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RF 1: NRWT rules and their application
or “How non-resident withholding tax rules work and when they apply”
You could also call this:

“Income from NZ sources for non-residents, including dividends, royalties, and interest”

Non-resident passive income refers to certain types of income that come from New Zealand sources but are earned by people or companies who are not residents of New Zealand. This includes:

  • Dividends (except some investment society dividends)
  • Royalties
  • Interest (with some exceptions)
  • Non-resident financial arrangement income

Some types of income are not considered non-resident passive income, such as:

  • Exempt income
  • Certain interest from inflation-indexed instruments
  • Some excluded income related to PIE investments

There are special rules for calculating tax on non-resident passive income. Generally, the tax is withheld when the income is paid. However, in some cases, the recipient may need to pay additional tax.

The rules are different depending on the type of income and who is receiving it. For example, there are specific provisions for:

  • Interest earned by non-resident banks operating in New Zealand
  • Income earned by non-resident life insurers
  • Dividends paid to companies that are treated as non-resident under tax treaties

The law also specifies how to handle situations like inflation-indexed instruments and notional loans to New Zealand branches of foreign banks.

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Next up: RF 2B: Non-resident financial arrangement income: outline and concepts

or “Rules for taxing interest on loans to related parties in New Zealand”
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Part R General collection rules
Withholding tax on non-resident passive income (NRWT)

RF 2Non-resident passive income

  1. Non-resident passive income means income having a source in New Zealand that—

  2. a non-resident derives and that consists of—
    1. a dividend other than an investment society dividend:
      1. a royalty:
        1. an investment society dividend when the non-resident is not engaged in business in New Zealand through a fixed establishment in New Zealand:
          1. interest, other than interest derived in the circumstances set out in subsection (2B):
            1. non-resident financial arrangement income; or
            2. a New Zealand resident company that is treated under a double tax agreement as not being resident in New Zealand derives and that is a dividend other than an investment society dividend.

              1. Non-resident passive income includes an amount, arising at the time of a relevant coupon payment (the current coupon payment) equal to the amount given by the formula in section RE 18B(4) (Capital value increase under inflation-indexed instruments: RWT cap) in relation to the current coupon payment, if that current coupon payment is—

              2. non-resident passive income under subsection (1); and
                1. in relation to an inflation-indexed instrument.

                  1. The following amounts derived by a non-resident are excluded from non-resident passive income:

                  2. an amount of exempt income:
                    1. interest arising because section EI 2 (Interest from inflation-indexed instruments) applies to an inflation-indexed instrument:
                      1. an amount of excluded income under sections CX 56B and CX 56C (which relate to attributed PIE income), as applicable:
                        1. an amount derived by a trustee of a trust after the effective date of an election under section HC 33(1) (Choosing to satisfy income tax liability of trustee) for the trust.

                          1. The following amounts derived by a New Zealand resident company that is treated under a double tax agreement as not being resident in New Zealand are excluded from non-resident passive income:

                          2. an amount of exempt income:
                            1. an amount of excluded income under sections CX 56B and CX 56C, as applicable:
                              1. an amount derived by a trustee of a trust after the effective date of an election under section HC 33(1) for the trust.

                                1. Subsection (1)(a)(iv) does not include interest derived from money lent by a non-resident—

                                2. for the purposes of a business they carry on in New Zealand through a fixed establishment in New Zealand; or
                                  1. when the non-resident is—
                                    1. a registered bank engaged in business in New Zealand through a fixed establishment in New Zealand; and
                                      1. not associated with the person to whom the money is lent; or
                                      2. that has given rise to non-resident financial arrangement income under section RF 12E(1).

                                        1. Subsection (4) applies in an income year when a person derives non-resident passive income consisting of—

                                        2. a dividend other than an investment society dividend:
                                          1. a royalty for the use, production, or reproduction of, or for the right to use, produce, or reproduce, a literary, dramatic, musical, or artistic work in which copyright subsists:
                                            1. interest or a royalty derived by a life insurer from a company resident in New Zealand when the interest or royalty is treated as arising as a result of the life insurer’s election under section EY 49 (Non-resident life insurer becoming resident):
                                              1. interest or an investment society dividend when the person paying and the person deriving the interest or dividend are not associated persons:
                                                1. interest when the person paying the interest is a member of a New Zealand banking group.

