The IRD has released an Exposure Draft for comment on their approach to non-resident employers and their obligations to deduct employment-related taxes. It is important to note that the exposure draft is considering withholding obligations on the employer. It does not comment on whether the amounts may still be taxable to the employee even where no PAYE is required to be withheld.

The draft suggests that whether an employer has an obligation to deduct employment-related taxes depends on a few factors and suggests the general rule is that if the employer is subject to NZ tax law because they have a "sufficient presence" in NZ, and the employee’s services are "properly attributable" to the employee’s presence in NZ the obligation to deduct taxes like PAYE will apply.

The draft then suggests there could be some employees of non-residents in New Zealand where the non-resident employer would not have to withhold PAYE if their presence in New Zealand does not met the threshold.

While this is potentially favourable to some non-resident employers there is some debate as to whether this approach is correct as it makes a departure from current generally applied interpretation. As this is only a draft, it is subject to consultation and could well change before being finalised but could potentially be of interest where non-resident employers have employees in New Zealand.