Report Topics:
1:- General Information
2:- Cooling-off Period
3:- Pyramid Schemes
4:- Multi-Level Marketing
5:- Prohibition on Products
6:- Credit Restrictions Country
7:- Money Collections
8:- Licenses
9:- Status of Direct Sellers
10:- Earnings Claims
11:- Taxes and Fees
12:- Social Security
13:- Others
General Information
& Company Structures
As in most countries, businesses in New Zealand trade as companies, general partnerships and some businesses trade as individuals or sole traders.
All companies which carry on business in New Zealand must be registered under the relevant Companies Act, either by registration under the Companies Act 1993 as an overseas company (commonly described as a branch) or through a local subsidiary. All local subsidiaries incorporated after 1 July 1994 must be incorporated under the Companies Act 1993.
Sole traders and general partnerships do not have registration requirements. Limited liability partnerships require certain registration formalities under the Partnership Act 1908.
Some trading entities exist under trustee arrangement although these are rare and usually set up for domestic reasons. It is common for business owners to hold property or assets under family trusts to protect that property in the event of business failure or legal suite however strict rules do apply on time of transition for such property to ensure this is not used to avoid legal remedies at the time of a business failure.
There are no specific anti-trust laws within New Zealand, although such actions including monopolies, price fixing and collusion are monitored by the Commerce Commission under the Commerce Act and most commercial legislative requirements are policed also by the Commerce Commission.
Limited companies have reporting requirements both to the Registrar of Companies administered by the Ministry for Economic Development and to Inland Revenue. All companies trading in New Zealand are required to complete the statistical returns when required by the Department of Statistics. Failure to comply with any such requirements can result in fines.
Publicly listed companies also have reporting and mandatory requirements to the New Zealand stock exchange if listed there where debentures are issued are subject to the Securities Commission.
Foreign investment into New Zealand is monitored by the Ministry of Economic Development and the Internal Affairs Department. There is no legislation prohibiting levels of investment or the nature of investments with the exception of foreign ownership of land, which requires approval when in excess of NZ$10 million or is farming land. Land (including commercial buildings) adjacent to waterways is also subject to approval irrespective of value when the buyer is foreign.
The general economy of New Zealand is a highly deregulated economy, although the legislation that does apply can carry heavy penalties should failure to comply be found.
Direct Selling Legislation
The only specific legislation for Direct Selling in New Zealand is contained in s section of the Fair Trading Act called Uninvited Direct Sales and under the Credit Contracts and Consumer Finance Act.
This section in the Fair Trading Act sets out that all sales made under the criteria must have a 5 working day cooling off period. Payment and delivery within this period is permitted however the right to cancel without cost for consumers is mandatory.
The section in the Credit Contracts and Consumer Finance Act is specific to provision of finance for the sale and sets up a requirement that the persons must be a fit and proper person. There is no definition of what that requirement means as this law was passed on 19 December 2019.
Distance selling is also covered under the Uninvited Direct Sales section on the same basis. The Telecommunications Act 1986 also provides for prevention of harassment and this has been interpreted in some case law to mean distance sellers who routinely call the same recipient when they have expressed a desire not to receive such calls. There is a voluntary system only for removal from telemarketing lists through the Direct Marketing Association.
Penalties are available with the Commerce Commission able to seek fines of up to $30,000 for offenses of the Fair Trading Act section. This is less than the penalties for Pyramid Sales which are $600,000 for companies and $200,000 for individuals along with imprisonment under the same law.
Consumer laws applicable to all sellers including Direct Sellers are:
All of the common consumer laws have seen amendments since enactment
General Laws
There are general laws which also govern some product types and control what is acceptable or to cover issues such as packaging, storage, handling, labelling and advertising.
These are:
Some areas of law are harmonised or are in the process of harmonisation with Australia but may have some exclusions.
These include:
A number of products are also covered by mandatory standards which are focused on safety. These are usually established in the Fair Trading Act but may also fall under other legislation like Food, Electricity or Gas Regulations where appropriate.
