Government to tweak foreign tax regime to attract investors to NZ

Wednesday, 12 March 2025

The Government is hoping an overhaul of the tax regime that applies to income from overseas assets will help attract more foreign investors, including technology entrepreneurs, to the country.

Revenue Minister Simon Watts announced a planned reform of the so-called Foreign Investment Fund (FIF) rules on the eve of a summit it is hosting to showcase opportunities to foreign investors.

Under the existing FIF regime, investors are taxed at the annual rate of 5% on the market value of many foreign assets, including most overseas shares, once they pass a $50,000 individual threshold.

The rule has been blamed both for discouraging wealthy investors from becoming tax-resident in New Zealand, and dissuading Kiwis from diversifying their investments beyond the common mainstays of property and New Zealand and Australian shares.

The Government signalled last month that changes were on the cards.

But at this stage, its proposals are relatively modest, targeted at migrant investors.

A “revenue account method” will allow migrants who arrived in the country after April last year to only be taxed on “non-liquid” assets they previously owned — such as shares in businesses that aren’t listed on a stock exchange — as and when they sell their holdings.

Their tax bill on unlisted shares would be on 70% of any gains when they sold their shares, and on any dividends they received.

Migrants will also be able to make use of that option for all their foreign share investments if they would otherwise be “double-taxed” by their country of citizenship under the existing FIF regime.

Double-taxation can be a common scenario for US citizens in particular, due to the US government’s extra-territorial approach to personal taxation.

Watts said the cost of the change in terms of lost tax revenue would be small, amounting to an expected $1.9 million over four years. He had earlier said the figure would be under $10m.

But it would help attract “the sort of talented people who will help grow our economy”, he said.

“The current foreign investment fund rules are a key deterrent for migrants and returning Kiwis, especially in the tech or start-up sector, from coming to and staying in New Zealand.”

More changes to the FIF regime that could be of interest to other types of investor were likely to be considered, Watts made clear.

The Government would have more to say later this year, he said.

It was moving first on reforms that affected new and recent migrants in part because of the summit, he said.

“We've heard very clearly from the technology sector, from those who have got start-up businesses, those that want to come back to New Zealand and live here and reside that this is one of the key aspects that acts as a barrier to them doing so.”

Deloitte tax partner Sam Mathews said the proposals appeared “really positive”.

There was still hope the Government would make improvements to the FIF regime for non-migrants later this year, he said.

“What these could be is unclear, but it could include looking at whether the currently $50,000 ‘de minimis’ rule should be adjusted upwards.”