IRD’s latest update to tax agents includes some clarification around contractors and withholding tax.
|There is a misunderstanding that all contractors are now subject to withholding tax. This is not the case. The change is only for contractors hired by a labour hire business.
From 1 April 2017, contractors working for a labour hire business under a labour hire arrangement must have withholding tax deducted from their income.
Activities and examples of a labour hire business
Examples of labour hire businesses are:
Withholding tax rate
They can also apply to us for a 0% special tax rate by filling in a Special tax code application (IR23BS) form. We review their tax compliance history before deciding if we’ll issue a 0% rate certificate.
Businesses (eg an engineering business) hiring sub-contractors don’t come under the new legislation. The sub-contractors wouldn’t be paid schedular payments so withholding tax isn’t taken out of their payments.