New Zealand has a comprehensive income tax treaty with the United States, but a saving clause preserves the US right to tax its citizens on worldwide income. A critical point for US persons is the absence of a Social Security Totalization Agreement, meaning self-employed individuals owe full US self-employment tax. Complex US reporting rules also apply to common New Zealand savings vehicles like KiwiSaver.
US filing basics every American abroad must know
US citizens and green-card holders are taxed on worldwide income wherever they live, and usually must file Form 1040 once gross income exceeds the IRS threshold ($15,750 for single filers, $31,500 for married filing jointly, and $23,625 for head of household for 2025), even when no tax is ultimately due. The tools that reduce double taxation are the Foreign Earned Income Exclusion (FEIE, up to $130,000 for 2025 under IRC §911) and the Foreign Tax Credit. Neither is automatic. The FEIE requires a tax home in a foreign country plus either the bona fide residence test or 330 full days abroad in a 12-month period, and it reaches earned income only. The Foreign Tax Credit is figured separately for each income category under IRC §904 and is capped at the US tax on the foreign income in that category, so it reduces double taxation without guaranteeing that none remains.
Two reporting rules catch most filers in New Zealand: the FBAR (FinCEN Form 114), required when foreign financial accounts exceed $10,000 in aggregate at any point in the year, and Form 8938 (FATCA) for specified foreign assets above the applicable threshold. Both can carry penalties even when no tax is owed. If you are behind, the Streamlined Filing Compliance Procedures are the usual path back for non-willful taxpayers. They run on two tracks: the foreign track carries no offshore penalty but requires meeting the program's non-residency test, and the domestic track carries a 5% offshore penalty but works through amended returns, so it does not fit someone who never filed at all. Tax and interest on the catch-up years are owed whichever route applies.
US tax treaty with New Zealand
The US-New Zealand income tax treaty, with its 2008 protocol, aims to prevent double taxation. However, for US citizens and green-card holders, its primary benefit is reducing New Zealand withholding tax on investment income. The treaty's saving clause (Article 1) allows the US to continue taxing its citizens as if the treaty did not exist, meaning the Foreign Tax Credit, not the treaty, is the main tool for avoiding double tax on most income.
Article 1 (Saving Clause).
The United States reserves the right to tax its citizens and residents on their worldwide income, regardless of most treaty provisions. This clause is the reason US citizens living in New Zealand must still file a full US tax return and cannot use the treaty to exempt their NZ-earned income from US tax.
Article 10 (Dividends).
This article limits the withholding tax that New Zealand can impose on dividends paid to a US resident. The general rate is 15%, with lower rates for certain corporate owners.
Article 11 (Interest).
Limits the New Zealand withholding tax on interest paid to a US resident to 10%, with a potential exemption for interest paid to financial institutions.
Article 12 (Royalties).
Caps the New Zealand withholding tax on royalties paid to a US resident at 5%.
| Income type | Treaty rate | Statutory rate | Notes |
|---|---|---|---|
| Dividends | 15% | 30% | 5% if the beneficial owner is a company owning directly at least 10% of the voting power of the paying company. The 0% rate under Article 10(3) asks for ownership of 80% or more of the voting power for the 12 months ending on the date entitlement to the dividend is determined, plus one of the limitation-on-benefits conditions that paragraph draws from Article 16. |
| Interest | 10% | 15% | Article 11(3) exempts interest beneficially owned by a Contracting State or its instrumentality, interest on debt that State guarantees or insures, and interest beneficially owned by a bank or other financial enterprise. Article 11(10) claws that last exemption back to 10% where a New Zealand payer has not paid approved issuer levy on the interest, or where the interest is part of a back-to-back loan arrangement. |
| Royalties | 5% | 15% |
Because of the saving clause, a US citizen living in New Zealand generally cannot use the treaty to exempt income from US tax. The treaty's main functions for an individual are to reduce New Zealand tax withheld at source on certain investments and to provide rules for determining residency in ambiguous cases.
KiwiSaver and US Tax Implications
New Zealand's KiwiSaver retirement scheme presents significant complexity for US taxpayers. The IRS does not recognize KiwiSaver as a 'qualified' retirement plan. Consequently, it is typically treated as a foreign grantor trust.
This classification triggers several reporting requirements:
- Form 3520 (Annual Return To Report Transactions With Foreign Trusts) and Form 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner) are generally required annually. These are complex forms with substantial penalties for non-compliance. Rev. Proc. 2020-17 lifts both forms for a tax-favored foreign retirement trust, but only for a plan that meets every condition in its section 5.03, and KiwiSaver is a poor fit for two of them: contributions must come only from personal-services income and must be capped by a percentage of earned income, an annual $50,000 limit or a lifetime $1,000,000 limit, while Inland Revenue allows unlimited voluntary contributions paid directly to a scheme provider. The revenue procedure also reaches only the Form 3520 and 3520-A reporting, and only for someone already compliant with their US return filing, so it does nothing for the FBAR, Form 8938 or PFIC reporting below.
