New Zealand: Employer tax update, displaced employees (COVID-19)

New Zealand: Employer tax update, displaced employees

Many employers are considering their tax obligations as a result of employees choosing to relocate to, or becoming stranded in, other jurisdictions because of the coronavirus (COVID-19) pandemic.


Non-resident employer’s obligations to deduct PAYE, FBT and ESCT

Inland Revenue released a draft operational statement OS 20/0X, Non-resident employers’ obligations to deduct PAYE, FBT and ESCT in cross-border employment situations. This document is open for consultation, with submissions closing on 1 September 2020. The draft statement provides that non-resident employers only have an obligation to withhold PAYE or return fringe benefit tax (FBT) and employers superannuation contributions tax (ESCT) if:

  • The employer has sufficient presence in New Zealand to be subject to New Zealand tax law; and
  • The services performed by the employee are attributable to the employer’s presence in New Zealand.

The draft statement also provides that no PAYE withholding obligation arises on non-resident’s foreign-sourced income or if the employee’s income is exempt under a provision in the domestic law or an income tax treaty for the avoidance of double taxation.

COVID-19 tax updates

With the borders to many countries re-opening to citizens and permanent residents, individuals who were sheltering or stranded in New Zealand can, when flights are available, return to their usual country of residence.

For those who choose to stay in New Zealand after they are no longer practically restricted from travelling, the COVID-19 tax concessions will not apply. This means individuals may become subject to New Zealand tax, and their non-resident employers may be required to register as an employer with Inland Revenue and account for PAYE withholding tax, FBT and ESCT. These obligations would be backdated to the first day the employee was present in New Zealand unless an exemption is available under the domestic law (such as the short-term visit exemption) or a Double Tax Agreement.

When no exemption applies, and the non-resident employer does not want to register with Inland Revenue, the “IR56 taxpayer regime” may be of interest. This regime allows the employee to take on the responsibility of the payroll reporting to Inland Revenue—instead of the employer.

When employees have become subject to tax in New Zealand from an earlier point in time, consideration needs to be given as to how to best manage the employer tax obligations when filing and payment deadlines may have already passed. 

Read an August 2020 report prepared by the KPMG member firm in New Zealand

© 2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us