In August last year, Inland Revenue released a draft operational statement outlining its view on when employer tax obligations arise in New Zealand for non-resident employers. 

The draft statement concluded that non-resident employers only have an obligation to withhold PAYE or return Fringe Benefits 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.

It also concluded 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 a Double Taxation Agreement (DTA).

Last week, Inland Revenue finalised its position in OS 21/04. OS 21/04 confirms the earlier draft position.

Why is this a big deal?

At the time of the draft statement, we noted the Commissioner’s view that application of PAYE and other employer tax obligations were limited to employers operating territorially seemed to be at odds with our understanding of the policy, the law and, importantly, common practice. 

This confusion was further compounded by the release of an issues paper seeking feedback on cross border workers issues. That included a proposal to legislate a “sufficient presence” test for determining when non-resident employers will have New Zealand employer tax obligations. (Refer to our original taxmail and submission for further information).

Any legislative change is only likely to have effect from 2023, leaving the outstanding question of what non-resident employers should be doing now. 


The finalised operational statement gives a degree of certainty. It confirms that merely having employees who are based in New Zealand would not, of itself, constitute a presence of the employer sufficient to subject the employer to New Zealand’s jurisdiction. With the move to remote working, particularly during COVID, this will be a reality for many global employers. However, there is devil in the detail.

Relevant factors to consider include whether the non-resident employer can be said to have a trading presence in New Zealand (such as an address for service) and the nature of employees’ activities whilst they are based in New Zealand. So, there will still be these issues to work through. The existence of a branch or Permanent Establishment (PE) will also cause a non-resident employer to have a sufficient presence under the operational statement, which under certain New Zealand Double Tax Agreements, can be created due to the extended physical presence of employees. On the issue of New Zealand based employees potentially creating PEs, this needs to be part of the wider tax risk analysis for business. 

Where a non-resident employer does not have any New Zealand withholding obligations, employees who are living and working in New Zealand will have a tax obligation that will need to be satisfied with Inland Revenue. For those individuals, there will be additional compliance and administrative obligations, via the IR56 tax regime. 


If  you would like advice with regards to your tax obligations, please contact Rebecca Armour or Nick Cooke.