Foreign investors who want to set up businesses in New Zealand in 2023 have several choices when it comes to the legal entities they can register under the local legislation. The same laws provide for the types of companies which can be established by those who want to expand an existing business in New Zealand. The three choices foreign companies have when starting a business in New Zealand are the branch office, the subsidiary, and the representative office. Out of these three structures, only the subsidiary and the branch office can undertake commercial activities in New Zealand.
In order to understand which type of structure fits best to the needs of one’s company, our lawyers in New Zealand have prepared a comparison between the branch office and the subsidiary. You can read more about the differences below and reach out to us if you have further questions or as you decide to incorporate and are in need of personalized assistance. We are here to offer tailored advice no matter the type of company you want to open in New Zealand.
The subsidiary and the branch office in New Zealand
In order to better understand the differences between a subsidiary and a branch office in New Zealand, it should be noted that the subsidiary is an independent legal entity which can be set up a foreign company, while the branch office depends entirely on the parent company which has full decisional powers over what happens in the branch office. Also, the New Zealand subsidiary can carry out more or other activities than its parent company. Compared to that, the New Zealand branch cannot undertake additional or separate activities, unlike the foreign company.
Both the branch and the subsidiary are forms under which an overseas company can carry out business in NZ, however, there is a third option, to transfer the company completely to NZ. Below, our lawyers summarize once more the manned in which an overseas company can choose to be registered in New Zealand:
- Subsidiary: the NZ subsidiary will be wholly owned by the foreign company; as stated, it will be a completely separate legal entity, registered according to the local laws;
- Branch: there will be no difference between the overseas company and its NZ branch (they will operate as the same entity), however, the branch will conduct all operations under the New Zealand Law;
- Transfer: by transferring the operations of the foreign company from its country of origin to NZ by registering a new business.
Opening a branch office in New Zealand in 2023
The procedure for opening a branch office in New Zealand is largely the same as for registering a subsidiary, therefore there are no differences between the two legal forms from this point of view. The following documents need to be prepared upon the registration of a branch in New Zealand:
- the parent company’s Certificate of Incorporation issued by the Trade Register in its home country;
- the documents indicating the decision to register the branch (the resolution of incorporation);
- the constitutive documents of the New Zealand branch office which must be drafted in English;
- information about foreign company’s directors and the legal address of the foreign business in the home country;
- the decision through which a branch representative is appointed, a legal address in New Zealand and a valid email address.
When registering the name of an overseas company, the name registered in NZ must be identical to the one used by the company in the country where it is registered. Prior name checks are required both in the case of the branch and the subsidiary. Our lawyers detail the process of choosing a company name below.
Overseas companies may need to register if they intend to conduct certain activities through a branch in NZ. For example, they will need to make proper registrations if they wish to administer or manage property in NZ, however, they will not need to register if they will sell property through an independent contractor.
The procedure related to registering a branch office in New Zealand is quite simple and can be completed in a few days. Our law firm in New Zealand can guide those interested in registering branch offices in this country, especially foreign investors who wish to open a branch in 2023 and are unable to travel to NZ (or they are subject to quarantine conditions). Our team is able to handle part of the registration steps on you rbehalf, both for the branch as well as the subsidiary. The documents will be different, depending on the form you choose, however, we will help prepare them, draft additional papers as well as prepare the forms for the needed submissions. We can also help branches or subsidiaries register for additional permits and licenses in NZ.
Registering a subsidiary in New Zealand
The registration of a subsidiary in New Zealand is not much different from that of a branch office. The foreign company will be required to file information about it under the form of the Certificate of Registration and a declaration through which the establishment of the subsidiary is announced. Also, a representative for the subsidiary must be appointed.
All companies in New Zealand need to reserve a name for the new company and before ethe reservation can take place, the name needs to be checked for availability. Names that are too similar or almost identical cannot be used. Likewise, the chosen name cannot be offensive, contrary to public policy and it cannot use restricted or protected words. Misleading and deceptive names are not acceptable and companies can only use Māori names in accordance with certain protocols set forth by the New Zealand Geographic Board protocols.
