[denalipop]

I'm a US citizen, and am scheduled to arrive in NZ (as a permanent resident) in a few weeks.

I'll be continuing to work for my US-based company as a self-employed contractor (not an employee).

The US tax treaty page ( http://www.irs.gov/publications/p901/ar02.html ) says the following:

"Income that residents of New Zealand receive for performing personal
services as independent contractors or self-employed individuals
(independent personal services) in the United States in any tax year
is exempt from U.S. income tax if the residents:
* Are present in the United States for no more than 183 days during
any consecutive 12-month period, and
* Do not have a fixed base regularly available to them in the United
States for performing the services."

Does this mean that I won't have to pay any US income taxes? Will I only need to pay NZ taxes?

Also, I'm thinking about setting up an LLC (limited liability company) either in the US or NZ. How would that affect my US income tax?

Thanks!

[denalipop]

To complicate things, Publication 54 ( http://www.irs.gov/publications/p54/ch03.html#en_US_publink100047390 ) says the following:


Who Must Pay Self-Employment Tax?

If you are a self-employed U.S. citizen or resident, the rules for paying self-employment tax are generally the same whether you are living in the United States or abroad.

The self-employment tax is a social security and Medicare tax on net earnings from self-
employment. You must pay self-employment tax if your net earnings from self-employment are at least $400.
This contradicts Publication 901, which said what I posted above:

Income that residents of New Zealand receive for performing personal services as independent contractors or self-employed individuals (independent personal services) in the United States in any tax year is exempt from U.S. income tax if the residents:

* Are present in the United States for no more than 183 days during any consecutive 12-month period, and
* Do not have a fixed base regularly available to them in the United States for performing the services.
So, Publication 54 says I need to pay income, and Publication 901 says I don't. Or am I misreading something?

[sks]

...Income that residents of New Zealand receive for performing personal services as independent contractors or self-employed individuals (independent personal services) in the United States in any tax year...

(Emphasis mine.)

You'll not be working in the US, will you?

[sks]

...This contradicts Publication 901...

No, it doesn't (see my previous comment).


...So, Publication 54 says I need to pay income...

I'm not a tax lawyer or accountant, but if you're still a US citizen, you generally pay income tax on your worldwide income, regardless of source (tax treaty with NZ means that you get credit for any taxes paid to NZ -- since NZ income tax is generally higher, you'd usually end up owing nothing to the IRS).

If you've been following the news, IRS has become awfully strict about overseas earnings and accounts (supposedly, expats owe upwards of US$ 100 billion annually, and IRS means to collect).

[Jolie]

As far as I'm aware, the one overriding rule is that you have to have a multi-national tax preparer do your joint NZ and US tax returns (or do it yourself, but I really wouldn't recommend that).

You will then be required to pay taxes in whichever country the tax amount is higher. Chances are good that that will be NZ, but it's not guaranteed.

[James 1077]

US taxes are hideously complicated and the IRS isn't an organisation that gives you the benefit of the doubt!

The general rule is that, as you will be tax resident in New Zealand, you will be liable to income tax in New Zealand on your worldwide earnings.

As a US citizen you may also need to pay US taxes on your worldwide income if it is above a certain threshold (I can't remember off the top of my head but think it is around $80k). You will receive a credit for tax paid in New Zealand so are unlikely to have to actually pay anything - but still need to file the return.

As you are going to be receiving income from a US company there may be added complications as to where that income is taxable.

Your best bet would be to find an accountant who specialises in US and NZ taxation or has offices in both countries. However the cost is likely to be worth it as you'll know exactly what you need to do.

With respect to setting up a company it probably won't make a huge amount of difference except that you'll need to prepare a tax return for the company as well as yourself. However an accountant specialised in both jurisdications will be able to let you know what the advantages and disadvantages are.

[BkyMonster]

As a US citizen you may also need to pay US taxes on your worldwide income if it is above a certain threshold (I can't remember off the top of my head but think it is around $80k). You will receive a credit for tax paid in New Zealand so are unlikely to have to actually pay anything - but still need to file the return.


