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Tax Residence and COVID-19

May 1, 2020

Bridget Riley Senior Tax Lawyer
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Inland Revenue has recently released some guidance around unexpected presence in New Zealand due to COVID-19 and the impact on tax residence and liability to tax in New Zealand.


In summary, if extended presence in New Zealand is solely attributable to the COVID-19 emergency, no adverse implications should arise in relation to liability to tax in New Zealand, where such a liability would otherwise not exist. This is generally provided the individuals affected by travel restrictions leave New Zealand within a reasonable time after travel restrictions are lifted.


Why is tax residence a relevant consideration?

Broadly any taxpayer, tax resident in New Zealand, is taxed here on worldwide income, irrespective of where that income arises.


If the taxpayer is not tax resident in New Zealand, they are generally only subject to tax here on income that is sourced in New Zealand.


New Zealand’s right to tax income may also be adjusted under the provisions of a double tax agreement in place between New Zealand the country where the taxpayer is tax resident.


How does tax residence in New Zealand arise?


Under normal circumstances tax residence of a company (or corporate trustee) is established when the company is:

  • incorporated in New Zealand;
  • has its head office here;
  • has its centre of management in New Zealand; or
  • control by the directors, acting as directors, is exercised in New Zealand.


Centre of management in New Zealand takes into account factors such as where the directors are when they make strategic and policy decisions relating to the company. Often a relevant consideration will be where the directors are when board meetings are held, however an overall analysis looks to where a company is managed in reality.



Tax residence for an individual arises when they either

  1. have a permanent place of abode in New Zealand, or, in the absence of such an abode;
  2. is triggered when the individual spends 183 days or more in a consecutive 365 day period in New Zealand.


How does COVID-19 impact this position?



Inland Revenue have confirmed the present COVID-19 emergency will not cause companies to become tax resident in New Zealand because directors are stranded in New Zealand.


This means if a director has to attend a board meeting by say remote access while in New Zealand, by virtue of being stranded here, that will not of itself make the company tax resident in New Zealand.


Inland Revenue will look at where the directors control and centre of management is usually located.


Directors will be expected to leave New Zealand as soon as they are able.


Will a company have a permanent establishment in New Zealand?


If a company has a permanent establishment in New Zealand it can be subject to income tax in New Zealand on profits attributed to that permanent establishment.


A permanent establishment is a broad concept defined as a fixed place where the business of an enterprise is wholly or partly carried on. This could therefore encompass a place (e.g. home office) where an employee conducts business activity on behalf of a company.


Inland Revenue have also confirmed that where no permanent establishment existed before the emergency and the presence of employees in New Zealand is short term and related to travel restrictions, their activities here on behalf of an overseas enterprise will not, of itself, give rise to a permanent establishment in New Zealand.



Inland Revenue has confirmed individuals will not become tax resident in New Zealand just because they exceed the 183 day test due to being stranded in New Zealand. Provided the person leaves as soon as reasonably possible after travel restrictions are lifted, the extra days spent in New Zealand will be disregarded. This is of course subject to the position that if the person has a permanent place of abode here (another consideration altogether) they would be tax resident here notwithstanding how long they have been in New Zealand.


Transitional residents

A person may elect to be treated as a transitional tax resident for the first four years of their presence in New Zealand in certain circumstances. This election means they will only be taxed in New Zealand on income sourced in New Zealand or earned through their personal exertion during that four year period.

This four year time period may also be exceeded due to the current travel restrictions.

If a transitional resident intended to leave New Zealand before the end of the four year period any additional time spent in New Zealand due to being stranded here will be disregarded and effectively the transitional resident concessions will continue to apply.


People providing services in New Zealand under a short-term visit

An exemption from income tax in New Zealand applies to non-resident individuals who are providing personal or professional services in New Zealand if they are present here for less than 92 days. Employers of such individuals are also exempt from having to register in New Zealand as an employer and account for PAYE.


If such individuals end up stranded in New Zealand due to COVID-19 and, as a result, exceed the 92 day limit, any extra days will be disregarded, again provided the person leaves New Zealand as soon as reasonably possible after travel restrictions are lifted. Employers of such individuals will also not be required to register as such and account for PAYE.


Non-resident contractors

Where a contractor is present in New Zealand for longer than 92 days due to COVID-19 travel restrictions, the person engaging the contractor will not become liable to deduct and account for withholding tax on payments made to that contractor. This is also subject to the proviso that the contactor leaves New Zealand as soon as reasonably possible after travel restrictions are lifted.


These are welcome clarifications but, as always, there will be situations where it is not clear whether these concessions will apply. Individual facts and circumstances will always need to be taken into account, which will include the COVID-19 emergency as a consideration. Please contact us if you need assistance with your individual or your company’s circumstances.

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