A number of laws cover a range of areas from consumer activity to employment however some specifically have an application to employment and contractors and independent contractors. These are:
Employment and Independent Contractor Agreements need to be checked against these laws in particular. The DSA has guide materials for compliance against the Health and Safety at Work Act for independent contractors.
Codes of Practice are recognised under the Fair Trading Act and can be used as a demonstration of compliance as a defence should an action be commenced by the Commerce Commission.
Statutory Authorities
The Commerce Commission is the consumer and companies, watchdog and prosecutor. It prime powers are under the Commerce Act, the Companies Act, the Fair Trading Act and the Consumer Guarantees Act, The Telecommunications Ombudsman Act.
Prime issues affecting Direct Sellers dealt with by the Commerce Commission are:
Medsafe currently controls Direct Sellers involved in nutritional products, weight loss and mineral supplements are covered by the Medicines Act (and the May 1999 regulations). Therapeutic devices from surgical to band aids are already regulated and require listing on the Medsafe register prior to sale.
A replacement law for the Medicines Act will be implemented by the end of 2020 and is expected to require tougher requirements around Medical Devices while nutritional products is to remain a food product and be excluded from this new law.
Sunscreens are currently treated as cosmetics however this law does have the ability to bring them under its regulations.
The Privacy Commissioner deals with complaints under the Privacy Act 1993 and has powers to censure and prosecute companies or individuals who use information gathered for one purpose and use it for another or request information that is irrelevant to the purpose. This only relates to personal information gathering and does not cover business information that might be gathered. It may be argued that an Independent contractors information is business however if it is used for personal targeting it may still breach the Act.
The Human Rights Commissioner deals with complaints under the Human Rights Act 1993 and has the same level of powers as the Privacy Commissioner. He or she will investigate complaints of discrimination on the basis of Age, race, gender, religious belief and sexual preference whether it relates to employment, consumer dealings, advertising or in fact anything where discrimination can be proved. Penalties can include fines and imprisonment for severe cases.
The Environment Protection Authority (EPA) regulates all hazardous substances and New Organisms and while the later part is unlikely to affect Direct Sellers the hazardous substances regulation does impact on a wide range of product sold.
Under the Hazardous Substances and New Organisms Act 1996, the EPA has developed a range of “Group Standards” that cover broad categories of products such as Cosmetics, Cleaning Products and Inks and Paints. These “Group Standards” are given the status of regulations under the act and must be complied with.
Exemptions apply for products labelled and sold in markets such as Australia, US, Canada and EU unless a specific warning is required. Such warnings are aligned to the EU regulations and so most products compliant with the EU requirements will be compliant with New Zealand.
Each standard sets down rules on what must be complied with for the product type and includes labelling, advertising and packaging.
Dangerous goods rules fall under this act and any large volumes being stored will require specific compliance if they are defined as a dangerous good.
The “Transport of Dangerous Goods” fall under the Transport of Dangerous Goods regulation 2005 which sets the transportation and handling for hazardous goods over 5 litres and specifies a range of requirements in the transportation process for goods that are deemed hazardous.
There are a number of other statutory bodies which have little impact if any on Direct Sellers and are not mentioned for that reason.
Disputes & Legal Recourse
Disputes by consumers that cannot be resolved with the seller are (with the exception of financial products/services) able to be lodged with the Disputes Tribunal to be heard in front of an Arbitrator without lawyers. The cost to the claimant starts at $45 to lodge the case with the District Court administration and a hearing is held within 3 months. The fee scale goes up to $180 for the maximum level of claim The Disputes Tribunal may hear cases up to $30,000 NZ. Amounts over this must be heard in the District Court or High Court. Decisions of the Disputes Tribunal are binding although they may be overturned by High Court Act and Appeal Court Actions.
Complaints related to privacy may be lodged to the Privacy Commissioner who may rule on the use of personal information and censure or prosecute a company or individual for misuse of the information under the Privacy Act 1993.
Complaints related to human rights are dealt with under the Human Rights Commissioner who may censure or prosecute a company or individual under the Human Rights Act 1993.
