US Expat Taxes Explained: Filing Taxes as an American Living in New Zealand
You are going to be required to file US expat taxes no matter which country you earn your living in, but how will your taxes be affected if you live in New Zealand? With an unsurpassed natural beauty and English speaking culture, it is understandable why New Zealand is a desirable destination for US expatriates. Nevertheless, it is important to understand how your US expat taxes are going to change with your move to New Zealand, and what taxes you will be required to pay to Inland Revenue Department of New Zealand.
US Expat Taxes in New Zealand
If you are a citizen or permanent resident of the United States then you are obligated to file US taxes with the IRS each year regardless of the country in which you reside.
In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.
While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:
- The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
- The foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
- The foreign housing exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.
With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your US expat taxes. Please note that even if you do not believe you will owe any US income taxes, you will more than likely still be required to file a return.
New Zealand Income Tax Rates
The tax rates from the Inland Revenue Department are progressive for all income taxable by the New Zealand tax authorities.
|Earnings in New Zealand Dollar (NZD)||National Income Tax Rate (%)|
|14,001 – 48,000||17.5%|
|48,001 – 70,000||30%|
|70,000 and above||33%|
Note that non-resident tax withholding is a flat rate of 15%, which may be reduced due to the US double taxation agreement with New Zealand.
New Zealand’s tax rate is similar to that of the US. Depending on your income level, you are not particularly at risk of paying high US expat taxes due to low taxes in New Zealand.
New Zealand Residency
New Zealand residency is based on meeting the following requirements:
- An Individual is physically present in New Zealand for more than 183 days in a period of 12 months (note: does not need to be consecutive).
- An individual has a permanent place of abode (PPOA) in New Zealand. A residence is considered a PPOA if the home is yours for your use. A home alone is not enough for residency; you must also consider relationships (both business and personal), employment ties, and the location of your family. The tax authorities will also take into consideration your intentions in New Zealand.
- Transitional residency applies for individuals who are new to New Zealand and others who have been absent from New Zealand (and non-resident for tax purposes) for ten years or more. The exemption period begins the first day an individual buys a PPOA or exceeds 183 days of presence in New Zealand and is applicable until the 48th complete month from that date.
Is Foreign Income Taxed Within New Zealand?
The taxation of worldwide income is dependent on your residency status.
- Resident – taxed on worldwide income, minus foreign tax credits to protect residents from double taxation
- Non-resident – only taxed on New Zealand sourced income; foreign-sourced income is not taxable
- Transitional resident – taxable on worldwide income and New Zealand personal income, unless within the 48 month exemption period
New Zealand Tax Due Date
The New Zealand tax year is different from the US tax year and starts April 1st and ends March 31st of the following year. This means that your income is going to need to be adjusted accordingly on your US expat taxes, even if you are using the New Zealand tax year for your New Zealand returns. Tax returns need to be filed with the Inland Revenue Department before July 7th, although an extension until March 31st of the following year is available if you are enrolled with a tax agency.
Although most income is taxed on a Pay as You Earn (PAYE) regime, you will need to file a return with the Inland Revenue Department unless the amount not taxed at the source is less than NZ$200. You will need to file if you have any interest, dividends, or other employment income.
Tax payments are made in three installments – August 28th, January 15th, and May 7th. These are required if the taxpayer has a liability of NZ$2,500 or more.
Social Security in New Zealand
New Zealand does have a Social Assistance System which must be paid into by those earning income in New Zealand. As there is no Totalization Agreement between the United States and New Zealand, this may be one aspect of US expat taxes where Americans in New Zealand face double taxation. The American Social Security Administration provides US expats with an explanation of social security in New Zealand so that taxpayers know just what they are paying into.
US – New Zealand Tax Treaty
The US – New Zealand tax treaty is helpful for situations where an expat is not sure if taxes should be paid on their New Zealand return or on their US expat tax return. The treaty is relatively straightforward, but if you have any questions regarding the tax treaty, you should seek expat tax advice.
Other Taxes in New Zealand
Employment income in New Zealand also includes an Accidental Compensation Corporation, or ACC. This scheme is in place to provide insurance in “no fault” accidents. Employers and employees must pay into it and the rate changes annually. Currently, employment income is taxed at 2% in order to cover the employee’s salary up to NZ$111,669. This is withheld the same way as regular income taxes. New Zealand does not have a capital gains tax regime, although certain capital gains are taxed through separate tax regimes. If you are claiming gains, it would be best to talk to a tax advisor.
New Zealand has a Goods and Services Tax of 12.5% on all applicable goods or services.
Saving on US Expat Taxes
Knowing that you are required to file US expat taxes is the first step in understanding your tax obligations while living abroad in New Zealand. Being aware of the taxes you will pay in New Zealand to the Inland Revenue Department can make your entire experience living in New Zealand much more enjoyable.