New Zealand and Japan have recently signed an Income Tax Treaty which will replace the existing Japan-New Zealand Income Tax Treaty that was concluded in 1963. The updated agreement will come into force once both countries have completed ratification procedures.
Under the new treaty an entity of one contracting state will be regarded as having a permanent establishment in the other state where it performs services in that state through one or more individuals on the same project or a number of connected projects, and the services are performed for at least 183 days in any twelve month period. A permanent establishment will also exist where services are performed in the other state by an individual who is present for at least 183 days in any twelve month period and more than 50% of the gross revenues of the enterprise from business activities are derived from the services in the other state.
A key feature of the updated agreement will be lower withholding taxes on interest, dividend and royalty payments between the two countries, which will make it less costly for businesses to invest in each country. Under the provisions of the treaty the withholding tax on dividends is limited to 15%. Where the company receiving the dividend has a direct or indirect shareholding of at least 10% in the payer, which has been held for at least six months, the withholding tax on the dividend is reduced to zero, subject to certain other conditions. Withholding tax on interest is restricted to 10% and on royalties the maximum withholding tax is 5%.
