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Cross-Border Employee Cross-Border Worker 60-day grace period PAYE Bond Provision Cross Border workers Taxation FBT Obligations ESCT Obligations Non-Resident Employers NRCT Payment Arrangements Exemptions for Withholding NRCT Remote work Remotely working PAYE arrangement PAYE Income Payments Non-Resident Contractors

 

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Cross-Border Workers: How Cross Border Workers Taxation Work PAYE, FBT, ESCT Tax

Introduction to Cross Border Workers

TIB Vol 35 No 6 July 2023 discusses cross border workers taxation. Recent amendments to the Income Tax Act 2007 (ITA) and the Tax Administration Act 1994 (TAA) have introduced more flexible arrangements for Pay As You Earn (PAYE) withholding tax, Fringe Benefit Tax (FBT), and Employer’s Superannuation Contribution Tax (ESCT) for employers of cross-border employees. These changes aim to reduce compliance costs and simplify tax obligations for employers engaged in complex cross-border employment arrangements, such as secondments, short-term business travel, and remote working.

Background of Cross Border Workers

The ITA and TAA impose obligations on employers making payments subject to PAYE, FBT, and ESCT. Strict application of these rules can result in high compliance costs, particularly for cross-border employment arrangements. Employers may struggle to understand or meet their New Zealand tax obligations, leading to underpaid taxes and the need for voluntary disclosures to the Inland Revenue.

Key Features of the Amendments

Definition of Cross-Border Employee

A new section, CE 1F(4), defines a "cross-border employee" as an individual providing services in New Zealand for a non-resident employer or a New Zealand resident providing services outside the country. This includes remote workers and those outside formal secondments.

60-Day Grace Period

Employers are given a 60-day grace period to correct any breaches of tax obligations or unexpected PAYE income payments for cross-border employees. This aims to reduce the need for voluntary disclosures by allowing employers to rectify underpaid taxes within this period.

Bespoke PAYE Arrangements

Employers can apply to the Commissioner of Inland Revenue for a tailored PAYE arrangement in special circumstances, providing more flexibility in managing tax obligations.

Repeal of PAYE Bond Provision

The rarely used PAYE bond provision has been repealed.

Effective Dates

  • Sections CE 1(3B) and CE 1F(1)–(4) and YA 1 (definition of a “cross-border employee”) and the amendment to section 23I took effect on 1 April 2023.

  • Sections CE 1F(3B)–(3E), RA 15(4B), and section 23IB will take effect from 1 April 2024.

  • Section RD 23 is repealed with effect from 1 April 2024.

Detailed Analysis for Cross Border workers Taxation

PAYE Income Payments for Cross-Border Employees

New sections CE 1(3B) and CE 1F provide for the treatment of PAYE income payments to cross-border employees. These sections extend flexibility beyond the shadow payroll rules to include local payrolls and self-arranged payments. They also cover payments made after an employee has left New Zealand for services provided while in the country.

Compliance within 60 Days

Section CE 1F(3B)–(3E) allows employers to meet or correct PAYE, FBT, and ESCT obligations within a 60-day grace period, reducing the need for voluntary disclosures when breaches occur despite reasonable compliance efforts.

Annual PAYE Arrangements

Section RA 15(4B) enables employers of cross-border employees to apply for an agreement to make annual PAYE payments by 31 May following the end of the tax year, subject to special circumstances.

FBT and ESCT Obligations for Cross Border workers

New sections RD 62B and RD 71B allow the transfer of FBT and ESCT obligations from a non-resident employer to a cross-border employee if agreed in writing. The employer must assist the employee in calculating the value of the benefits, with payment and reporting done via the IR 56 mechanism.

Integrity Measures

Safe Harbour for Non-Resident Employers

Sections 120B(bb) and 141ED(1B) of the TAA introduce a safe harbour provision, protecting non-resident employers from penalties and interest if they incorrectly conclude they have no PAYE obligations, provided they meet certain conditions.

Transfer of FBT and ESCT Obligations

Sections RD 4(4) and RD 21 ensure that where a non-resident employer does not have a New Zealand employment-related tax obligation, the liability for FBT and ESCT can be transferred to the employee.

Flexible NRCT Payment Arrangements

Nominated Taxpayer Approach

New section 24HB allows non-resident contractors to nominate a person resident in New Zealand to meet their tax obligations, simplifying compliance.

60-Day Grace Period

Section 141GC introduces a 60-day grace period for correcting NRCT obligations, allowing payers to remedy underpayments without penalties or interest if they demonstrate  reasonable compliance efforts.

Exemptions for Withholding NRCT

Retroactive Exemptions

Amendments to section 24H allow NRCT exemptions to have retroactive effect for up to 92 days before the exemption application date.

Good Compliance History

New section 24HB enables non-resident contractors to use the compliance history of a nominated person or associated New Zealand entity to obtain NRCT exemptions.

Repeal of NRCT Bond Provision

The rarely used NRCT bond provision has been repealed.

Conclusion 

The amendments to the ITA and TAA introduce significant flexibility and clarity for employers of cross-border employees, aiming to reduce compliance costs and simplify the management of tax obligations. By providing grace periods, bespoke arrangements, and clear definitions, these changes support employers in meeting their New Zealand tax responsibilities more effectively.

New Zealand Tax Accountant.