The Environmental Protections Agency (EPA) will accept complaints that a substance is unsafe and should have tighter controls placed on it and when it accepts such complaints places the onus on companies to argue why the tighter controls should not be imposed under the Hazardous Substances and New Organism Act 1996. The EPA does investigate some complaints or breaches itself but delegates most the responsibility to Worksafe.
Self-Regulation
Code Acceptance
The New Zealand DSA has developed its Code of Practice in conjunction with the Ministry of Consumer Affairs and has received formal recognition of the Code from the Ministry. The Fair Trading Act for “Uninvited Direct Sales” has penalties of up to $30,000 and allow enforcement by the Commerce Commission. Compliance with the DSA Code will be permissible to use as a legal defence under the Fair Trading Act in relation to that section of the Act.
The DSANZ has a defined procedure which sets out acknowledgment periods, action and response periods under the Code of Practice. The Code Administrator is recognised as a legitimate arbitrator for DSA members and the first recourse for consumers dealing with a DSA member dispute. The consumer still has the right to take their case directly to the Disputes Tribunal but weaken their case as they have not utilised all reasonable means of resolution before lodging the case.
Good Market Practice
The New Zealand DSA Code of Practice was first adopted in 1988 and was aligned to the WFDSA World Code in 1993 with the Government negotiated amendment ratified in December 3rd 1997. The current version was last amended in May 2017 in line with the World Federation Code of Ethics.
The New Zealand Code of Practice has two main component parts.
The DSA has working relationships with key regulatory authorities however, this is no protection for bad practices and while the DSA will support member companies in compliance, it will not support unethical or illegal behaviours.
Checking that your practices and products conform is the responsibility of the Direct Selling Company and failure may see a prosecution by the relevant authority. Such prosecutions have heavy penalties both for the individuals involved and the company.
Consumers in New Zealand have a cooling off period in law of 5 working days only in relation to hire purchase transactions under the Fair Trading Act. Credit contracts are by law aligned to this same period.
The cooling off does not apply for products under $100 NZ.
The DSANZ Code of Practice provides 10 actual days or 5 working days whichever is the longer for all products other than food or perishable items and effectively sets a benchmark for non-members as well. The Consumer must notify the seller within the cooling off period although this does not have to be in writing. If it is not done in writing some other verification is the responsibility of the consumer.
The uplifting and refund is the responsibility of the Direct Seller once notice is given. DSANZ members are obliged to refund under the Code whereas the specified time frame required by the Fair Trading Act says the consumer is entitled to a refund within 5 working days from the point of notice and failure to undertake this would be a breach of the law and penalties of up to $30,000 could apply.
Both the DSANZ Code and the Fair Trading Act require the Direct Seller to advise the consumer of their rights at point of sale in writing.
Pyramid schemes are illegal in New Zealand under the Fair Trading Act 1986 with fines running at $200,000 (NZ) per offence and also provide for imprisonment for serious offenders. Prosecutions can be brought by the Commerce Commission, the Police or as a civil case by any individual. All such cases will go through the High Court.
Interim injunctions can and are sought by the Commerce Commission to freeze assets while the case goes through the court system. These can freeze not only company but personal bank accounts and personal assets identified as forming part of the Pyramid operation.
The Commerce Commission works with the DSA in shutting down such schemes.
Network Marketing is legal in New Zealand and is formally recognised under the Fair Trading Act as a legitimate selling activity. The use of the terms matrix has provided a considerable confusion over what is a legitimate network marketing operation and what is a Pyramid Scheme. It is however not illegal to use the term.
Network marketing companies need to be careful in what representations are made by contractors or salespeople as those representations are deemed in law to be those of the company and may breach any of three sections of the Fair Trading Act if incorrectly done. This includes earnings claims. The three sections of the Fair Trading Act that are particularly relevant are:
Other areas of the Fair Trading Act that Network Marketers need to be very careful of are:
These last two sections relate mostly to the recruitment of contractors and the manner that this is done whether by the company or by independent contractors building their down-lines.
“Unsubstantiated Claims” is able to be used to enforce earnings claims, product performance claims where they are not able to be substantiated by facts or clinical trials etc prior to going to the market. This area is the greatest risk to Direct Selling companies and as penalties can be $600,000 per breach the fines can be substantial.
