How notified foreign investors are taxed
There is a new category of PIE called a foreign investment PIE which is a subset of a multi-rate PIE that uses the quarterly or exit filing options. There are two new foreign investment PIE types:
- the zero-rate PIE, and
- the variable-rate PIE.
When an entity or PIE can become a foreign investment PIE
An entity or PIE can become a:
- zero-rate PIE from 11 August 2011
- variable-rate PIE from 1 April 2012.
The timing difference recognises that then need to allow time for system changes to be in place to operate using the variable-rate PIE option.
New class of investor
There is also a new class of investor, a notified foreign investor. This generally is a non-resident person that has provided the additional reporting information and advised their foreign investment PIE that they are a notified foreign investor. The foreign investment zero-rate PIE will apply the zero rate to attributed PIE income of notified foreign investors. This type of PIE will invest offshore and only hold a minimal amount of investments in New Zealand. Find out more about the threshold rules.
Tax rates for new notified foreign investors
Foreign investment variable-rate PIEs cater for non-residents who may wish to invest into New Zealand markets or both New Zealand and offshore markets. There is no New Zealand based investment thresholds for this type of foreign investment PIE and each source and type of income has its own tax rate, as follows.
| Category | Rate |
|---|---|
|
30% |
|
28% |
|
15% |
|
1.44% |
|
0% |
|
0% |
|
0% |
New Zealand dividends may be liable for non-resident withholding tax (NRWT)
A variable-rate PIE can under certain circumstances treat New Zealand dividends that they receive and pass on to notified foreign investors as being liable for non-resident withholding tax (NRWT). This then allows the notified foreign investor to generally claim a tax credit in their country of residence. This income is not treated as PIE income.
Notified foreign investor
There is also a new class of investor, a notified foreign investor. A non-resident who holds an investment in a foreign investment PIE may notify the PIE that they wish to be treated as a notified foreign investor.
The investor must not be:
- resident in New Zealand
- a CFC
- a FIF that has a resident investor who holds and income interest of 10% or more of the FIF
- a non-resident trustee of a trust that is not a foreign trust.
Investor requirement to provide more information
To become a notified foreign investor, the investor must provide the following additional information:
- date of birth, if applicable
- home address in their country or territory of residence
- their equivalent of a IRD number or a declaration that they are unable to provide this number.
The Commissioner may add to or change the list of information.
PIE's requirements for notified foreign investors
The foreign investment PIE must once a year ask the investor to confirm they meet all of the above requirements to remain a notified foreign investor.
If they receive no response the PIE may continue to treat the investor as a notified foreign investor.
A non-resident that does not meet these requirements continues to have the 28% prescribed investor rate applied.
The foreign investment PIE then must apply the appropriate prescribed investor rate. For zero-rate PIEs use 0% PIR and for variable-rate PIEs use the appropriate variable rate.
The Commissioner can advise the PIE to disregard an investor's notification if he considers on reasonable grounds that the person does not meet or no longer meets the requirements. The change should be made as soon as reasonably practicable. The new provision sees the investor being treated as a non-resident and have the 28% PIR applied. If the change is required because the investor is a resident the change comes within the existing power of the Commissioners to advise a corrected notified investor rate.
A notified foreign investor cannot be treated as an exiting investor and have the zero-rate applied.
Date published: 30 Aug 2011
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