Foreign Investment PIEs – Tax benefits for non-residents
In the office we were recently discussing a little known gem of the PIE regime, foreign investment PIEs, and thought it worth sharing with you.
Non-resident investors in standard multi-rate PIEs are taxed at 28% on their PIE income regardless of source. However the IRD Portfolio Investment Entity Guide says “non-residents should only be subject to tax on their New Zealand sourced income”. This means non-residents are generally overtaxed relative to the alternative approach of investing directly.
The IRD recognised this ‘over tax’ problem and in 2011/2012 introduced two new PIE types being:
1. Foreign investment zero-rate PIE (zero-rate PIE)
This invests in offshore assets (a minimal amount of NZ assets is permitted).
PIE income for eligible foreign investors is taxed at 0%.
2. Foreign investment variable-rate PIE (variable-rate PIE)
This may invest in both NZ and offshore assets.
PIE income for eligible foreign investors is taxed according to the table below:
|All non-New Zealand sourced income, fully imputed dividends, income from New Zealand based financial arrangements excluding interest covered below||0%|
|New Zealand interest income||1.44%|
|New Zealand dividend income, to the extent it is un-imputed, is taxed based on whether the investor is resident in a country with which New Zealand hold a double tax agreement ("DTA") that reduces the dividend withholding tax rate below the standard 30%.||15% (non standard); 30% (standard)|
|Other New Zealand sourced income (if any)||28%|
- Date of birth (if applicable);
- Home address in country or territory they reside in for tax purposes; and
- Tax number in that country or territory (equivalent to an IRD number), or a declaration that they are unable to provide this number.
Despite the obvious tax benefits for “notified foreign investors”, we understand there are very few foreign investment PIEs in the NZ market.
IIS has two foreign investment variable-rate PIEs amongst the funds we host, which are:
- Russell Investments NZ Shares Fund, and
- Russell Investments NZ Fixed Interest Fund.
If you would like to find out more, how to invest in these funds, or are interested in establishing a foreign investment PIE please contact us.