No DSA member has been prosecuted under any of these provisions and in relation to section 12 only one case exists which relates to a commission agents for a non-member.
Non-member Direct Sellers have been prosecuted under Section 9 on numerous occasions in recent years for using misleading information to obtain sales but neither were Network marketers.
There are no general prohibitions other than those that are related to illegal substances internationally however there are a number of specific criteria that must be complied with which may otherwise prohibit products from being sold.
It should be noted that CBD remains a listed medicine ingredient and therefore cannot be sold in any other form.
Dietary Supplements
New Zealand operates a similar set of Dietary Supplement regulations to that of the United States using a negative list arrangement. This means that if the ingredient is not banned or restricted it may be sold legally. In general terms this allows virtually any product that can be sold in the US or EU to be sold in New Zealand although occasionally some thresholds for some ingredients may differ. The major difference in that in labelling and advertising and promotional material no claims of any therapeutic benefit can be made as these are banned under the Medicines Act regulations 1999 unless the product is a registered medicine.
You may claim that the product promotes health or wellbeing etc. but cannot say for that it cures or prevents any particular illness or condition. This situation may change if the “Natural Products Bill” becomes law which will impose considerable costs to register both ingredients and products prior to sale of these products in New Zealand. This would be similar to the rules applied in Australia with limited recognition of registration being held in Australia. This proposed law is strongly opposed by the DSA and other industry organisations.
Children’s Nightwear
These are restricted under the Fair Trading Act using a mandatory standard to require labelling to show the fire risk.
Children’s Toys
These are restricted under the Fair Trading Act using a mandatory standard to require suitability for age to be shown and safe use for that age range.
Pushchairs (Children)
These are restricted under the Fair Trading Act using a mandatory standard to require compliance to the standard for manufacture and safety requirements.
Electrical Goods
These have mandatory standards applicable however means of compliance are permitted to show that the electrical product is safe and has been tested to operate on the New Zealand electrical system of 230 volts. Any product approved for Australia is deemed compliant for New Zealand however it should be noted that there are a range of Standards for specific product types exist and compliance with the appropriate standard is required. Many electrical standards are joint for both New Zealand and Australia. Companies are required to maintain manufacturing test and data sheets on file for each product for 7 years from the date of introduction to the market.
Gas Appliances
Any gas appliance sold must be notified under the mandatory system to the Energy Safety Service and must comply with the New Zealand Standard NZS5262. Means of compliance are varied but essentially if the appliance meets an internationally recognised standard such as those applicable in Australia, and it will burn safely on New Zealand gases, it may be notified to the register and sold. This is a web based register.
Foods
All food products must comply with the New Zealand Food Safety Authority joint standards before it may be sold in New Zealand or Australia. The Food Act provides the Authority the powers to regulate although actual enforcement is undertaken by Food Safety Officer at local government level.
If the product is able to be sold in New Zealand then it also may be sold in Australia except where the product is banned in Australia. If it contains any genetically modified ingredient it must show this on the labelling. It must also show a full ingredient listing with the percentage of each ingredient Any product not displaying the correct labelling is illegal and will be ordered from the market. Food products must not contain any animal ingredient sourced from the UK, EU or any country where BSE is known to exist. Soya sauce products from China and Hong Kong are restricted to an approved list.
Cosmetics
All cosmetics are now governed under the Hazardous Substances and New Organisms Act 1996 – Cosmetic Group Standard 1 July 2006 which sets down the requirements for packaging, labelling and handling however specific exemption exists for products labelled and sold in the USA, Canada, the European Union and Australia as being deemed to comply with New Zealand requirements providing any ingredient specific obligations are met. This relates to specific warnings being required for some ingredients.
The cosmetic group standard sets out what is a cosmetic and covered and any product that does not fit must then apply as a similar substance to the EPA for approval before importing and selling the product. All known mainstream products are covered by this approval.
The Medicines Act also has some limited coverage of Cosmetics in that it sets out what claims must not be made in labelling or advertising of the product. Breeches of these claims rules are subject to action under the Advertising Standards Authority – Therapeutic Advertising Code and coverage includes point of sale materials and web sites as advertising.
