New Zealand Tax: Changes to New Zealand's international tax rules

The Revenue Minister of New Zealand has released an issues paper on more changes to New Zealand's international tax rules, this one focusing on proposing changes to the tax treatment of non-portfolio foreign investment funds (FIFs). The changes build on the 2006 review that identified the tax system as hindering New Zealand business from competing on a par with other foreign competitors in the same jurisdiction by imposing higher tax costs or compliance costs.

The proposed changes focus on the commercial reality that many companies use FIFs rather than controlled subsidiaries for direct investment overseas. As such, it considers how the active income exemption introduced in July 2009 for CFCs can be extended to non-portfolio FIFs.

Under the proposals, no income will be taxable from income interests of more than 20% in FIFs that have passive income of less than 5% of their total gross income. The active income exemption will not be available to investors with interest of less than 20% in a FIF (but more than 10%). Instead, the current FIF rules that apply to portfolio interests will be extended to such investors.