double tax agreements interact when a company pays a partly imputed dividend to a non-resident who would qualify for relief under a double tax agreement.

Taxpayers calculate the post-treaty tax rate that would apply to an equivalent unimputed dividend. This rate will apply to the unimputed portion of the dividend (section RF 11B(b) of the Income Tax Act 2007). Subject to certain conditions being met, the imputed portion of the dividend may then qualify for the 0% NRWT rate under section RF 11B(a), or failing that, the 15% rate under section RF 7.

This approach is likely to be consistent with how taxpayers have been applying the rules.

Detailed analysis

Section RF 11B(a) applies to the extent that a dividend is fully-imputed. It provides a 0% rate of NRWT to the fully imputed portion of a dividend if the conditions of section RF 11B(a)(i) or RF 11(a)(ii) are met.

Section RF 11B(a)(i) requires that the shares be directly held by a non-resident and have a 10% or greater voting interest in the company paying the dividend.

Section RF 11B(a)(ii) requires the dividend to be held by a non-resident who does not have a 10% or greater voting interest but who would nonetheless receive a less than 15% rate under a double tax agreement. Currently, New Zealand has no DTAs that provide for this.

Section RF 11B(b) applies to the extent to which the dividend is not fully imputed. It requires the taxpayer to calculate a post-treaty tax rate by assuming that no imputation credits are attached to the dividend (including any portion of the dividend that is in fact imputed). This tax rate is then applied to the unimputed portion of the dividend.

Application date

The amendment applies from 1 February 2010, being the date that the NRWT rate on imputed non-portfolio dividends was reduced to nil.