The difference between the incorporation of a branch office and a subsidiary resides in the fact that the subsidiary must be registered as limited liability company – private or public – which also implies Articles of Association for the business to be registered in New Zealand.
The subsidiary will also need to appoint a New Zealand resident director. There are no minimum share capital requirements related to the opening of a subsidiary in New Zealand.
Open a branch office or a subsidiary in New Zealand?
When choosing between the branch and the subsidiary, a foreign company must consider the activities it will complete on the New Zealand market. From this point of view, it should be noted that most of the times the branch office is used for companies operating in the banking, insurance and the financial services sector. The subsidiary, on the other hand, is used for trading activities.
The other aspects which should be considered when having to choose between a branch and a subsidiary in New Zealand are:
- taxation: in terms of taxation, the subsidiary will be considered a tax resident, therefore will benefit from the tax advantages offered by the local authorities;
- treaties: the branch office will benefit from the advantages of New Zealand’s double tax treaties;
- costs: the costs of opening and maintaining a branch office are lower than in the case of a subsidiary;
- management: the subsidiary needs a resident director, while the branch is not subject to this requirement.
All New Zealand companies must comply with the requirement to have at least one director who lives in New Zealand or Australia (and in this case is the director of a company incorporated in Australia), however, in most cases, this mandatory requirement is established based on the minimum number of days spent by the director in New Zealand. Thus, the individual is usually required to spend more than 183 days in a 12-month period in the country, however, the Registrar may still consider the application according to certain factors such as the actual time the individual spends in the country, the connection and ties with NZ, as well as a combination of these factors that will allow the officials to determine how well the individual is able to meet the company obligations.
The subsidiary cannot appoint a director who has been prohibited from fulfilling this role under statutory provisions, for example, when convicted in the last five years of a crime that involved dishonesty or when prohibited from managing a company or limited partnership by the Registrar of Companies or the Financial Markets Authority.
Are there any tax differences between a branch office and a subsidiary in NZ?
There are no differences in terms of the standard corporate income tax rate, however, branches may be subject to certain tax advantages and lower withholding taxes under a double tax treaty, if such a treaty is signed between NZ and the country in which the parent company is registered. Our team of lawyers in New Zealand lists some of the most important taxes below:
- 28%: the corporate income tax rate and the branch tax rate;
- 0%, 15%, 33%: the different withholding tax rates applicable in case of dividends;
- 28%, 33%, 39%, or 45% in some cases is the withholding tax on interest payments made in case of resident companies; for non-resident companies, the tax is 0% or 15%;
- 15%: the standard rate of the goods and services tax; a reduced rate of 0% applies in some cases and other goods and services can be exempt altogether; GST registration is mandatory when the company has annual supplies made in NZ that exceed NZD 60,000.
New Zealand does not impose a payroll tax, capital duty, transfer tax or stamp duty. There Is no net wealth tax and no inheritance or estate tax.
The branch and the subsidiary in NZ are, in most cases, subject to audit requirements and both of these structures are required to file the annual return and/or file their accounts with the NZ Companies Office.
Our accountants in New Zealand can give you details about the tax and reporting differences between branches and subsidiaries. Moreover, we provide complete accounting assistance for all types of companies registered in the country. We can help you with bookkeeping and preparing the company’s annual financial statements, but also with financial assessments and reports as needed.
New Zealand’s official data agency ((Stats NZ Tatauranga Aotearoa) offers us a glimpse into the country’s business demographic data: provisional data showed that in February 2022 there were 592,700 registered companies – a 5% increase in the number of operating businesses in the country, compared to February 2021. These enterprises had 628,940 business locations, also an increase (of 4.8%) compared to February 2021.
As far as business growth per region was concerned, the data showed that all 16 regions recorded more business locations, compared to a year prior. Moreover, 14 of the regions also had more employees. The number of paid employees also increased in 2022, compared to 2021.
Choosing between a branch office and subsidiary can be difficult, which is why if you need more information, we kindly invite you to contact us. The choice does not depend so much on tax issues (as seen in this article, the corporate income tax is the same for branches and subsidiaries) as the level of control desired by the overseas company that decides to conduct business in NZ. Our New Zealand lawyers can also help with the registration of a branch office in 2023, subsidiary or any other type of business form.