Dunne: new rules for non-resident PIE investment
New tax rules announced today by Revenue Minister Peter Dunne will remove a barrier to non-residents investing into New Zealand.
The changes are contained in a Supplementary Order Paper to the Taxation (Tax Administration and Remedial Matters) Bill 2010 released today by Mr Dunne.
He said that the rules for non-resident investors in PIEs will be aligned with those for direct investment to ensure fairness of tax treatment.
Mr Dunne said that the current rules mean that non-residents investing into Portfolio Investment Entities (PIEs) are taxed at 28% on all the income that they earn from a PIE, whether foreign or New Zealand-sourced.
"This means that these investors are over-taxed in comparison with how they would be taxed if they had invested directly."
He said that this over-taxation had been identified as a barrier to the development of New Zealand's fund management industry, particularly in the case of direct investment into foreign assets by non-residents.
"The International Fund Services Development Group told us that this situation discourages non-residents from investing in New Zealand PIEs. It's a situation we needed to rectify."
Mr Dunne said that the rules are designed to be as simple as possible for PIEs to administer, while still providing that non-residents pay the right amount of tax on their investments.
The new rules introduce two new categories of PIEs. Details of these are on the Inland Revenue policy website taxpolicy.ird.govt.nz/
Mr Dunne said he expects the legislation introducing the new rules to be enacted later this year.
Mark Stewart | Press Secretary | Office of Hon Peter Dunne
Cell +64 21 243 6985
The rules for non–resident investment in PIEs are being changed to ensure investors are not over-taxed on their PIE income compared with direct investment.
Two new PIE categories
In essence, two new categories of PIEs will be introduced that entities can elect into. This gives both PIEs and non-resident investors flexibility to invest into foreign or New Zealand assets, and allows them to choose the tax treatment of their non-resident investors. A further reason for having two new categories for PIEs to elect into is to accommodate the diverse range of systems PIEs have in place for the administration of their investments.
- The first new category of PIE which entities could elect into will have both resident and non-resident investors and only foreign-sourced income, subject to a 5 percent minimum threshold for New Zealand-sourced interest income and a 1 percent minimum threshold for New Zealand-sourced income from equities. Non-residents in these PIEs will be taxed at zero percent.
- The second category of PIE which entities could elect into will have both resident and non-resident investors, and both foreign-sourced income and New Zealand-sourced income, with variable rates applying, reflecting the rates that would apply if the investment was direct:
(i) 0% on foreign-sourced income;
(ii) 0% on dividends derived from New Zealand companies that are fully-imputed;
(iii) 15% on dividends derived from New Zealand companies that are unimputed where the investor is from a country with which New Zealand has a double tax agreement (DTA);
(iv) 30% on dividends derived from New Zealand companies that are unimputed when the investor is from a country with which New Zealand does not have a DTA;
(v) 1.44% on New Zealand-sourced financial arrangement income (being the deductible approved issuer levy (AIL) rate); and
(vi) 28% on other New Zealand-sourced income.
The application date for the first category is the date the Taxation (Tax Administration and Remedial Matters) Bill receives Royal assent. The application date for the second category is 1 April 2012.
Note: This fact sheet was added to the original news item, dated 5 April 2011, on 6 April 2011 at 5:00pm.