Do you know how to withhold tax from directors’ fees?

Tax Alert - August 2017

By Mike Williams and Nick Cooke 

Inland Revenue has this month provided welcome clarification on the withholding tax obligations on directors’ fees.  An updated interpretation statement, IS 17/06 “Income tax – application of schedular payment rules to directors’ fees” updates and replaces the previous interpretation statement from 1996 so is seen as a welcome update by many, but perhaps comes as no surprise given the recent changes modernising the schedular payment withholding rules which came into effect from 1 April 2017.

The requirement to withhold tax on the payment of directors’ fees can be confusing, particularly where services are provided through a company structure. The complex schedular payment provisions, their interaction with non-resident contractor’s rules and the contractual arrangements under which these payments are made are just a few of the reasons why the correct treatment of directors’ fee payments can be difficult to determine.

Schedular payments

All employers have an obligation to withhold PAYE from "PAYE income payments" and this, by definition, includes "schedular payments".

A schedular payment is a certain class of payment, not being salary and wages, from which tax must be withheld by the payer. In essence, the schedular payment rules cover certain specified payments made to independent contractors (such as payments to non-resident contractors, labour-only contractors, entertainers, media contributors, sportspeople, seasonal workers and directors).

Generally, if you pay a directors’ fee you are obliged to deduct tax at a flat 33%. The tax must be withheld and paid to Inland Revenue, while details of the gross payment, the tax withheld and the recipient of the payment should be reported on an Employers Monthly Schedule (EMS).

Many professional directors operate through a company structure. For some time now there has been some debate as to whether the withholding rules apply just to payments made to individuals operating as directors, or whether the rules also apply when the payment is made to an incorporated body in the business of providing director services.

IS 17/06 now finally clears up the debate and makes it clear that there is no requirement for a payer to withhold tax when director services are provided via a New Zealand incorporated company.


Deloitte is pleased to see a sensible interpretation from the Inland Revenue that offers taxpayers the certainty that they need in managing their obligations in relation to payments of directors’ fees to New Zealand based directors.

We note that this interpretation statement does not deal with withholding tax obligations on payments of directors’ fees to non-resident directors but this is on the list of issues to be looked at by Inland Revenue.

If you are unsure about your withholding obligations, contact your usual Deloitte advisor.

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