The Russell McVeagh Tax team has provided submissions on Inland Revenue's recent officials' issues paper "Effect of the FIF rules on immigration: proposals for amendments" (Issues Paper).
A copy of the Issues Paper can be found here, which was published on 6 December 2024.
Concern FIF rules provide disincentive for migration to New Zealand
The foreign investment fund (FIF) rules govern the taxation of portfolio equity interests held by New Zealand residents in offshore companies.
There is a concern that the FIF rules may currently operate as a disincentive for non-residents who hold material offshore equity portfolios from migrating to New Zealand. In particular, given that the taxation of those interests under the FIF rules may give rise to deemed taxable income irrespective of corresponding realised gains or cash flow.
The Issues Paper outlines a proposal to amend the FIF rules for migrants to address this concern.
Amendments to FIF rules – key submission points
Russell McVeagh made submissions on the proposals in the Issues Paper and how they should best be implemented to promote economic growth and ensure that New Zealand is an attractive destination for investment, skilled migrants and returning New Zealanders. This is consistent with the Government's focus on economic growth as recently announced for 2025.
In summary, our submissions and recommendations regarding the points in the Issues Paper are:
- We support an initiative to ensure New Zealand tax settings do not disincentivise skilled migrants and foreign investment in New Zealand.
- Our recommendation is that any concession from the FIF rules should be directed at those migrants making a positive impact to the New Zealand economy through investment, innovation, or provision of services. Only those migrants that satisfy certain prescribed criteria should qualify for the relevant concession. Specifically, we propose that access to the concession be restricted to:
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- those migrants that qualify for the "Active Investor Programme" visa or equivalent investment category visas applying similar criteria; and
- for returning New Zealand citizens, those individuals that are advancing New Zealand business or innovation in some form through the provision of services or investment capital.
- As part of the same exercise, New Zealand should revisit visa settings for foreign investment and skilled migrants to ensure that the package of measures will have the desired effect of promoting foreign investment and economic growth in New Zealand. We are aware, for example, that the Active Investor Plus visa, and its effectiveness in terms of contributing to New Zealand's economic growth via investment, has been the subject of some criticism.
- A FIF rules concession should be complementary to the existing rules for "transitional residents". Migrants could qualify for the concession following the expiration of a period of transitional residence or could qualify separately if the criteria for transitional residency were not satisfied (for example, skilled New Zealanders that have not been non-residents for ten years).
- A more comprehensive review of the FIF rules should be undertaken subsequently, including with respect to international tax aspects. The Issues Paper notes that the FIF rules potentially give rise to issues of double taxation, in particular for citizens of the US who (at least under current law) remain subject to US tax on their worldwide income even when they are resident elsewhere. We acknowledge that the issue of double taxation rightly requires consideration however, in our view, New Zealand should be focussing on how our tax settings may best suit our economic growth objectives in the short to medium term.
Consultation on the Issues Paper closed on Monday. We understand Inland Revenue officials are now considering the submissions received and intend to report to the Minister of Revenue in the coming days.