William Buck Tax Director Jayesh Kumar and Accountant Harrison Stutt answer some common questions asked by their clients regarding international tax matters in the time of COVID-19.
The director of a corporate taxpayer has been stranded in NZ during the COVID-19 pandemic. Does this mean the corporate taxpayer is now a NZ resident?
No. The COVID-19 pandemic will not cause corporate taxpayers to become tax residents because the directors of the company are stranded in NZ. Just because the director is stranded here does not change where the real business of the company is carried on.
I own a foreign resident company. Due to COVID-19, some of my employees have an unplanned and lengthy presence in NZ. Does this create a Permanent Establishment (PE) in NZ (inbound employee)?
Normally, the presence of your foreign entity’s employees working in NZ may create a PE in NZ. However, the COVID-19 pandemic will not cause non-resident companies to have a PE in NZ because of a stranded employee(s). A non-resident company will not derive NZ income because of a PE after only a short period of time.
For a PE to be established, the business must be carried out on a regular basis and must be fully or partially undertaken from a permanent place. If the business did not have a PE established in NZ prior to COVID-19, then the presence of the employees in NZ would be considered short-term due to the travel restrictions.
As an individual, will I become a tax resident in NZ if I am personally present for more than 183 days in a 12-month period due to COVID-19?
The COVID-19 pandemic could cause individuals to have to stay in New Zealand longer than 183 days despite their plans to leave. An individual will not become a tax resident in New Zealand under the day-count test just because they are stranded in New Zealand. If you leave in a reasonable number of days after the travel restrictions are lifted, this will be sufficient. The day-count test is based on normal circumstances when people are free to move as they please.
I am a non-resident performing personal or professional services under the 92-day or less exemption. I am now stuck in NZ for longer than the 92-day exemption period. What happens now?
The 92-day test is an exemption for certain income derived by a non-resident for performing personal or professional services in NZ during a brief visit. Normally, this income would be exempt from NZ tax if the period is less than 92 days, but if the visit is longer than 92 days, all income derived since arrival is subject to NZ tax and PAYE must be withheld by the employer.
If the individual is stranded in NZ for more than 92 days due to COVID-19 despite plans to leave before the 92-day period, they will be exempt from paying NZ tax and PAYE. This holds true so long as they leave the country in a reasonable timeframe after the travel restrictions are lifted.
I was in the 48-month transitional resident phase but had planned to leave before the end of this period. Now that I am stranded here in NZ for longer than the 48 months, am I now subject to NZ tax on my worldwide income?
For transitional residents that planned to leave NZ before the 40-month window was up but are unable to do so because of travel restrictions, they are still regarded as transitional residents. As long as they leave NZ within a reasonable time after they are no longer restricted in travelling, the extra days spent in NZ will be disregarded.