Legislation currently before the Parliament could see this Act superseded by the Natural Products Bill which would introduce similar rules as are applied in Australia with an additional registration fee/audits etc. required prior to sale in New Zealand for some cosmetic products.
Chemicals and Cleaning Products
All chemicals and cleaning products are subject to the Hazardous Substance and New Organism Act 1996 and therefore if the chemical or cleaning product containing substances over the defined thresholds for Toxicity or eco-toxicity are exceeded then they must comply with the appropriate “Group Standard” for that product type. There are 6 subsections of the Cleaning products Group Standard dependent on the hazardous properties of each product as to where they are governed. Even so called, “environmentally friendly” products will need to comply with one of these if it is a cleaning product. Other group standards may be used providing the chemical can be reasonably defined as falling under that group standard.
Dangerous Goods (Aerosols & Flammable/explosive type products)
These are restricted in handling and under the Transport of Dangerous Goods Regulations of the Hazardous Substances and New Organisms Act regulations which cover the levels of some products by volume that can be shipped. This can impact particularly on distribution of these products to independent contractors with high compliance costs for packaging and unique transport companies having to handle these types of products.
These rules set down storage requirement that include approved handlers and storage facilities where the volumes being stored exceed the thresholds.
In some instances there are Group Standards that will need to be complied with even if the product is in small quantities. Aerosols are such a product type that must be complied with. Please note that if the product is an Aerosol Cosmetic it will only need to comply with the Cosmetics Group Standard which also picks up cosmetics that use aerosol delivery.
All financial transactions where finance or credit are offered by Direct Sellers fall under the Credit Contracts and Consumer Finance Act 2014 with other relevant acts
Where finance (credit or hire purchase) is provided ownership of the financed product must be registered under Personal Properties Securities Act 2001 via a web based register until full settlement has occurred. This registration of security interest can be used to establish ownership of revolving commercial credit or standard sales terms at an agreed level between the vendor and the purchaser.
Credit Card transactions are not included in this coverage and are treated for Direct Selling purposes as being cash transactions.
There are no restrictions on the movement of funds into or out of the country however the Financial Transactions Reporting Act does require banking organisations to report larger transactions to authorities to monitor for organised crime prevention purposes.
There are restrictions on cash being taken in or out of the country in person with an obligation to report amounts in excess of $10,000 New Zealand.
Debt collection is based on the terms offered by the Direct Seller as a vendor and therefore once the defined period has expired for payment by the contractor, the outstanding amount may place with a debt collection agency for recovery.
As debt collection agencies normally charge a fee or percentage, this provision is normally added to standard terms of trade where credit is provided or where payment has defaulted.
Most Direct Sellers in New Zealand take payment by Credit Card or EFPOS (Electronic Funds Point of Sale – transfer) transactions negating any need for debt collection activity except in rare circumstances.
There are no laws covering debt collection other that those applied socially or generally however if the recovery involves product recovery then, the Credit Contracts and Consumer Finance Act and the Personal Properties Securities Act 2001 must be complied with.
There are no Direct Selling Licences required for operation in New Zealand.
Some products may need approval (see product prohibitions).
Direct Sellers in New Zealand have an established position with clear recognition by Government agencies of their independent contractor status. The Inland Revenue has issued a booklet specifically designed for the Direct Selling Industry which clearly defines the differences between an independent contractor and an employee. This booklet (IR 261) is available from any Inland Revenue office and from the DSANZ.
The standing of the independent contractor has been defined in law, specifically through the case of Harcourts versus the Inland Revenue 1992/1993. This case was heard in the High Court and went through the Appeal Court and the Privy Council to be upheld in all three instances. The Inland Revenue, as a result, has declined to pursue the issue with any subsequent cases, having lost so decisively.
Successive Governments have declared that they have a focus on free enterprise and will not introduce any new legislation to counter the current position. Therefore Direct Sellers working as independent contractors are responsible for all their own taxes including GST, Income Tax, Fringe Benefit and Accident Compensation Levy payments.