- The underlying investments within a KiwiSaver fund are almost always considered Passive Foreign Investment Companies (PFICs). This requires filing Form 8621 for each fund, which involves complex calculations and potentially punitive tax outcomes unless specific elections are made.
- The value of a KiwiSaver account is a foreign financial asset. It must be reported on the FBAR (FinCEN Form 114) if your aggregate foreign account balances exceed $10,000, and on Form 8938 if you meet its higher reporting thresholds.
Investments, property, and capital gains in New Zealand
Beyond KiwiSaver, many New Zealand investment products create US tax complications. Most managed funds, including Portfolio Investment Entities (PIEs), are treated as PFICs, requiring Form 8621 and subjecting US investors to unfavorable tax rules. New Zealand's lack of a broad capital gains tax is irrelevant for US purposes; US citizens are taxed on their worldwide capital gains, so the sale of a New Zealand property or shares at a profit can create a US tax liability even if it is tax-free in New Zealand. A New Zealand Look-Through Company (LTC), while transparent for NZ tax, is generally treated as a foreign corporation by the IRS. It is a Controlled Foreign Corporation (CFC) when US shareholders who each hold at least 10% together hold more than 50% of it by vote or by value, which brings Form 5471 reporting for those 10% holders and potential inclusion of income under GILTI or Subpart F rules.
Self-employment and companies in New Zealand
A critical distinction for US persons in New Zealand is the complete absence of a US-NZ Social Security Totalization Agreement. This has a major impact on self-employed individuals. A self-employed US citizen or green-card holder in New Zealand is fully liable for US self-employment taxes (Social Security and Medicare) on their worldwide self-employment income. For 2025 the tax is 15.3% on 92.35% of net earnings from self-employment: the 12.4% Social Security portion applies only up to the $176,100 wage base, and the 2.9% Medicare portion is uncapped, with a further 0.9% Additional Medicare Tax on combined Medicare-taxed wages and self-employment income above $200,000 for a single, head-of-household or qualifying-surviving-spouse filer, $250,000 for a joint return, and $125,000 for married filing separately. It is owed once net earnings from self-employment reach $400 or more. There is no exemption, and it is not possible to obtain a Certificate of Coverage to avoid this tax. This means you may be required to pay into both the US Social Security system via self-employment tax and New Zealand's Accident Compensation Corporation (ACC) scheme on the same income. The income tax treaty does not cover social security taxes.
Worked examples
Self-employed consultant in Auckland (2025)
A US citizen works as a freelance IT consultant in Auckland, earning NZD 165,000, which is a net profit of USD 100,000 after expenses. Because there is no totalization agreement, they owe full US self-employment (SE) tax. The calculation is:
- Net earnings from self-employment: $100,000
- Amount subject to SE tax (92.35% of net earnings): $92,350
- SE Tax Calculation: ($92,350 x 15.3%) = $14,130 in US SE tax.
This tax is due to the IRS regardless of any income tax paid to New Zealand's IRD or levies paid to the ACC. The Foreign Earned Income Exclusion cannot be used to reduce self-employment income for this calculation.
Salaried employee with a KiwiSaver account (2025)
A US citizen is employed by a New Zealand company with a salary of NZD 150,000 (approx. USD 90,000). They contribute to a KiwiSaver plan. On their US return, they can use the Foreign Tax Credit to offset US income tax with the NZ income tax they've already paid. However, the KiwiSaver account creates major reporting burdens. They must file:
- An FBAR and likely Form 8938 for the account value.
- Form 3520/3520-A because the KiwiSaver is treated as a foreign trust.
- Form 8621 because the underlying fund is a PFIC.
Failure to file these forms can result in significant penalties, even if no US income tax is due on the salary.
Retiree with NZ investments (2025)
A US citizen retiree lives in Christchurch and has a portfolio of New Zealand shares and a PIE fund. They receive NZD 20,000 in dividends from a NZ company. Under the treaty, the NZ withholding tax is limited to 15% (NZD 3,000). On their US return, they report the full NZD 20,000 as income and can claim a foreign tax credit for the NZD 3,000 paid. Their PIE fund, however, is a PFIC. They must file Form 8621 for the PIE, and any distributions or gains are subject to complex and potentially high US tax rates. If they sell their NZ home, any gain is reportable and potentially taxable in the US, even if it is exempt in New Zealand.
Common mistakes for Americans in New Zealand
- Assuming a US-NZ Social Security Totalization Agreement exists. It does not, and US self-employment tax is due.
- Failing to report a KiwiSaver account on the FBAR (FinCEN Form 114) and Form 8938.