As a US citizen you actually need to file US taxes from overseas no matter your income.:rolleyes: You won't have to do much other than file in the US until you make over the 87k USD threshold or whatever it is. At that point the rules change a bit. You also need to file another form (I think seattle posted about it in another US tax thread) if you have more than 10k USD in an non-US account at any point during the year. Just file the form or face a fine kind of thing.

I'd also recommend an accountant for the OP's situation. At least for the first year or so.

[denalipop]

Which country's taxes do I file (and pay) first: the US or NZ?

Some people (including the US IRS and a US CPA) have said that I should do the NZ taxes first, and then get a tax credit towards the US taxes. This means NZ would get most of my tax money, with the US getting little, if any.

Other people (including the NZ IRD) have told me the reverse; that I should do the US taxes first and apply a tax credit to the NZ taxes. This means the US gets most (or all) of my tax money.

So, which way does it actually work? Which country gets the first (and largest) portion of my taxes?

[sks]

To be on the safe side, why not just pay both? If your effective NZ rate is 35% and your US rate is 28%, just pay 63%. It's a small price to pay for peace of mind.

Or, you could just hire a tax professional once you get to NZ. May not be as cheap as asking a bunch of strangers on a PMB, but you might just save money in the long run.

[denalipop]

I get your point. :)

Some people on here are (or will be) in the same boat as me, so I find it useful to try to get a general understanding on here, and then save the tax pro for when I've filled out all the forms and just want to something to look them over.

[Ana&Steve]

In my quest for knowledge, I came under the impression that the country you reside in gets dibbs. Also, if you do find a tax person familiar w/ NZ taxes in the US, PLEASE pass along their number!!! I've had no luck on that score in my area.

[sks]

...Some people on here are (or will be) in the same boat as me, so I find it useful to try to get a general understanding on here, and then save the tax pro for when I've filled out all the forms and just want to something to look them over...

I understand that thought process, but you're the one who misread the US code to begin with (and I agree with another poster -- it is terribly complicated and easy to misread).

I prefer to have a pro fill out the forms and sign before I do (in the US, at least, that obligates the preparer to defend you in a tax audit). I've been through nightmarish scenarios with the IRS -- never again.

[eassae]

If you are working for a US company your income gets attached to your SSN or you EIN does that information actually get transfered to New Zealand?

As an independent contractor I would much rather pay taxes in the US where after write-offs I paid on average between 5 and 9 % for federal. Here I get taxed as a normal employee.

[seattle]

I would also strongly recommend hiring a professional who has experience in US and NZ taxes. My OH was working for a US company while we lived in NZ and we hired a firm to do our taxes even though I'm a CPA (and worked in tax for many years) and always have done our return. We do have a complex return but even if we didn't, I'd have a pro do it, at least for the first year or two until I could figure it out.

[sks]

...As an independent contractor I would much rather pay taxes in the US where after write-offs I paid on average between 5 and 9 % for federal. Here I get taxed as a normal employee...

I though you were (about to become) an employee?

Seriously, it's madness to think that you can take US writeoffs, pay US tax rates, and expect NZ PR benefits. I'd love to be wrong, but I can't believe the system would work that way.

[eassae]

I though you were (about to become) an employee?

Seriously, it's madness to think that you can take US writeoffs, pay US tax rates, and expect NZ PR benefits. I'd love to be wrong, but I can't believe the system would work that way.

I am about to become a normal employee. I was just curious. I am mostly wondering if the IRS and the IRD share information.

[IanW99]

I am about to become a normal employee. I was just curious. I am mostly wondering if the IRS and the IRD share information.

From the Double Taxation Relief (United States of America) regulations:-

Article 25 Exchange of Information and Administrative Assistance
1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article 1 (General Scope). Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment, collection, or administration of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Convention. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

So I would say that the simple answer is yes.