It is however critical that Direct Selling companies structure their agreements to ensure that the treatment of transactions are buy/sell even if virtual of nature and that upline payments are for the purposes of assisting the independent contractor to build their business and to provide support and training to their downline.
Direct Selling has a long history in New Zealand with a traditional base in the Door to Door market for a wide range of domestic products running back to the early part of the 20th century. The introduction of the first Multi-level or network marketing companies since the late 1970’s has seen a significant growth in the industry and of the business opportunity. This has had some adverse reactions in some public perceptions for some companies attempting to apply the formula used in the US directly to New Zealand however this has also been offset by some companies using the quality and environmental qualities of their products to heighten their presence and acceptance in the market.
Direct Selling in New Zealand was branded the hidden industry by the 1998 Economic Impact Study conducted by the University of Otago and this still appears largely true in spite of publicity undertaken by the DSA on behalf of the industry. A more recent study undertaken by Deloittes backed up many of the outcomes from the earlier study.
The DSA is well known to regulatory authorities and therefore members of the DSA are accorded a higher status on the basis that they hold to a higher level of ethics in the market. To this extent consumer advocate organisations and consumer media programmes do mention the DSA in relation to un-ethical behaviours by those Direct Sellers (member or non-member) that come to their attention.
Earning claims must be accurate and reasonably attainable and must be properly represented by both the company and its representatives. Failure to do so may breach the Fair Trading Act 1986 under sections, 9, 12 and/or 22.
The Fair Trading Act section 12A governing “Unsubstantiated Representation” make it essential that any earnings claims are able to be substantiated as real or likely within New Zealand to avoid challenge. You should hold evidence of how you are able to prove this is the case.
Even under the existing law great care in ensuring that earning claims are not overstated should be taken as an investigation by the Commerce Commission can be expensive in defending even if no prosecution is undertaken.
What is earned, when and why it is earned needs to be spelled out clearly to ensure that there is no possibility of misunderstanding by independent contractors or salespeople or the inland revenue should they take an interest in the nature of payments.
The DSA provides a Taxation Guide IR261 written in conjunction with the Inland Revenue Department setting out tax obligations for distributors and provides a full outline of individual taxes on its web site. This section does not deal with product associated costs or charges.
Taxes and earnings related fees in New Zealand are broken down into the following categories:
Income Tax – Income tax in New Zealand falls into two types:
Personal income tax has a maximum rate of 33 cents in the dollar and has a graduated scale starting at 15 cents for income below the $12,000 level. The top tax rate threshold commences at $60,000 per annum. All personal income is deducted at source to some extent with the exception of self-employed persons such as independent contractors.
Company or Corporate Tax also includes those that have a formal partnership arrangement registered with the Inland Revenue. Company tax is currently at 28 cents in the dollar and is applied at a flat rate on net profit. Income from dividends may be inputted and likewise dividends paid to overseas shareholders may receive an input credit by the shareholders own country tax administration where a double taxation agreement is in place and recognition has been granted.
All business costs are deductible however those that apply to employees where no tax is gathered from the source deduction will be offset by Fringe Benefit Tax at the maximum rate of 33 cents in the dollar.
Withholding Tax – Withholding tax is deducted for “dependent contractors” and on payments made to overseas owners including those for dividends paid. This is deducted at 20 cents in the dollar and may be claimed back by the contractor or shareholder against their tax liability. Note that for international investors a double taxation agreement must be in place for the claim (imputation) to be achieved. Direct Sellers independent contractors should not have withholding tax deducted and they should be treated as self-employed unless they are a full commission agent and acting as an employee.
Withholding tax deducted by network marketing and party plan companies in particular exposes the company to potential liability under Fringe Benefit Tax when such benefits as cars, trips or prizes are given as rewards for performance around business building etc. The reason for receiving these benefits needs to be expressly laid out in agreements to prevent this liability and to prevent the need to deduct withholding tax.
Indirect Taxes
These taxes are:
Goods and Services Tax (GST) is voluntary for filing up to $60,000 sales but mandatory once that level is reached or if it is believed that this level will be reached in the next twelve months. Independent contractors may choose to register while below this threshold to gain the deductibility against capital goods purchased for their business. The DSA guide on this should be consulted to ensure that they are entitled to claim such deductions. The rate of GST for New Zealand is 15% and is charged on all goods sold regardless of type or use with the exception of financial transactions such as banking and life insurance.
