There were some important changes to the tax system in New Zealand in 2006, which will be of interes...
There were some important changes to the tax system in New Zealand in 2006, which will be of interest to anyone contemplating emigrating there in the future and to New Zealand citizens who have been resident abroad for a long time.
New Zealand has always been a popular destination for immigrants, particularly for UK citizens, many of whom have spent a working career in Asia, and cannot face returning to the British climate. In spite of its many attractions, however, New Zealand has had a reputation for being a fairly high tax territory, especially for those with foreign-based investments.
Since the early 1990s, residents of New Zealand who hold foreign investments, such as mutual funds, insurance bonds or interests in foreign trusts, have been subject to the Foreign Investment Funds (Fif) regime, which effectively prevents individuals from deferring tax on foreign investments.
There have always been certain exemptions from the Fif regime, the most important being foreign employer sponsored superannuation schemes and a general exemption for new immigrants for the first four years of residence in New Zealand. The latter has now been extended to cover almost all forms of foreign income and is also available for the first time to New Zealand citizens.
The new rules apply to anyone arriving to live in New Zealand from 1 April 2006, who is either a new migrant or a returning New Zealander who has not been resident for tax purposes in New Zealand for at least 10 years prior to their arrival in the country. The exemption can only be granted once in a lifetime. Qualifying individuals will be eligible for a temporary tax exemption for foreign income for four calendar years (up to 49 months). The exemption starts on the first calendar day of the month of arrival in New Zealand and is valid until the last calendar day of that month four years later.
The following types of foreign income are covered by the temporary exemption: dividends; interest; bonuses from a previous job overseas, even if received after arriving in New Zealand; controlled foreign company (CFC) income - under New Zealand's CFC rules; Fif income, including foreign superannuation - under New Zealand's Fif rules; non-resident withholding tax on foreign mortgages; approved issuer levy on foreign mortgages; taxation arising from employee share options; accrual income from foreign financial arrangements; certain trust income; rental income derived offshore; royalties derived offshore; gains on sale of property derived offshore; and offshore business income that is not related to the performance of services.
The following types of foreign income are not tax exempt in New Zealand: income derived from overseas employment performed while receiving the exemption; and business income relating to services performed offshore.
The tax exemption is automatically granted if you qualify and there is no need to contact the New Zealand Inland Revenue Department (IRD) with your information but, if you want them to, the IRD will confirm your eligibility for the temporary tax exemption if you provide them with your IRD number, your date of arrival and your address in New Zealand.
This new exemption is great news for anyone moving to New Zealand who owns foreign investments, because they no longer have to wind up those investments prior to taking up residence. Now they can choose to wind them up over a four-year period, giving more flexibility in terms of market timing.
Cowardly, boring or sensible
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