New Zealand's Inland Revenue opened consultation on 2 September 2026 on a draft that would replace Interpretation Guideline IG0007 — the 2003 guidance that has, until now, governed how income tax applies to payments New Zealand customers make to non-resident software suppliers. If you sell SaaS to New Zealand customers and have never thought about this, that is exactly the position the draft is written to correct.
Why a 2003 rule needed replacing
IG0007 was written for a world of shrink-wrapped software and one-off licence sales. It has almost nothing sensible to say about a subscription that gives a customer ongoing access to a hosted service, which is what the overwhelming majority of software sold today actually is. The exposure draft, numbered PUB00266, exists to close that gap.
The core question the guidance answers is deceptively simple and has real money attached to the answer: is a payment to a foreign software provider royalty income (which can trigger New Zealand withholding tax) or ordinary business income (which generally does not, absent a New Zealand permanent establishment)? Get the classification wrong and you either under-withhold and create a liability, or over-withhold and hand New Zealand tax authorities money you did not need to.
What the draft actually proposes
The headline change is favourable to SaaS sellers: SaaS, PaaS and IaaS are treated as service income rather than royalties, on the reasoning that a customer paying for hosted access does not receive any transfer of copyright rights in the software itself — they are buying a service, not a licence.
That said, the draft does not treat every cross-border software payment the same way. Where a reseller or intermediary acquires copyright rights or confidential know-how alongside a service arrangement — a common structure for value-added resellers — the payment must be apportioned, and the copyright or know-how portion remains subject to New Zealand's 15% Non-Resident Withholding Tax. The guidance takes a transactional approach: what actually changes hands under the contract decides the tax treatment, not what the contract happens to be titled.
One more detail worth knowing if you use New Zealand contractors or infrastructure: as of 1 April 2026, non-resident contractor withholding tax explicitly excludes cloud services, unless personnel are physically performing work inside New Zealand.
What to actually do about this
If your product is pure SaaS with no bundled licensing, know-how transfer or reseller arrangement, the direction of this draft is good news and probably requires no action beyond noting that the classification you likely already assumed is being formally confirmed. If you sell through a New Zealand reseller, or your contract bundles anything beyond hosted access — source code escrow, white-label licensing, proprietary methodology — get your contract reviewed against the apportionment rule before this becomes final, because that is the scenario the draft is explicitly designed to catch.
Comments on Exposure Draft PUB00266 close on 31 October 2026. This is still a draft, not law — but tax authorities rarely reverse the direction of a proposal like this once published, so treat the substance as a strong preview of where New Zealand is headed rather than something to wait out.
The bottom line
New Zealand is formally catching its tax guidance up to how software is actually sold in 2026, and the proposed answer is favourable for a plain SaaS subscription. The exposure exists specifically for bundled arrangements involving resellers, licensing or know-how — check your contracts for those features before the comment period closes on 31 October.
This is general information, not tax advice. The guidance is still in draft form and may change before finalisation — confirm current treatment with a New Zealand tax specialist before relying on it.