In our post covid society, many people continue to work from home. Many have taken up online jobs where they solely work from home for online or overseas employers. An important factor that must be considered in such an arrangement is the tax implications.
What are the tax implications on Offshore Income?
It is not important whether the employment income is paid by a NZ or foreign employer as the rule of thumb that applies is that any employment income which has been earned in NZ will also be taxed in NZ. Therefore, the employee working from NZ for an overseas firm must file an income tax return in NZ.
How will the tax be paid?
An operational statement released by IRD states that when a non-resident employer has sufficient presence in NZ and the services performed by the employee are attributable to the employers presence in NZ, the employer will be obliged to withhold PAYE. If the employer does not have sufficient presence in NZ, IRD will be unable to enforce NZ tax law over the employer and so they will not be liable for PAYE.
What is sufficient presence?
Sufficient presence is determined by the following factors:
- Whether there is a trading presence in NZ
- Whether there is a permanent establishment in NZ e.g., branch
- Whether contracts are entered into in NZ/whether NZ based employees perform contractual obligations in NZ
Where the employer does not have a sufficient presence in NZ, the responsibility of withholding PAYE falls onto the employee. This employee will need to register as an employer and comply with all PAYE filing and rules. They will then also be subject to UOMI.
These employees will also need to withhold ACC from their income and pay this at the end of the employment year. Additionally, they must also elect to contribute to Kiwisaver and manually put aside their contribution amount, should they choose to contribute to Kiwisaver, instead of the usual automatic allocation.
Other Tax Implications
Customarily, any non-cash benefits provided to an employee are captured under Fringe Benefit Tax. Where the employer is located overseas and has no PAYE obligations, no FBT will be payable on such non-cash benefits. This is because there is currently no system in place to facilitate this.
It can be quite confusing to identify what your tax obligations are when working for a non-resident employer and so for further advice regarding your specific situation, get in touch below.
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