Business loan interest paid on money lent is known as resident withholding income and in certain circumstances must have resident withholding tax deducted (RWT).
If you pay more than $5,000 in business related interest per year to a financier other than a bank or normal lending institution, (for example a family member or friend), you will be required to register with the Inland Revenue Department as a RWT payer. You will then have to deduct RWT from the interest payments and forward it to the Inland Revenue on a regular basis.
RWT is deducted at different rates for different entities.
If the RWT deducted is $500 or more each month, the deductions must be paid by the 20th of the following month to the Inland Revenue Department
If the RWT deducted is less than $500 per month, each time the deductions accumulate to $500, the deductions must be paid in by the 20th of the month after the month the deductions have reach $500. Once the RWT deductions have been paid to the Inland Revenue Department, the $500 accumulation threshold recommences.
As the rules are complex, if you have any queries whatsoever, don’t hesitate to contact your wellington accountant.