Updated NZ, US DTA Now In Force

by Mary Swire, Tax-News.com, Hong Kong

17 November 2010

New Zealand’s Revenue Minister, Peter Dunne, has announced that the protocol updating the double tax agreement (DTA) between New Zealand and the United States is now in force.

The protocol amends the 1983 DTA between the two countries. "As well as generally modernizing the treaty, the new agreement will deliver lower withholding tax rates on dividends, interest and royalties between New Zealand and the US," Dunne said.

The new withholding tax rates will apply from January 1, 2011. For New Zealand taxes other than withholding taxes, the protocol will apply for income years beginning on or after April 1, 2011. For US taxes other than withholding taxes, the protocol will apply for taxable periods beginning on or after January 1, 2011.

"This is an important development that will benefit both countries by helping to reduce tax barriers to two-way trade and investment," Dunne added. "Lower withholding tax rates will make it less costly for businesses in one country to invest in the other, and to bring profits home for reinvestment or distribution to shareholders."

The withholding tax rate on dividends is reduced from a standard rate of 15% to 5% for an investing company that has at least a 10% shareholding in the company paying the dividend. It is further reduced to 0% if the investing company holds 80% or more of the shares in the other company and meets other criteria.

The withholding rate on royalties is reduced from 10% to 5%. The rate on interest will generally remain at 10%, although it drops to 0% for interest paid to lending or finance businesses, provided that the 2% Approved Issuer Levy is paid on New Zealand-sourced interest.

The US is New Zealand's third largest export market and third largest source of imports. It is second only to Australia as a source of foreign direct investment into New Zealand and as a direct investment destination for New Zealanders.

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