Parliament recently passed the Taxation (International Investment and Remedial Matters) Act 2012. One of the amendments introduced by this Act is a zero rate of approved issuer levy (AIL) for certain New Zealand corporate bonds. This zero rate of AIL is now available for all interest payments made on or after 7 May 2012 provided other requirements are met.

Generally, a borrower making interest payments to a non-resident lender must deduct non-resident withholding tax (NRWT) from the interest at a rate of 15% (or 10% if a double tax agreement applies). However, in cases where the New Zealand borrower and the lender are unrelated, AIL of 2% can be paid as an alternative to paying NRWT.

The new rule introduced in the Act allows a zero AIL rate to apply to NZD denominated bonds that are widely-held and issued in New Zealand. Specific requirements must be met to qualify for the zero AIL rate. The key ones include:

  • The security must be one offered to the public for the purposes of the Securities Act 1978
  • It must not be issued as a private placement or an asset-backed security
  • It must have a registry and paying agent activities conducted through a New Zealand office (or other fixed place of business)
  • It must be either: 1) a listed security or 2) considered to be widely-held (specific tests apply).

For other debt instruments, the 2% AIL rate will continue to be available.