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Inland Revenue

Tax Policy

1. Introduction

1.1 The Capital Market Development Taskforce recommended pursuing opportunities to develop New Zealand as an exporter of high-value middle and back-office services for fund management companies in its final report to Government in December 2009. One of the areas the Capital Market Development Taskforce identified where New Zealand could export financial market services was an Asia Pacific funds domicile.[1] Our location in the Asia-Pacific region gives us the opportunity to develop a regulatory and tax regime that will support high-value middle and back-office functions to parts of the international financial services industry, such as funds management, and raise New Zealand’s profile as a successful niche player in financial services.

1.2 The Government has therefore established a private sector advisory group to report back on how New Zealand can successfully position and market itself as an international funds domicile. The Government is also interested in how this positioning might create opportunities for strengthening New Zealand’s funds management industry and capital markets, and raise New Zealand’s profile as a successful niche player in financial services.

1.3 New Zealand generally operates a source-based taxation system where residents are taxed on their worldwide income and non-residents are taxed on their New Zealand-sourced income. However, non-residents investing in foreign assets through a portfolio investment entity (PIE) are currently taxed on income from the PIE as if they were residents. This treatment is inconsistent with how those investors would be taxed if they invested directly in those foreign assets and so is conceptually inconsistent with New Zealand’s source-based taxation system.

1.4 A proposal to exempt foreign-sourced income derived by a non-resident through a PIE from New Zealand tax was raised in the report, Creating Wealth for New Zealanders.[2] This proposal was again raised during the Job Summit in January 2009.

1.5 Any decision to proceed with a proposal to allow a zero percent tax rate for non-resident investing in a PIE will need to weigh up potential benefits, costs and risks.

1.6 This issues paper seeks feedback on the benefits, costs and risks of options for allowing a zero percent tax rate for non-resident investors in a PIE. Under the changes suggested, non-resident investors would be taxed in the same way as investments that are made directly. This would be consistent with applying a source-based taxation model.

Officials are interested in feedback on the perceived benefits and compliance costs of the options outlined. In particular:

  • Whether the funds management industry has a preferred option.
  • Whether and why a minimum level of New Zealand-sourced income is useful under an option that is generally restricted to vehicles investing in foreign-sourced income.
  • The appropriate level for the minimum threshold exemption.
  • Whether the minimum threshold level should be an income or asset test.
  • Whether the risks outlined in pages 4–7 to exempt foreign-sourced income derived by non-residents through a PIE are real risks, and the perceived likelihood of them occurring.
  • The likelihood of the proposed benefits outlined in pages 3–4 occurring.

How to make a submission

1.7 Submissions should include a brief summary of major points and recommendations. They should also indicate whether it would be acceptable for officials from Inland Revenue and the Treasury to contact you about your submission to discuss the points it raises. Submissions should be made by 4 June 2010 and be addressed to:

Allowing a zero percent tax rate for non-residents investing in a PIE
C/- Deputy Commissioner, Policy
Policy Advice Division
Inland Revenue Department
PO Box 2198
Wellington 6140

Or e-mail [email protected] with “Zero percent PIE rate” in the subject line.

1.8 Submissions may be the source of a request under the Official Information Act 1982, which may result in their publication. The withholding of particular submissions on the grounds of privacy, or for any other reason, will be determined in accordance with that Act. If you think any part of your submission should properly be withheld under the Act, you should indicate this clearly.


1 A domicile is the legal “home” of a managed fund. These domiciles play a critical role in the international funds management infrastructure and generate local economic activity in funds administration.

2 Stobo C., September 2008.