Tax Residency Alert:
Are you ready?
Globalisation has made it easier for people to invest money outside their tax residence jurisdiction. This has provided opportunities for offshore tax evasion.
Automatic Exchange of Information (AEOI)
New Zealand is one of the 105 countries that has entered into international agreements and has passed amended legislation to support the AEOI between New Zealand Inland Revenue Department (IRD) and the tax authorities of other participating countries. The aim of these exchanges is to reduce global tax evasion.
Common Reporting Standard (CRS)
The CRS was developed to combat global tax evasion. New Zealand is one of many jurisdictions that has committed to this global initiative.
Through changes being made to the Tax Administration Act 1994, the CRS is applied to all the financial institutions and their customers in New Zealand from 1st of June 2017.
Out of 105 jurisdictions committed to implementing the CRS, 50 provided the first exchanges of information during 2017 and the remaining 50, including New Zealand, are intending to make the first exchanges by 30th of September 2018.
The CRS requires all New Zealand banks and financial institutions to collect information about customers’ foreign tax residence and pass that other personal details onto Inland Revenue. This information is referred to as a customer’s self-certification. The IRD may then pass on this information to the relevant overseas tax authorities.
How will IRD use this information?
If New Zealand has an AEOI exchange agreement with your jurisdiction of tax residence, we will send this information to the tax authority in that jurisdiction.
The exchange of financial account information will also mean that New Zealand receives better information about New Zealand tax residents' offshore investments. This will help us verify that these people have paid the correct tax on their offshore investments.
Establishing tax residency
If you have questions about your tax residence status, you should either contact IRD or the tax authority in a relevant country or seek advice from a tax adviser.
For CRS purposes there are special rules for determining the tax residency of certain types of entities, such as partnerships, limited liability partnerships, or similar legal arrangements that do not have a tax residence. These entities are treated as resident in the jurisdiction where their place of effective management is situated.
Penalties that may apply
Penalties may apply if you provide false or misleading information, fail to provide this information or fail to provide an update if there is a material change to the information you have provided.
This includes civil penalties that Inland Revenue could apply as well as criminal penalties that can apply for knowledge-based offenses.