NEW ZEALAND: Government proposes tweaks to the Foreign Investments Funds tax regime to keep wealthy migrants in New Zealand

The Government is committing to tweaking controversial tax rules to encourage wealthy foreigners to stay in New Zealand.

It is proposing to make an initial change to the Foreign Investment Fund (FIF) regime, and consider a wider revamp that could benefit Kiwi investors.

As it stands, the rules can penalise those with investments of more than $50,000 in offshore entities. While they affect Kiwis, they can hit migrants particularly hard, as they might be more likely to have more money invested offshore.

Rather than pay tax on dividend income, the rules require investors to pay tax on 5% of what their shareholdings are worth every year (exemptions apply). This means investors need to pay tax even if they don’t receive any income from their investments.

The Government is proposing to give some foreign investors, with assets that are hard to liquidate, the option of paying tax when they receive income from their investments.

Revenue Minister Simon Watts wants to add the “revenue account method” to those that can be used to calculate taxable income under limited circumstances.

“This will allow new migrants to be taxed on a realisation basis for their FIF interests that are not easily disposable and acquired before they came to New Zealand,” Watts said.

“For migrants who risk being double taxed due to their continuing citizenship tax obligations, this method can apply to all their FIF interests.”

He said the changes would apply to migrants who became New Zealand tax residents on or after April 1, 2024.

Watts estimated they would only see the Government lose about $2.5 million of tax revenue a year.

“We want to act swiftly to remove barriers for highly skilled migrants to stay in New Zealand and invest in the growth of our economy, so the proposals will be included in the next taxation bill, likely to be introduced around August,” Watts said.

“This is an important step and one which the private sector has been calling for, but we need to consider whether more can be done.

“We are looking more closely at the FIF rules and related international tax settings, not only to encourage migration to New Zealand, but also to encourage our own residents to stay and invest in New Zealand.

“The Government will also be looking at how the rules impact New Zealand residents and will have more to say later in 2025.”

Watts told the Herald one of things he would look at is lifting the $50,000 threshold above which Kiwis with investments abroad can get caught up by the FIF rules.

The Government’s announcement follows Inland Revenue consulting on the FIF regime, and comes as the country hosts an investment summit, aimed at attracting foreign investment to New Zealand.