- Ignoring the foreign trust reporting (Forms 3520 and 3520-A) for a KiwiSaver account.
- Not filing Form 8621 for PFICs, which includes KiwiSaver and most New Zealand managed funds (PIEs).
- Believing that because New Zealand has no general capital gains tax, gains from selling NZ property or shares are not taxable in the US.
- Treating a New Zealand Look-Through Company (LTC) as a simple partnership for US tax purposes, instead of as a foreign corporation that may require Form 5471.
- Attempting to use the tax treaty's articles to exempt income from US tax, which is prevented by the saving clause for US citizens.
- Forgetting that employer contributions to KiwiSaver may be currently taxable for US purposes.
New Zealand tax FAQ
As a self-employed US citizen in New Zealand, do I have to pay US Social Security tax?
Yes. There is no Social Security Totalization Agreement between the US and New Zealand. You owe US self-employment tax at 15.3% on 92.35% of your net earnings, with the 12.4% Social Security portion stopping at the $176,100 wage base for 2025 and the 2.9% Medicare portion uncapped, in addition to any income tax and ACC levies paid in New Zealand. You cannot get a Certificate of Coverage to avoid this, and neither the Foreign Earned Income Exclusion nor the Foreign Tax Credit reduces it.
Is my KiwiSaver account reportable to the IRS?
Yes, extensively. A KiwiSaver account is considered a foreign financial account for FBAR and Form 8938 purposes. Because it is generally treated as a foreign trust, Form 3520 and Form 3520-A are usually required too. The Rev. Proc. 2020-17 exemption from those two forms is hard to reach for KiwiSaver, because that revenue procedure requires contributions to be limited and to come only from personal-services income, and KiwiSaver takes unlimited voluntary contributions. Finally, as the underlying investments are PFICs, you must file Form 8621.
What is a PFIC and does it apply to my New Zealand investments?
A PFIC is a Passive Foreign Investment Company. The rules apply to most foreign pooled investments. In New Zealand, this includes nearly all KiwiSaver funds and other managed funds like Portfolio Investment Entities (PIEs). Owning PFICs requires filing Form 8621 and can lead to very high tax rates unless specific, timely elections are made.
Can I use the US-New Zealand tax treaty to reduce my US tax bill?
Generally, no. The treaty contains a 'saving clause' that allows the US to tax its citizens on their worldwide income as if the treaty didn't exist. Its main benefit for you is to reduce the amount of tax New Zealand can withhold on your NZ-source investment income. You avoid double taxation primarily by using the US Foreign Tax Credit.
I sold my home in New Zealand and paid no NZ tax. Do I owe US tax?
Possibly. The US taxes its citizens on worldwide capital gains. Unlike New Zealand, the US has specific rules for capital gains on property sales. While the US offers an exclusion for the sale of a primary residence (up to $250,000 of gain for a single filer), you must meet the US-specific ownership and use tests. Any gain above the exclusion amount is taxable in the US.
What is a New Zealand Look-Through Company (LTC) for US tax purposes?
While an LTC is treated as a pass-through entity in New Zealand, the IRS generally views it as a foreign corporation. It is a Controlled Foreign Corporation (CFC) only where US shareholders who each own at least 10% together own more than half of it by vote or by value. A 10% stake on its own does not make the LTC a CFC. Where the test is met, a 10% US shareholder files the complex Form 5471 and some of the company's income can be taxed directly to them.
Why might I have to pay into both US Social Security and New Zealand's ACC scheme?
This happens because there is no agreement between the US and New Zealand to coordinate their social insurance systems. The US requires its citizens to pay into Social Security on self-employment income worldwide. New Zealand requires its residents to pay ACC levies to cover potential accidents. Without a totalization agreement to assign coverage to just one country, you can be legally required to pay into both.
What are the dividend and interest rates under the US-NZ tax treaty?
For payments from New Zealand to a US resident, the treaty caps withholding tax at 15% for dividends (with lower rates for corporate owners), 10% for interest (with an exemption for financial institutions), and 5% for royalties.
Sources and last reviewed
- SSA, International Agreements List (verified 2026-06-07)
- New Zealand Inland Revenue (IRD) (verified 2026-06-07)
- IRS, Foreign Earned Income Exclusion (verified 2026-06-07)
Reviewed by Ilya Fayerman, Esq. (NY Bar) on
Common services needed by expats in New Zealand
Most Americans abroad in New Zealand need help with at least one of the following core compliance areas, which frequently interact:
- US expat tax returns, Form 1040 with FEIE, FTC, treaty positions, and any required state returns.
- FBAR reporting, FinCEN Form 114 for foreign financial accounts exceeding $10,000 aggregate at any time during the year.
- Form 8938 (FATCA), IRS disclosure of specified foreign financial assets when thresholds are met.
- Streamlined catch-up filing, For eligible non-willful taxpayers with prior unfiled years.
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