Maybe New Zealand doesn’t have taxes, and we can live there and make a lot of money and not pay any taxes!
Or maybe we can finally be out of reach of the long arm of the IRS!
Unfortunately, the answer is no on both counts.
Just like almost all other developed nations, New Zealand has taxes including income tax. (For those who are interested, the following countries have no income tax: United Arab Emirates, Oman, Bahrain, Qatar, Saudi Arabia, Kuwait, Bermuda, Cayman Islands, The Bahamas and Brunei.)
Income taxes in New Zealand are also progressive like most other places. That means the more money you make, the higher tax rate you pay. Here are the current New Zealand rates.
Up to $14,000 10.5%
From 14,000 – $48,000 17.5%
From 48,000- 70,000 30%
Above 70,000 33%
Instead of dealing with the Internal Revenue Service (IRS), here you have to deal with their New Zealand counterpart, the Inland Revenue Department (IRD). When you arrive here with a job, you apply for an IRD number. This is how they keep track of your earnings and taxes owed.
Taxes are automatically deducted from your salary (called PAYE – “pay as you earn”), and from your bank account if you earn interest. The tax year here runs from April 1 to March 31, not the calendar year as in the US. There are generally no tax forms to fill out or file. If, for example as above, your only sources of income are your salary and bank account interest, then there is nothing more you need to do.
I like that. It makes it easy.
A small amount is also deducted from one’s wages for the Accident Compensation Corporation (ACC), which covers the cost of non-work related injuries for everyone in the country.
There are generally no deductions you can take to offset your taxes. For example, there is no residential mortgage interest deduction as in the US, or any of the other myriad deductions, credits, exemptions that bloat the US tax code (said to be some 74,000 pages in length). There is no capital gains tax on real estate here unless property is bought or sold for speculation. There is no inheritance tax, and also no social security tax or health care tax, both of which are included in the other taxes paid.
There seem to be fewer ways to game the system here. It would seem to make tax season more predictable, although perhaps less interesting.
Compared to the US, it seems that most people here pay at least some income tax. There isn’t that huge swath as with the US population, somewhere around 40%, who don’t pay any income tax, or for whom any taxes owed are offset by credits.
In the US, the majority of the income tax burden is unquestionably paid by a small subset of top earners. The top 20% of earners pay 80% of the taxes; the top 10% pay 68% of the taxes. Here in New Zealand the tax burden seems to be more evenly distributed although some would disagree. As always, those with greater incomes feel they pay more than their fair share; those with lesser incomes claim the rich don’t pay enough.
Double Taxation Agreements exist between US and New Zealand. If you can show that you paid taxes to New Zealand on money you earned there, you don’t have to pay taxes to the United States on that money. That is, you can’t be taxed twice. But the US government wants to be sure that you as a US citizen are taxed at least once (and preferably by them) on any money you earn anywhere in the world. Any money you earned either in the United States or outside the United States is subject to US income tax. Why should you have to pay taxes to the US on money that you earned outside the US—because it’s the law.
One way the US government attempts to keep track of any money held by US citizens in foreign banks is by requiring you, as a US citizen, to file a Foreign Bank and Financial Accounts Report (FBAR) each year if you have had more than US$10,000 in a foreign bank. The penalties for not doing this are quite severe including the greater of $100,000 or 50% of the balance in the unreported foreign bank account.
Goods and Services Tax (GST)
A big difference between the US and New Zealand is that here there is also a Goods and Services Tax (GST). Introduced in 1986, this is a value-added tax (VAT) that adds a percentage tax to any object you buy or service you receive, and is an additional source of funding for the government presently accounting for 26% of all taxes collected here in New Zealand. Basically, it is like a sales tax in the US except that there is one rate, currently 15%, for the entire country. The other difference is that it is already added into the sticker price of anything you buy or service you receive. For example, if you buy a loaf of bread for three dollars, that already includes thirty cents of GST (15%) in the price. Nothing additional is added at the cash register when you check out, but it’s still there. It’s hidden and it makes things more expensive. But there are no other state or local sales taxes, just the GST.
Certain items in New Zealand, including fuel, cigarettes and alcohol, also have their own special excise taxes. A pack of cigarettes in New Zealand costs about $19 with 70% of that cost being taxes. A quart of hard liquor costs around $40 of which $15 is taxes. On gasoline there is a tax of $0.67/liter which may not sound like much but when you convert liters to gallons that works out to $2.53 of taxes alone on a gallon of gas, much higher than the total price of a gallon of gas in the US at the time this is being written.
What can I say? Overall, the advantages of the tax system here in New Zealand is that the system is overall fair and predictable. People don’t spend any time agonizing over taxes. It is the way it is. Complying also doesn’t require the inordinate amount of effort that it does in the United States.
But one thing remains for sure, no matter how far one travels, it is difficult to get out of reach of taxes.