Do you have questions around the new With-holding tax rules for those contractors operating through a labour-hire company?
Here's a basic overview of the new rules which took effect from 1 April (or you can deter to 1 July):
A labour-hire firm is defined as 'an entity which has as one of its main activities the business of arranging for a person to perform work or services directly for clients of the entity'. There have been issues from this definition but what is clear from the IRD's policy team is that the standard consulting arrangement, whereby 'Luke' contractor operates via his contracting company 'Luke's Consulting Ltd' and provides services to the ultimate client – say Spark, remains outside of the new rules. This is because Luke's Consulting Ltd's activity is not arranging contractors for clients in the original course of its business.
The upshot of the new rules is that contractors can now select their own WHT tax rate. Tax Policy has included the following table to assist us to determine the rates of WHT that may apply.
Chosen by the payee
(15%-100% for non-residents and holders of temp. visas)
Payee can request from Commissioner
Only necessary if the payee wants a rate lower than 10% (or 15% as above)
No notification rate
When the payee does not provide name or IRD number to the payer
20% for non-resident companies
45% for other contractors
Set by Commissioner when the payee has not met a liability under the IR Acts
Cannot exceed 50%
Non-resident entertainer rate
Must be used by non-resident entertainers
The rate for the activity or arrangement set out in schedule 4, which will apply if none of the rates set out above apply.
Vary between 10.5%-33% depending on the type of activity or arrangement
There are a number of rules around this tax that can be a bit confusing at first, if you have any queries at all, give us a call to discuss.