2 Dec 2008

NZ and US reach agreement on tax changes

12:42 pm on 2 December 2008

The Government has welcomed a new double tax agreement between New Zealand and the United States which it says will lower the cost of doing business between the two countries.

Prime Minister John Key said on Monday the updated agreement brings lower withholding taxes on dividends, interest payments and royalty payments between the two countries.

He said the aim of the measure was to improve the relationship on tax between New Zealand and the United States, and is likely to have a fiscal cost to the Crown of about $20 million

The withholding rate on dividends will fall from 15% to a maximum of 5% for an investor who holds at least 10% of the company paying the dividend, and to zero if the investor holds 80% or more of the company and meets other criteria.

The withholding rate on royalties will reduce from 10% to 5%, and the definition of royalties will be revised to exclude payments for leased equipment.

The rate on interest will generally remain at 10%, although it will drop to zero for interest paid to lending or finance businesses, provided the 2% Approved Issuer Levy is paid on New Zealand-sourced interest.

The United States is New Zealand's second largest export market and third largest source of imports.