Tax on attributed income from a PIE
A multi-rate PIE (MRP) is a PIE that is not a:
- company listed on the New Zealand stock exchange that is not a multi-rate PIE (MRP), or
- benefit fund, or
- certain life fund
will use your prescribed investor rate (PIR) to calculate the tax on the income from your investment.
Tax on attributed income from a PIE, which is treated as excluded income will be paid by the PIE.
PIEs that are either benefit funds, listed companies (that are not a MRP) or life funds do not attribute income to investors. Income is taxed at the entity's tax rate.
PIE tax and non-resident withholding tax (NRWT)
Generally, the NRWT rules do not apply to PIE investments.
If you are a resident of a country which New Zealand operates a double taxation agreement (DTA) with, then under the NRWT rules the tax you pay on interest, dividends and royalties would have been limited to prescribed tax rates(usually 10% or 15%).
As the tax on income from your investment in the PIE is actually paid by the PIE:
- the limitation under the DTA will not apply, and
- the tax on your investment will be calculated at 28%, and
- you may not be able to claim the tax paid by the PIE as a credit in your country of residence.
A PIE listed on the New Zealand stock exchange may continue to pay dividends subject to NRWT.
A foreign investment variable-rate PIE can, in certain circumstances, treat dividend they receive and pay on, in whole or part to their notified foreign investors, as non-resident passive income and apply NRWT. The dividend income is then not included in the PIE's assessable income.
Non-resident investors and tax credits
If your investment has tax credits in excess of the tax to pay or there is tax to pay, the MRP adjusts the investor's investor interest or makes a distribution or reduces a payment required.
Notified foreign investors and tax credits
Notified foreign investors have the 0% PIR applied to offshore income so they cannot use foreign tax credits associated to the income.
Imputation credits attached to dividends also can't be claimed as the dividend has 0% PIR.
PIEs are entitled to an exemption from having RWT deducted so a RWT credit should not normally arise.
Non-residents and prescribed investor rates (PIR)
The PIR for non-residents (including individuals,trusts, companies or other non-resident entities) is 28%. You cannot choose a lower rate.
You will need to give your PIR to the PIE you invest in. The default rate for failure to advise the PIE your PIR is also 28%.
New prescribed investor rates for notified foreign investors
There are new prescribed investor rates that a variable-rate PIE is required to use when calculating the tax on income attributed to notified foreign investors. These rates are design to mimic or align the tax treatment with that of a non-resident who invests directly.
- For all offshore income the zero rate is applied.
- For interest income an approved issuer levy (AIL) type rate of 1.44% is applied. The normal AIL rate is 2% as a deductible amount at the PIE tax rate of 28%, the net amount is (2% minus 0.56% equals 1.44%).
- An amount derived from a financial arrangement that is not interest covered above has a zero rate.
- Fully imputed dividends will have the zero rate applied as 33% tax had been paid by the company paying the dividend.
- For unimputed dividends or the portion of the dividend from New Zealand companies there are two possible rates based on the residence of the notified foreign investor. If the notified foreign investor resides in a country which we hold a double tax agreement with the rate is 15%. For notified foreign investors who reside in other offshore countries the rate is 30%. These rates align with the NRWT rules that apply to a non-resident investor who invest directly.
- For other New Zealand income the rate is 28%, remembering the PIE cannot directly invest in New Zealand land or derive income from land, including the disposal of land.
This reflects the tax treatment that non-residents would have received had they received the income directly.
These rates only apply to notified foreign investors.
Excluded income
If you are taxed at 28% for the whole year, the income attributed for the year will be treated as excluded income and you do not include the income in your New Zealand income tax return.
Zero-rated income
As a non-resident investor you may be taxed at a zero rate by certain MRPs when you exit from the MRP during a quarter. If you are taxed at a zero rate the income attributed to you for the quarter needs to be included in your New Zealand income tax return. You must include the attributed income from your MRP with any income from other sources in New Zealand and be taxed accordingly.
This does not apply to a notified foreign investor.
Date published: 30 Aug 2011
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