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The Government has introduced changes to the PIE rules for non-residents and new residents.
The PIE rules for non-residents and new residents
Previously under the PIE rules non-residents who invest in a PIE have the 28% prescribed investor rate applied to all income from the PIE. This means that they are over-taxed in comparison with the tax rates that they would face if they invested directly in the same assets as the PIE.
In particular, if a non-resident invests directly into non-New Zealand based assets, the income is not subject to New Zealand tax. This is because of the general principle underlying the tax system that non-residents should only be subject to tax on their New Zealand-sourced income.
The new PIE rules for non-residents and new residents
Two new types of PIE are:
- a foreign investment zero-rate PIE, and
- a foreign investment variable-rate PIE.
These new PIE types allow qualifying non-resident investors to have tax rates applied to their attributed PIE income similar to those that would apply if they invested directly.
Changes will be made to the PIE returns and certificate information to cater for the new rates and identification of the new investor type.
When entities can become a new type of PIE
|It is proposed that entities can become a...||from ...|
|foreign investment zero-rate PIE||29 August 2011|
|foreign investment variable-rate PIE||1 April 2012.|
Prescribed investor rates for new residents
Qualifying for the 0% prescribed investor rate
New residents who choose to apply the existing transitional resident rule and invest in a foreign investment zero-rate PIE will be able to qualify for the 0% prescribed investor rate.
Change in determining the prescribed investor rate
There is also a change for other new residents in how they determine their prescribed investor rate. Currently when looking at their income from either the last year or previous year's income they only look at New Zealand-sourced income.
From 1 April 2012 new residents will need to look at all their income from around the world to determine what prescribed investor rate they are required to use. There is an exception to this change in specific circumstances.