Working Remotely From New Zealand for an Overseas Employer

What an IR56 taxpayer actually is

An IR56 taxpayer is a worker who has to pay their own PAYE on their salary or wages, and who is specifically not self-employed. Inland Revenue's own example is a person living in New Zealand employed by a United States architecture firm.

The mechanism exists because PAYE is normally an employer obligation, and an employer with no New Zealand presence has no way to meet it. Rather than leave the income untaxed until an end of year return, the obligation transfers to the worker, who runs a miniature payroll for themselves.

Note what PAYE includes. It is not only income tax: the ACC earners' levy is collected through the same deduction. That levy is what buys you cover under the accident compensation scheme, so paying it is not merely a compliance chore. An IR56 taxpayer who has been quietly ignoring the whole thing has an ACC question as well as a tax one.

Non-cash benefits count

If your overseas employer gives you non-cash benefits, the kind of thing that would be a fringe benefit in a domestic employment, you include those as gross income in your IR348 return. Share schemes, allowances and equipment provided for private use can all raise this question, and it is easy to miss because no money moved.

Being taxed twice, and the agreement that prevents it

The obvious worry is paying tax in both countries on the same salary. New Zealand has double tax agreements with most of the countries a remote worker is likely to be employed from, and their whole purpose is to allocate taxing rights so that does not happen.

For employment income the usual pattern is that the country where the work is performed has the primary right to tax it. If you sit in Napier and do the work in Napier, that points to New Zealand, even though the employer is elsewhere and even though the contract may be governed by foreign law. Where the other country also taxes the income, relief generally comes through a foreign tax credit rather than through the income being exempt.

If your foreign employer is withholding tax at source and you are also liable here, deal with it early. Getting a foreign withholding stopped is far easier than reclaiming years of it.

The question this guide stops at

There is a harder issue sitting behind all of this, and honesty requires naming it rather than glossing over it. An employee working from New Zealand can, in some circumstances, create a permanent establishment for their overseas employer here, which would give that employer its own New Zealand tax obligations. Whether that happens turns on what you do, whether you conclude contracts, and how the relevant double tax agreement is worded.

That is your employer's exposure rather than yours, but it is the reason some companies refuse to employ people who move to another country, and the reason others insist on an employer of record arrangement. If your employer asks about it, the answer needs a tax adviser who can read the specific treaty, not a general guide.

KiwiSaver, student loans and everything else

Several of the deductions a New Zealand employee takes for granted behave differently when the employer is offshore.

Working out what to set aside

The practical difficulty of this arrangement is behavioural rather than technical. A gross salary lands in your account and it all looks like yours. The tax is not due until the 20th of the following month, and by then the money may be gone.

Run each payment through the PAYE calculator when it arrives and move the tax portion straight into a separate account. The income tax calculator gives the annual picture if you want to sanity check the total. Treating the tax as never having been yours is the habit that makes this work.

What this guide does not cover

Genuine contractors working for overseas clients are in a different position entirely, with GST, provisional tax and expense deductions all in play. So are non-residents, transitional residents in their exemption period, and people whose residency changed part way through a year. Employee share schemes from a foreign employer have their own rules. This is general information rather than tax advice, and the permanent establishment question in particular needs professional input.

Test Your Knowledge

Ten questions on working from New Zealand for an employer who is not here.

Sources: Inland Revenue on IR56 taxpayers and New Zealand-based employees of overseas employers, the IR356 IR56 taxpayer's handbook, and Inland Revenue guidance on tax for New Zealand tax residents. The permanent establishment and double tax agreement positions depend on the specific treaty and need professional advice.