GST must be returned the registered business monthly, bi-monthly or 6 monthly based on turnover level. 6 Monthly is frequently picked and suited to Direct Seller Distributors/independent contractors/salespeople.
All goods imported to New Zealand will incur GST at the border which is charged by Customs except where the import is deemed personal and the goods valued below $400 New Zealand. The GST charged at the border may be claimed back against sales made by the importing company as an “input” to ensure that the overall end consumer only pays 15% on the total added value of the product they purchase.
When Direct Selling companies are paying commission to the upline salesforce they can issue a buyer created tax invoice when the independent contractors is also registered for GST providing company has approval from Inland Revenue to do so.
Excise Taxes are charged on Alcohol, Tobacco products and fuel products such as petrol and diesel oil. The rates vary but range up to 100% depending on the product. These are deemed to be social taxes where either the health or welfare is adversely affected or usage taxes where with fuel taxes, the funds are normally deployed back into the areas that use them such as new roading etc. These taxes very rarely affect Direct Sellers.
Duties or tariffs on goods are charged for a range of imported products not covered by a free trade agreement such as CER (Australia), P4 – Singapore/Brunei/Chile Closer Economic Partnership, China FTA, Hong Kong FTA, Thailand FTA, ASEAN FTA, AANZFTA and CPTPP (10 countries) There is also provision for imports from the poorest countries to exempt there products from any tariffs or duties although this list fluctuates and is based on the UN bottom 48 countries.
There are only a few categories of products that still have duties or tariffs applicable which are mostly under the following headings:
The tariff rates range from 5% to 15% and are being reviewed downward over a period of time although it is unlikely to have these entirely removed as they remain a benefit of Free Trade Agreements.
Products imported under Free Trade agreements or exemptions must qualify with rules of origin content requirements. These are:
Pending FTA agreements include:
Those importing products or materials that are not manufactured by local manufacturers and therefore will have no impact of local employment can apply for a tariff exemption through the Ministry for Economic Development when their product is covered by a tariff heading duty.
Employment Taxes and Fees
This area or tax generally acts as a deduction from employees or dependant contractors and so has little impact on Direct Selling companies. Liability is passed to independent contractors for their own tax provision and in relation to Accident Compensation.
The main taxes or fees involved in employment are:
Payee tax is employee tax deducted at source by the employer. “Pay as you earn employee” It is a legal obligation to deduct for all employees and pay monthly to the Inland Revenue Department.
Fringe benefit Tax is charged for benefits received in relation to employees. This includes employee company cars, employee insurances, employer paid – non work related trips or prizes given to employees and the rate is presently 33 cents in dollar but may change based on the top income tax rate. This is assessed quarterly and paid to the Inland Revenue Department although a special arrangement is available for an annual assessment and payment on application to the department.
The Accident Compensation levy is due to be paid by all employers, self-employed (independent contractors) and by employees. Employers are obliged to pay this levy based on wages or salary on a prescribed ratio calculated on the industry or occupation. This same levy is applicable to self-employed people and thus Direct Selling independent contractors are also liable to pay when this is their prime or sole source of income. The levy in based on gross income that the contractor draws from their business which is treated as a wage/salary equivalent.
Employees are also levied a smaller percentage which employers are obliged to deduct in conjunction with the PAYEE tax and pay through the Inland Revenue to the Accident Compensation Commission.
Accident compensation is a no fault, no blame system and negates employers from being sued for damaged when a worker/contractor is injured at a place of work. However employers who have injury claims will pay more in their levy than those that do not with serious levels of claim meaning up to 100% more liability. Conversely those with no claims or proven safety management systems in place can receive a discount of up to 20% on their levy.
Injury accidents employers can still be prosecuted by the Occupational Safety and Health Service of the Labour Department and fined where negligence can be proven. This can include fines and imprisonment in significant negligence cases of responsible persons such as managers. In medical or business negligence cases individuals may sue the medical specialist or business for non-injury harm however such cases are rare and normally have limited success.
