An officials' paper has just been released which proposes a
zero percent tax rate for non-residents investing in a PIE in
respect of foreign-sourced income. To view the paper,
We've been awaiting the paper since a meeting of
representatives of the funds management industry (including this
firm) raised this non-resident issue with IRD officials.
The non-resident issue, as the paper explains, is that
"non-residents investing in foreign assets through a portfolio
investment entity (PIE) are currently taxed on income from the PIE
as if they were residents. This treatment is inconsistent with how
those investors would be taxed if they invested directly in those
foreign assets and so is conceptually inconsistent with New
Zealand's source-based taxation system."
Two high-level options have been identified for exempting
foreign-sourced income derived by a non-resident through a PIE:
A PIE with resident and non-resident investors and only
foreign-sourced income (with some allowance for a minimum threshold
of investment in New Zealand equity and debt). The non-resident
investors would have a zero percent portfolio investor rate (PIR)
for all income. Resident investors would have standard PIRs.
A look-through global investment option that would allow a PIE
to have both resident and non-resident investors and New Zealand
and foreign-sourced income. The PIE would apply a different tax
rate to different types of income derived by non-resident investors
and it would therefore be necessary to track income from different
sources, apportion expenditure to that income and allocate it to
investors as if each stream were the only income derived by the
The first option is more flexible and is relatively simple. The
second option is more appealing for existing funds, and does not
require monitoring of minimum thresholds. However, it is
significantly more complex in terms of administration.
The proposals outlined in the paper, if carried out, will
provide significant benefits to the New Zealand financial services
Officials are interested in your feedback and have invited
submissions. Submissions are required to be made by 4 June
As always, we are available to assist you in determining what
effect the proposals outlined in the paper would have on your
business if they were adopted.
DLA Phillips Fox is one of the largest legal firms in
Australasia and a member of DLA Piper Group, an alliance of
independent legal practices. It is a separate and distinct legal
entity. For more information visit
This publication is intended as a first point of reference and
should not be relied on as a substitute for professional advice.
Specialist legal advice should always be sought in relation to any
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