SearchNon-resident AIL queries
Botany asks:
(updated on Wednesday, April 22nd 2020)
I’m a non-resident. I earn interest from term deposits with BNZ. In addition, I also receive rental income from some apartments in Auckland. Recently, I read somewhere that as a non-resident I can opt to pay 2% Approve Insurer Levy (AIL) for my bank interest instead of paying the NWRT. I would like to know if I am really better of choosing AIL? Also, is there any catch given that I also need to pay New Zealand tax for my rental income? The country I reside in has a double tax agreement with New Zealand.
Our Experts Answer:
Let’s start by confirming some basics for all readers. When a non-resident earns interest from New Zealand, it is subject to non-resident withholding tax (NRWT) by default. The rate is generally 10% but depends on the country the non-resident lives in.
However, there is an exception to the default if you elect to pay a 2% “approved issuer” levy (AIL). On the face of it, you are better off being subjected to the 2% AIL than suffering NRWT deductions.
Generally, the only instance where it would be better to pay a higher amount of NRWT is where you have to return the interest as taxable income in your country of residence and that country permits a tax credit for NRWT but not for the 2% AIL. Because the 2% AIL is not seen as a form of income tax by all jurisdictions, it is sometimes not possible to claim it as a credit.
Of course, if you do not have to pay tax on the interest in your country of residence, then you do not face this issue and you are better off paying the 2% AIL. The fact that you have rental property is neither here nor there in this scenario.
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