August 2010

FREE TRADE AGREEMENT UPDATE

On 30 June 2010 an amendment to the 1988 Malaysia Free Trade Agreement with New Zealand came into effect.  Some of the key outcomes of the Agreement are:

  • It enables preferential tariff rates for imports originating from Malaysia to be applied;
  • It builds significantly on the platform provided by the recently signed Agreement establishing the ASEAN- Australia – New Zealand Free Trade Area.
  • Facilitation of bilateral trade through 48-hour customs clearance and self-declaration of origin for New Zealand exports.
  • Legally binding trade, labour and environment agreements.

NZ –BELGIUM DOUBLE TAX AGREEMENT AMENDED

The double taxation relief order between Belgium and New Zealand came into force on 5 August 2010 and amends the existing order signed in 1983 by adding a protocol agreed between the two countries governments on 7 December 2009. 

The protocol amends the convention between the two countries for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

AUSTRALIA AND NEW ZEALAND – MEMORANDUM OF UNDERSTANDING (MOU) – COMPANY TAX RATE

A revised MOU was signed on 23 June between the two countries on the Coordination of Business Law.   Every five years the governments have committed to reviewing the MOU to ensure it deepens the already close relationships between the two countries and takes another step forward to achieving a single economic market.

However, competition still exists between the countries, as evidenced by New Zealand’s Finance Minister reporting that the introduction of the new New Zealand company tax rate next year at a rate that is two cents lower than the Australian company tax rate is good news for New Zealand as it will raise New Zealand’s competitive position and help provide businesses with the right incentives to invest and export.  The New Zealand company tax rate will be cut to 28 percent from the 2011/12 tax year however the Australian company tax rate would not be reduced to 29 percent until the 2013/14 tax year.

 

TAX NEWS – GST / REPEAL OF GIFT DUTY ON THE TABLE

New Zealand’s Goods and Services Tax is a tax on most goods and services in New Zealand, most imported goods, and certain imported services.  GST is currently added to the price of taxable goods and services at a rate of 12.5%.  However, from 1 October 2010 the new rate is 15%. The rate will apply on all supplies made on or after 1 October 2010.

In a recent media statement the Government also announced that, if it can deal with the concerns around creditor protection and social assistance targeting, then gift duty will be repealed.

Gift duty was introduce to prevent the avoidance of estate duty.  However, although estate duty was abolished in 1992, gift duty was retained to discourage individuals from gifting away large assets, which in turn had the effect of eroding the interests of creditors, minimising income tax liability and enabling access to social assistance that would otherwise not be available.

 

GOING GREEN – PINE FORESTS AND EMISSIONS TRADING SCHEME

As a result of the introduction of the Emissions Trading Scheme (ETS), New Zealand is experiencing a net increase in trees being planted that has not occurred for six years or so.  As a result, and in combination with the ETS, the Government is terminating over the next three years the Afforestation Grant Scheme that enabled foresters to access a contestable fund designed to encourage the planting of new forests.

 

FOREIGN FIRMS EARN HIGHER RETURNS ON EQUITY IN NEW ZEALAND THAN NEW ZEALAND COUNTERPARTS

The Government has obtained a report from Treasury noting that foreign owned firms earn higher returns on equity in New Zealand than New Zealand owned firms.  The report provided details on the difference between the performance of foreign-owned and domestic firms, and several reasons for the difference.

From those reasons the Treasury Report identified that the most plausible explanation for the difference was that the foreign owned firms invest into the best performing local firms and the productivity improving techniques they bring as multinational firms.  There was international evidence to demonstrate that multinational investors tend to target firms at the top of the productivity spectrum.  A further contributing factor is that these investors may have access to lower cost capital to allow them to out-bid local investors and purchase the firm. Additionally, the techniques and skills brought in by the foreign investors were identified as a contributing factor.  It was acknowledged that for a firm to be a multinational they must excel at what they do, particularly given that they must compete in local markets against firms, which have advantages such as local knowledge.  Thus a multinational firm would perform near the top end of the firms in a particular local industry.

 The explanations were identified as having important implications for future governmental policy.  An example given is, the productivity benefits from new techniques and skills and better management is one argument for reducing barriers to foreign investment.

 

EMPLOYMENT LAW CHANGES

New changes to labour laws make New Zealand a better place to do business and provide an opportunity to get people into work with the introduction of a 90 day trial period for new workers being available to all employers.  Previously it was only available to businesses with 19 or fewer workers.

Other initiatives seen as stimulating the economy are:

  • Employees now are able to trade in one of their four weeks annual leave for a cash payment
  • The Employment Relations Authority has additional powers to remove vexatious or frivolous claims earlier
  • Behaviour that caused delays to the Authority will be penalised
  • Employers processes will not be the subject of pedantic scrutiny, and
  • Less strict processes are available to dismiss workers.

 

DISCLAIMER

This publication is necessarily brief and general in nature. You should seek further information before taking any action in relation to the matters dealt with in this publication. If you have any questions on the matters discussed in this update please contact the New Zealand Mackrell partner, Brian Joyce at Clendons North Shore by email to brian.joyce@clendons-ns.co.nz or phone 64 9 377 8419