                                                  1. If the person is a filing taxpayer, the schedular income tax liability for the corresponding tax year under section BC 7 (Income tax liability of person with schedular income) for non-resident passive income referred to in subsection (3) is determined by the amount of tax required to be withheld under this Part.

                                                  2. Despite subsection (4), if a person derives non-resident passive income consisting of interest, investment society dividends, or a royalty other than those described in subsection (3), the person’s income tax liability for the corresponding tax year is the greater of—

                                                  3. the sum of the total non-resident withholding tax (NRWT) for which they are liable and the amount that would be their income tax liability for the tax year if they had not derived non-resident passive income in the tax year:
                                                    1. the amount that would be their income tax liability in the absence of this subsection.

                                                      1. For the purposes of subsection (5) for a company, if the total amount of non-resident passive income and other income derived by the company in the corresponding tax year is not more than $1,000, the income tax liability of the company for the tax year is the sum referred to in subsection (5)(a).

                                                      2. The financial arrangements rules do not apply to the calculation of an amount of non-resident passive income except to the extent to which the amount is non-resident financial arrangement income or an amount to which subpart FG (Treatment of notional loans to New Zealand branches of foreign banks) applies.

                                                      3. For interest payable under Part 7 of the Tax Administration Act 1994, NRWT withheld by the Commissioner is treated as paid on the date it is withheld. Section 100 and Part 9 of that Act do not apply to the Commissioner and that interest, but the other provisions of the NRWT rules do apply.

                                                      Compare
                                                      Notes
                                                      • Section RF 2(1) heading: substituted (with effect on 1 April 2008), on , by section 531(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                      • Section RF 2(1): replaced (with effect on 30 August 2022), on , by section 108(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                      • Section RF 2(1B) heading: inserted, on , by section 143(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                      • Section RF 2(1B): inserted, on , by section 143(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                      • Section RF 2(2) heading: replaced (with effect on 30 August 2022), on , by section 108(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                      • Section RF 2(2)(b): replaced, on , by section 143(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                      • Section RF 2(2)(c): added (with effect on 1 April 2008), on , by section 531(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                      • Section RF 2(2)(c): amended (with effect on 1 April 2010), on (applying for the 2010–11 and later income years), by section 130(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                      • Section RF 2(2)(c): amended, on (applying for the 2010–11 and later income years), by section 531(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                      • Section RF 2(2)(d): inserted, on , by section 182 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                      • Section RF 2(2BA) heading: inserted (with effect on 30 August 2022), on , by section 108(3) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                      • Section RF 2(2BA): inserted (with effect on 30 August 2022), on , by section 108(3) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                      • Section RF 2(2B) heading: inserted, on , by section 273(2) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                      • Section RF 2(2B): inserted, on , by section 273(2) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                      • Section RF 2(2B): amended (with effect on 30 August 2022), on , by section 108(4) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                      • Section RF 2(3)(e): inserted, on , by section 273(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                      • Section RF 2(4): amended, on , by section 273(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                      • Section RF 2(5): amended (with effect on 1 April 2008), on , by section 531(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                      • Section RF 2(7): amended, on , by section 273(5) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                      • Section RF 2(8): amended (with effect on 1 April 2008), on , by section 227 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                      • Section RF 2 list of defined terms derived from New Zealand: repealed, on , by section 130(3)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                      • Section RF 2 list of defined terms double tax agreement: inserted (with effect on 30 August 2022), on , by section 108(5) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                      • Section RF 2 list of defined terms excluded income: inserted (with effect on 1 April 2008), on , by section 531(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                      • Section RF 2 list of defined terms income year: inserted, on , by section 273(6) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                      • Section RF 2 list of defined terms inflation-indexed instrument: inserted, on , by section 143(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                                                      • Section RF 2 list of defined terms money lent: inserted, on , by section 273(6) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                      • Section RF 2 list of defined terms New Zealand banking group: inserted, on , by section 273(6) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                      • Section RF 2 list of defined terms New Zealand resident: inserted (with effect on 30 August 2022), on , by section 108(5) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                                                      • Section RF 2 list of defined terms non-resident financial arrangement income: inserted, on , by section 273(6) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                      • Section RF 2 list of defined terms registered bank: inserted, on , by section 273(6) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                      • Section RF 2 list of defined terms source in New Zealand: inserted, on , by section 130(3)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).