When buying, selling or transferring New Zealand property, individuals and entities who live overseas (“offshore persons”) need to supply both a New Zealand IRD number and a taxpayer identification number from any other country where they currently have to pay tax.
It can be quite a process to obtain an IRD number if you live overseas. An offshore person must first have a fully functional New Zealand bank account. IRD’s guidelines explain that a “fully functional bank account” is one where:
You can make deposits and withdrawals; and
The account holder’s identity is verified in accordance with Anti-Money Laundering legal requirements.
So what does this mean?
The easiest way to satisfy the IRD’s requirements that you have a “fully functioning” bank account is to provide a bank statement which shows that you have both deposited and withdrawn funds (of differing amounts) from that account.
New Zealand’s banking and anti-money laundering identity verification requirements mean that you need to be physically present in a branch to make the first deposit needed to open an operational bank account. It can therefore be difficult for people living overseas to set up a new bank account. If you are an offshore person and you own or intend to own any property in New Zealand, then make sure that on your next trip to New Zealand that you open a bank account, make a deposit and buy a drink!
What if I’m not planning on travelling to New Zealand?
If you are unable to travel to New Zealand to open a bank account, but you need to obtain an IRD number then you will need to jump through extra hoops:
Firstly you will have to provide your bank with a completed account opening authority form, and notarised copies of your passport and proof of address.
Once the bank is satisfied as to your identity, they will issue a letter stating that a fully functioning bank account has been opened.
You will then need to complete the appropriate application form (IR742 for individuals, IR744 for companies, trusts, partnerships and other entities). Your bank will also have to complete the relevant section of the IRD number application form, as well as completing a separate IR997 (customer due diligence) form.
The process of proving your identity through this process can be slow, often taking around six weeks. If you are contemplating dealing with your New Zealand property in the near future, we recommend getting the process started as soon as possible.
What if I am selling to an offshore person?
This also means that you will need to be prepared for potential delays if you are looking to sell property to an off-shore person. We have experienced situations where settlements have been delayed because the agreement has not allowed sufficient time for the off shore purchasers to obtain their New Zealand IRD number. You may need to allow them extra time to organise their affairs, and obtain an IRD number.
If you are unsure whether a person or entity that is a part to the transaction is an “offshore person” in terms of residential land withholding tax, you can find the criteria set out by Inland Revenue here.
Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.