Among the measures contained in the new Taxation (Annual Rates for 2025-26, Compliance Simplification, and Remedial Measures) Bill (Bill), is a proposal to introduce rules to simplify the tax treatment of overseas visitors who spend extended periods in New Zealand during which they do not participate in the local labour market but may work remotely for offshore employers or clients.

The proposed changes are primarily intended to address the growing number of “digital nomads” and remote workers who may become New Zealand tax resident and have associated compliance obligations under current rules.

What’s changing?

Currently, an individual who spends more than 183 days in New Zealand in any 12-month period (day-count test), or who has a permanent place of abode in New Zealand (PPOA test), is treated as a New Zealand tax resident. Under the day-count test an individual is treated as New Zealand resident from their first day of presence in New Zealand. 

The Bill proposes a new "non-resident visitor" status. To qualify, a natural person (first arriving on or after 1 April 2026) would need to meet all of the following requirements:

1. 275 day test: The individual must not be present in New Zealand for more than 275 days in any rolling 18-month period (around nine months in total). This threshold is more generous than the existing 183-day test. 
2. Clean slate: The individual must not have been a New Zealand tax resident or a transitional resident immediately before arriving.
3. Employment restrictions: The individual cannot undertake work for a New Zealand resident business or branch of a foreign business. Additionally, they cannot market or sell goods or services in New Zealand for New Zealand customers or be in New Zealand where the nature of their work specifically requires physical presence in New Zealand.
4. Lawful presence: The individual must maintain lawful presence in New Zealand with valid visa or immigration status and cannot be receiving family assistance entitlements (nor can their partner). Remaining unlawfully in New Zealand will result in ordinary tax residence rules applying retrospectively from the date of arrival.
5. Foreign tax residence: The individual must be tax resident in another jurisdiction that levies a tax "substantially the same" as New Zealand income tax. 

Benefits of non-resident visitor status

Where an individual is a qualifying non-resident visitor:

1. Deemed non-resident: The individual would not be treated as a New Zealand tax resident under the day-count test. The PPOA test, however, appears to remain applicable.
2. Simple tax exemption: Employment or contracting income from work performed remotely for offshore employers or clients would be exempt from New Zealand income tax and ancillary regimes such as FBT, ESCT and KiwiSaver would not apply, removing compliance obligations for both the individual and their offshore employer.
   In many cases such income may already be relieved from New Zealand tax under provisions of double tax agreements (DTAs), but the benefit of the new exemption will be that the complexity of determining the applicability of DTA relief is avoided, and the period of potential exemption extended relative to the position under DTAs.
3. GST opt out: The individual, if a self-employed contractor, may opt out of New Zealand GST registration where their services are provided exclusively to non-residents and would otherwise be zero-rated.

The Bill also addresses potential tax risks for foreign employers when staff work remotely from New Zealand:

1. Permanent establishment (PE) protection: Activities carried out by non-resident visitors would be disregarded when determining whether a foreign company has created a PE in New Zealand.
2. Corporate tax residence: Where the employer is tax resident in a jurisdiction with a substantially similar income tax to New Zealand’s, the activities of a non-resident visitor in New Zealand would be disregarded when applying corporate tax residence tests (centre of management, director control).

Evidently the proposals will be fiscally insignificant, and so as a policy matter are an acceptable trade-off in a context where the Government is looking to remove any perceived barriers to digital nomads (and their wallets) spending time in New Zealand. 

Cessation of non-resident visitor status

When a person ceases to be a non-resident visitor, but remains lawfully in New Zealand, they would be subject to ordinary tax residence rules prospectively from the date of cessation (assuming they have not otherwise become tax resident under the PPOA test in the meantime). The normal position under the day-count test that residence would apply retrospectively to the date of arrival, would not apply.

Our observations on the proposal

Offshore tax residence requirement could be problematic: The requirement that to be a non-resident visitor the individual must be tax resident in another jurisdiction that levies a tax substantially the same as New Zealand income tax, could be complex and problematic in some cases 

An individual may cease to be tax resident under their “home jurisdiction” tax rules while they are in New Zealand, including on a retrospective basis back to their original date of departure from their home jurisdiction. This would appear to mean they would never qualify as a non-resident visitor.

In-tandem operation with transitional residence regime: Because a non-resident visitor would be treated generally for income tax purposes as not resident in New Zealand, they would not be taxable on any foreign-sourced income derived while they are a non-resident visitor.

For an individual who has not been resident in New Zealand in the ten years prior to ceasing to be a non-resident visitor and who then decides to stay in New Zealand, the regime would operate in tandem with the existing four-year transitional resident regime. This could provide, in effect, a five year or even longer New Zealand tax holiday in relation to most foreign sourced income (but not foreign sourced employment income, from the commencement of transitional residence).

Further, during the initial non-resident visitor period, the individual would have more flexibility to undertake actions (eg settling a trust) that could have flow-on implications if undertaken while a transitional resident.

Potential benefits beyond remote workers: The previous point, in combination with the fact that a non-resident visitor may, but is not required, to work remotely for an offshore employer, is likely to mean that non-working high net worth individuals who want to “dip their toe” in New Zealand, see the regime as an enhancement to the existing transitional residence rules.

Such persons will need to ensure that they do not create a PPOA in New Zealand prematurely (eg if permitted under their immigration status, by buying a house and “putting down roots”), as this would appear effectively to terminate non-resident visitor status.

Removal of compliance headaches for offshore employers very welcome: Disregarding the activities of non-resident visitors when determining whether a foreign company has created a PE in New Zealand, should provide greater comfort to offshore employers considering cross-border employment arrangements under which an employee (typically at their own request) will work remotely from New Zealand for a period of time.

While offshore employers often get comfortable that the remote working arrangement should not give rise to a PE in New Zealand under existing rules, the proposed changes should remove the current uncertainty that has arisen in the absence of clear guidance from either Inland Revenue or the OECD.

Get in touch

If you would like to discuss any of the above proposed changes, get in touch with one of our experts.

Special thanks to Keanu Britton-Rua for his assistance in writing this article.