Local government taxes
These are essentially a property tax and called “rates”. These are based on the rateable value of the property and payable directly to the local government or council for maintenance of services such as rubbish collection, sewage, storm water and roading. There is often a differential rate applied between business and domestic property with business picking up a larger level of rating. Some local government also separate out charges for water supply and wastewater services for both business and domestic properties.
New Zealand has a national welfare system where any person unable to work through unemployment, sickness or accident will be looked after with benefit provisions. There is no finite period for entitlements although a range of schemes exist to ensure those able to work are actively encouraged back into work either part time or full time.
The social security system also provides a retirement income from age 65 as a government pension and any other income is subject to tax at the appropriate rate for the income level. Some subsidies exist for persons on the pension for bus and other public transport systems.
Likewise there is public health system designed to provide the same level of support and no cost to New Zealanders who use it. Private health and welfare arrangements are permitted and in the health area thrive as an alternative to the public system.
There are no deductions or payment required to fund social security as this is funded from central government taxation however a voluntary scheme called Kiwisaver allow employees to join a superannuation fund to save for their retirement and deductions by the employer is mandatory if the employee has opted for this scheme.
The New Zealand tax system provides for low income families to access “working for families” grants which can be negative tax based to encourage people to work. This is based on the family income and the number of children. An independent contractor may still access this subsidy but will have to ensure all tax has been paid or returned correctly first. An application must be made to Inland Revenue to gain this subsidy.
Structure of Government New Zealand operates a single level of central government under a mixed member proportional system of representation (MMP). Parliament has 120 seats made up of 60 electorate seats and 60 proportional seats. The electoral system ensures that the final representation in the parliament is exactly in proportion to the percentage of votes gained by the party with a threshold of 5% minimum required if no electorate seats are gained.
The government is made up of the largest party who may govern alone when more than 60 seats are held or in coalition when less are held so long as the coalition exceeds the 60 seats or 50% of the parliament.
Local government is elected separately and has no power to central government. All local government is empowered through controlling legislation from the central government does have the power of general competence allowing the local authority to borrow funds independent of government and fund that debt from rate payers.
=General Law
Most law is based on the British system with case precedents often forming those handed down under British law. Some but not all law is aligned to Australia as the nearest and most significant trading partner and cross references are found in the New Zealand law where this occurs. The ultimate level of appeal is the Supreme Court however there are primary three tiers of law operation in New Zealand.
Other courts or bodies exist for specific purposes such as:
The Administration or Bureaucracy
As with all countries there is bureaucracy to deal with the running of government. The key government departments that may impact on Direct Selling are:
Under these are the operations of the various statutory authorities referred to earlier in this document.
Liability Issues
In general terms companies and individuals may be sued or held liable for actions and activities however the level of civil cases in New Zealand is proportionately low compared to the US, Australia or other western nations.
Accident Compensation is a no fault system which all employers and employees pay into. This law prohibits taking legal action against a company by an injured worker or person injured in any other form of accident.
While there is no provision for employees to sue when they are injured this is not the case for officials and the Worksafe agency will initiate an action for criminal liability if necessary.
Other liabilities for prosecution exist in relation to a range of legislation.
These include such examples as:
Injury to Property – The liability of persons causing injury to persons or property is governed by contract and also by the law of negligence. This area is open to legal actions but is rarely used.
Insurance cover is held by the majority of the population for motor vehicles and other property however it is not mandatory.
The WFDSA International Guide to Direct Selling Legislation is a guide and is not exhaustive either in terms of subjects presented or for all areas of concern to direct selling companies. It is intended to cover general areas of concern. The Guide is not a substitute for legal counsel but only intended to alert you to the general nature of laws and regulations affecting the direct selling industry in a particular country. Consequently, before beginning an operation in any foreign country, it is strongly recommended that competent legal counsel be consulted. While every effort has been made to insure that the information contained in this Guide is accurate, the variety of sources used makes absolute verification difficult. Further, laws and regulations also can change from time to time without notice. Therefore, the WFDSA cannot be held liable for the information included in this publication.