Budget 2005

Reducing tax costs for international recruitment

A temporary tax exemption on foreign income will be made available to people who come to work here, whether they are foreigners or New Zealanders who have been non-resident for tax purposes for ten years.

Tax on offshore income is an important issue for highly skilled people who are in demand internationally and for the businesses that recruit them from overseas, which often end up bearing the "tax costs" themselves in the form of higher pay. The new exemption will thus remove a tax barrier to New Zealand gaining the skilled people it needs.

How will it work?

New and returning residents can apply for a certificate of exemption if they have not been tax-resident for at least ten tax years.
New employees will be exempted from tax for five years on all foreign income except dividends, interest, employment income and business income relating to services.
Those who come, or return, to New Zealand who are not in employment will receive the same exemption for three years.
The exemption will be available to people only once.

Example

A New Zealander who has worked in France for fifteen years owns $70,000 worth of shares in French companies and pays tax in France on the dividends she receives. Under current New Zealand law, if she returns to work in New Zealand her shareholding will be treated as foreign investment funds. She will have to pay New Zealand tax on the value of the shares as it accrues, regardless of how much has been distributed. The new exemption will mean that only distributions from the shares will be taxed in New Zealand during the period of exemption.

Where to from here?

The new exemption is included in the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill, introduced today. Once enacted, the exemption will apply to people arriving in New Zealand from 1 April 2006.

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