FIF Guide — Foreign Investment Fund Rules in New Zealand
the Foreign Investment Fund (FIF) rules in New Zealand. The guide covers the FIF regime for the overseas shares and the managed funds, the $50,000 cost threshold, the FIF calculation methods (the FDR, the CV, the comparative value, the cost, the deemed rate of return), and the exclusion for the Australian listed companies (the ASX exemption).
FIF Regime Overview
The FIF (Foreign Investment Fund) rules apply to the New Zealand residents who hold the "attributable interests" in the foreign entities (the overseas shares, the managed funds, the foreign superannuation schemes). The rules apply when the total cost of the FIF interests exceeds $50,000 at any time during the income year. The FIF income is calculated using one of the five methods: (a) the Fair Dividend Rate (FDR) — 5% of the opening market value (the most common method), (b) the Comparative Value (CV) — the actual change in the market value plus the dividends, (c) the Cost method — the actual dividends received (for the non-income producing entities), (d) the Deemed Rate of Return — 10% of the cost (for the entities without the market value), and (e) the Annual Total of the Distributions — for the superannuation funds.
ASX Exemption and Planning
The Australian listed companies (the ASX-listed shares) are exempt from the FIF rules — the dividends from the Australian shares are taxed as the New Zealand-sourced income (no FIF calculation required). The investor can choose the most advantageous FIF method each year. The FDR method is the most common and the simplest — the FIF income is 5% of the opening market value (the "FDR income"). The investor can also elect the CV method if the lower of the methods produces the lower income. The exempt entities include the venture capital investments, the entities in the grey list countries (the "Australia, the Canada, the Germany, the Japan, the Norway, the Spain, the United Kingdom, the United States"), and the entities where the investor holds less than 10%.