On 6 December 2024, the New Zealand Inland Revenue published an official issues paper: Effect of FIF rules on immigration: proposals for amendments (Issues Paper). 

We welcomed the opportunity to comment on the proposals set out in the Issues Paper and commend the New Zealand Inland Revenue for recognising how the current Foreign Investment Fund (FIF) rules act as an impediment to the flow of talent and capital into New Zealand. We have set out below a summary of our submissions.

Scope of the FIF proposals

We submitted that a realisation-based FIF taxation method should apply to investments made by migrants before they become New Zealand tax residents (i.e., through dividends or when investments are sold). 

We also submitted that eligibility for a realisation-based FIF taxation method should be aligned to the transitional tax residence rules, whereby both new migrants and returning New Zealand tax residents should be eligible to apply the FIF rules in this way. This means that the application of a realisation basis approach should start from when the person’s period of transitional tax residence ends.  

The revenue account method

Out of the three methods proposed in the Issues Paper, we submitted that the revenue account method is the most practical and equitable way to amend the FIF rules on a realisation basis. The revenue account method would only tax dividends received and any gain in value of those investments attributable to New Zealand on disposal of the investments or emigration of the person.

We also submitted that the revenue account method should apply regardless of whether or not:

• the shares are liquid or illiquid; 
• the person is, or could be, subject to double taxation; 
• the country that they have migrated from imposes taxation of at least 15% on realisation of investments.

Our submissions are focussed on maximising the attractiveness of New Zealand as a place for migrants and returning New Zealanders to move to while reducing compliance costs and complexity in the FIF regime. Taxpayers needing to prove double taxation or a minimum 15% tax rate in a former country could be subjective and complex, requiring detailed analysis of foreign tax regimes and double tax agreements.

Finally, we recommended that the tax rate under a revenue account method be set between 15% and 20%. This range would align with how our trading partners tax capital gains.

Going beyond the proposals

Further, we also submitted that in order to attract globally mobile people and their capital to New Zealand, more far reaching measures are required. We are in a global competition for talent and capital and many other countries have far more generous concessions available to wealthy migrants. This means that New Zealand is uncompetitive, and in our view, this would remain the case even if the proposals in the Issues Paper are introduced. This threatens New Zealand’s status in the developed world. 

To address this, we propose a territorial tax basis for new migrants and returning expatriates, taxing offshore assets and income only on a remittance basis, with a maximum tax payable of NZD 1,000,000. Alternatively, we suggest exempting all offshore-sourced income for new migrants and returning expatriates for ten years, even if remitted. 

The New Zealand Inland Revenue is currently considering submissions on the Issues Paper, but note that the Government has not yet committed to enacting any amendments to the FIF rules. Inland Revenue will use the feedback from this consultation to refine its policy proposal before submitting it to the Government for consideration.