A protocol updating the double tax treaty between New Zealand and the US is now in force, lowering withholding rates on dividends, interest and royalties between the two countries.

The withholding rate on dividends is reduced from a standard rate of 15 per cent to 5 per cent for an investing company that has at least a 10 per cent shareholding in the company paying the dividend. Furthermore, it is reduced to nil if the investing company holds 80 per cent or more of the shares in the other company as well as meeting other criteria, according to the publication.

The withholding rate on royalties has been lowered from 10 per cent to 5 per cent, and the rate on interest has been reduced to nil for interest paid to lending or finance businesses, again with certain conditions.

The new rates are applicable from 1 January 2011 in the case of withholding taxes, for income for years beginning after 1 April 2011 in the case of New Zealand rates other than withholding taxes, and for taxable periods beginning on or after 1 January 2011 in the case of US taxes.

"This is an important development that will benefit both countries by helping to reduce tax barriers to two-way trade and investment," said New Zealand’s revenue minister Peter Dunne.

"Lower withholding tax rates will make it less costly for businesses in one country to invest in the other, and to bring profits home for reinvestment or distribution to shareholders," he added.