Reduction of non-declaration rate for non-resident contractors who are companies

2005 amendment reduces the non-declaration rate for non-resident contractors who are companies to 5 per cent.

Section NC 7(2) of the Income Tax Act 1994 and the Income Tax Act 2004


Employers who make withholding payments to non-resident contractors are required to withhold tax from the payments, this amount is increased if the contractor makes no declaration. An amendment reduces this non-declaration rate for companies from 15% to 5%.


Withholding payments made to non-resident contractors are subject to the non-resident contractors' withholding tax. Non-resident contractors are required to make a withholding declaration under the Income Tax Act. If no declaration is made an extra withholding payment is imposed. The amendment reduces the amount that has to be withheld if the non-resident contractor is a company and it does not make a declaration.

The reason for lowering the rate is that companies will have overheads while carrying out contract activities in New Zealand. Consequently, the net amount earned by non-resident companies in most cases will be significantly lower than their gross earnings, to which non-resident contractors' withholding tax applies. A lower total withholding tax rate of 20%, if no tax code declaration is made, is more appropriate for non-resident contractors that are companies, to reflect the typical difference between net and gross earnings.

Key features

The Income Tax (Withholding Payments) Regulations 1979 makes certain payments to non-resident contractors subject to withholding tax. The regulations require that tax be withheld at 15% of the contract payment.

Section NC 7(2) of the Income Tax Act 1994 applies in addition when an employer who is making a withholding payment has not received a withholding declaration from a contractor. Before the amendment was enacted that section required that the employer had to increase the amount withheld by 15%.

Section NC 7(2) has been amended specifically with regard to payments to non-resident contractors who are companies. It reduces the extra amount that needs to be withheld in the absence of a withholding declaration to 5%.

A specific anti-avoidance rule has also been added to the provision. It is intended to prevent abuse of the reduction in the rate applicable to non-resident contractor companies by individuals recharacterising themselves as companies.

Application date

The amendment applies from 21 December 2004.