Frustrations are mounting, as foreigners keen to do business in New Zealand are getting tangled in red tape aimed at regulating overseas property speculators.
EY tax partner, Aaron Quintal, warns the new laws requiring “offshore persons” to have a New Zealand bank account to get an IRD number, are causing headaches for virtually all foreigners wanting to do business here.
The Land Transfer Amendment Act 2015 and Tax Administration Amendment Act 2015, which have been enforced since October 1, require anyone wanting to buy, sell or transfer property in New Zealand to have an IRD number.
To get this number, they have to open a bank account in New Zealand, and thus go through a bank’s anti-money laundering (AML) and counter terrorism financing checks.
While these laws are aimed at ensuring property speculators pay their fair share of tax on gains from property sales, they also implicate foreigners who don’t have interests in property.
Quintal says the problem is AML regulations make it near impossible for them to set up bank accounts in New Zealand without physically going into a branch.
He explains a non-resident company trying to send a piece of equipment to New Zealand, like an oil rig for example, will need to get an IRD number to deal with non-resident contractors’ withholding tax.
However the company doesn’t want to have to fly someone to New Zealand to pop into a bank and open an account, especially as it was always going to be paid in its offshore jurisdiction.
“Banks want directors to come in and sign stuff in front of them and show them their passports. If directors are sitting in Norway, they’re not going to fly to New Zealand to open a bank account,” Quintal says.
“We’re certainly finding it holding stuff up… even if it just adds a couple of weeks to the process.
“The IRD already has its own checks before you get an IRD number – it’s not that easy to get one. Adding this extra hurdle just seems to cost a lot, without adding much to the level of robustness around issuing an IRD number.”
Quintal says small to medium-sized firms are finding it particularly difficult, while larger ones may already have affiliated companies or subsidiaries in New Zealand sort out all the bank documentation.
“New Zealand’s got this ranking in the world for the ease of doing business, and this little thing is causing real problems for our clients,” he says.
Law needs to be narrowed
Quintal says the law could’ve been narrowed to only target foreigners with property interests.
EY red-flagged this concern in a submission it made on the Taxation (Land Information and Offshore Persons Information) Bill 2015, to the Finance and Select Committee in July.
The IRD also voiced its concerns in June, in its Regulatory Impact Statement on the Bill. It suggested the status quo remain, so people don’t have to get a New Zealand bank account to obtain an IRD number.
It noted the compliance costs associated with implementing the new rule – for foreigners and the IRD – outweigh the benefits.
The IRD said: “Our view is that, although there may be short-term gains, these are difficult to quantify and there will be no net benefit to the tax system in the long run. Any advantage is likely to be limited to non-individuals, and even then only until such time as AML Phase 2 is implemented.
“Inland Revenue has looked at international precedent and is not aware of any comparable jurisdiction that requires evidence of a domestic bank account as a prerequisite to obtaining a tax identification number.”
The Labour Party also weighed in on the debate, red-flagging similar issues to the IRD and EY, in its comments to the Finance and Expenditure Committee.
Quintal maintains the law change is politically driven.
“If there is a concern about the housing market, we could’ve come up with a rule that was more specifically targeted at those people,” he says.
He recognises it’s still early days, but suggests the law be tweaked before the costs really start adding up.
Banks could be more ‘pragmatic’
In the meantime, Quintal says banks could be a bit more “pragmatic” dealing with foreigners trying to set up bank accounts to get IRD numbers.
He says they often require an IRD number to set up a bank account, making things impossible for those trying to do the opposite.
While bankers with higher up positions take a counter stance, he believes this doesn’t filter down to front-end staff, wary of meeting tough new AML requirements.
“We’ve certainly had clients go around four or five banks trying to open bank accounts,” he says.
Quintal maintains there’s room for banks to be reasonably flexible in the way they go about implementing AML rules, even though the new regulations are tough.