New Zealand: A New Financial Hub

April 6, 2011 Taxation in New Zealand

MoneyNew Zealand is making efforts to attract greater numbers of foreign investors to the local managed funds industry, through changes to the tax treatment of non-resident investing in New Zealand Portfolio Managed Entities.

In February 2010 the New Zealand Prime Minister John Key set a future goal for the country to become a significant exporter of high-value middle- and back-office services for international fund management companies. The aim was supported by the government established Capital Market Development Taskforce, which claimed that New Zealand could become a primary exporter of financial market services across the Asia-Pacific region. The government is looking set to take steps to fulfill these intentions, with the Revenue Minister Peter Dunne announcing on April 5th that the Taxation (Tax Administration and Remedial Matters) Bill 2010 has been released to remove a currently existing barrier to non-residents investing into New Zealand.

Peter Dunne explained that under current rules, non-residents who invest into a Portfolio Investment Entity (PIE) will be taxed at 28 percent on all incomes earned from the PIE, regardless of whether the earnings were sourced from New Zealand of overseas. He explained further, saying, “…this means that these investors are over-taxed in comparison with how they would be taxed if they had invested directly.” According to the New Zealand government’s International Fund Services Development Group, the current system actively discourages non-residents from utilizing New Zealand PIE structures. The new Bill would align the tax treatment of non-residents using PIEs with those investing directly in New Zealand, instating a zero-rate tax on foreign sourced incomes distributed to non-residents. The changes are expected to be enacted by the end of 2011.

According to results of government consultations held with the national financial services industry, implementation of the new rules would yield approximately NZD 1 million in annual administration savings, and a possibility of much greater levels of foreign investors.

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