Ian

[denalipop]

Speaking of the tax treaty, Article 14 says this:

Article 14--Independent Personal Services

Income derived by an individual who is a resident of a Contracting State from the performance of personal services in an independent capacity shall be taxable only in that State, unless such services are performed in the other Contracting State and:

(a) the individual is present in that other State for a period or periods aggregating more than 183 days in any consecutive twelve month period; or

(b) the individual has a fixed base regularly available to him in that other State for the purpose of performing his activities, in which case so much of the income as is attributable to that fixed base may be taxed in such other State.
My interpretation is this:

The income of a NZ resident working as a self-employed contractor shall be taxable only in NZ, unless either:

(a) he/she lived and worked in the US more than half the year; or
(b) his/her work depends on a "fixed base" (office, etc.) in the US
In my case, I will be living full-time in NZ, and I will be working out of my home office, so I won't have a "fixed base" in the US. Does this mean that my work-related income is not taxable by the US, and therefore should not be listed on my US tax returns?

In other words, if you are a self-employed telecommuter in NZ, do you only have to pay NZ taxes (on your telecommuting income), regardless of the location of your clients?

My first (and for now only) client will be a company based in the US. They will pay me in US dollars, probably via an LLC that I will set up in the US. Article 14 doesn't say anything about where the client companies need to reside. But I read somewhere else that all "worldwide income" is taxable in both the US and NZ.

NOTE: I understand that I will probably have to at some point contact a tax pro, but right now I am trying to understand how the taxes work. I need to decide whether and where to setup an LLC, and my knowledge of taxes will help me make that decision.

[suebeenz]

Hi denalipop,

I'm in a similar boat except that I'm not a US citizen.

For your piece of mind, I'd recommend calling IRS, and ask the hard questions. They'll soon punt you to the 'Advanced' department, where someone will actually be able to answer your questions. I'd recommend recording it because once they start quoting various document numbers, it'll be tough to keep up.

Here's my understanding. You won't owe US any taxes, but there may be a threshold where that stops being true (it was a big number that didn't apply to me). Been a while since I filed US return so I'm fuzzy (and I should warn you, i'm only half awake), but i believe you'll put down your worldwide income, but then claim NZ tax paid as a credit. So you won't owe tax to US.

As far as NZ goes, they will want you to file of course and will consider any contracting work done as NZ taxable, no matter where the client is based. Assuming you'll make a decent amount of money, you'll have to register for GST in NZ as well. Your services to the US firm will likely be deemed as 'zero-rated' for GST - that is you won't have to submit GST on those earnings. So every x months you have to submit a form telling them you collected $0 dollars for GST on $X earnings. You'll want to figure out the GST and provisional tax stuff sooner rather than later, because otherwise you'll get hit with nasty interest penalty after you finally file. I'd recommend calling IR and asking for a home visit explanation.

[Jolie]

In my case, I will be living full-time in NZ, and I will be working out of my home office, so I won't have a "fixed base" in the US. Does this mean that my work-related income is not taxable by the US, and therefore should not be listed on my US tax returns?

Sorry, but you're going to have to report ALL of your income to the IRS, whether it's NZ or US-based.

But unless you're making a ****load of money through salary and capital gains, you won't be owing taxes in the U.S.

[denalipop]

I've finished all my taxes, and both countries are happy with the way I filed them. My situation is all my work-related income originates in the US. I therefore need to pay my US taxes first.

Here's what I did:

1) request 1 year extension for NZ taxes (since their 2009-2010 tax year requires US 2010 taxes to be complete)

2) file US taxes for 2010
-- declare worldwide income, including interest from NZ banks
-- NZ taxes have no effect on US taxes

3) file NZ taxes for 2009-2010 (online)
-- declare worldwide income (during time spent in NZ)
-- include US total tax as foreign tax credit

It turns out my US taxes were greater than my NZ taxes, so I didn't owe any NZ taxes.

The NZ taxes were much easier to fill out, and were done completely online.