- June 9, 2024
- Posted by: legaleseblogger
- Category: Related News
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Introduction:
The issue of a ‘hostile’ tax on offshore assets is causing significant concern among businesses in New Zealand as it is resulting in key talent being deterred from relocating to the country. The impact of this tax on the ability of companies to attract and retain top talent cannot be understated.
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By leveraging the power of AI technology, businesses can mitigate the risks associated with offshore assets and ensure compliance with tax laws. This can help alleviate the concerns of key talent regarding the potential tax implications of relocating to New Zealand, ultimately enabling companies to attract and retain the best professionals in their field.
Conclusion:
In conclusion, the ‘hostile’ tax on offshore assets is posing a significant challenge for businesses in New Zealand, particularly when it comes to attracting and retaining key talent. By utilizing tools such as AI Legalese Decoder, companies can better navigate the regulatory landscape and ensure compliance with tax laws, ultimately enhancing their ability to recruit and retain top professionals. Addressing this issue is crucial for fostering a competitive business environment in New Zealand and ensuring the continued growth and success of companies operating in the country.
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****** just grabbed a
FIF also distorts the real-estate vs shares decision in NZ, vs other countries.
If I invest 1m in buying real estate, I’m paying very little in tax, nominally on annual profits, which these days isn’t much, but I’ll likely get the capital gains tax free.
If I invest 1m in buying Tesla, I’m required to pay tax on an imaginary 5% dividend anually.
So more people compete for property, hurting 1st home buyers, immigrants etc.
FIF is an awful tax, regardless of whether you are a rich immigrant or not.
Paying tax on an assumed level of return is ridiculous.
The FIF regime also knee-caps tech startup entrepreneurship in NZ. Any big clever kiwi idea needs venture backing, and US VC’s are the only source that has both the scale and the risk appetite for early stage.
US VC’s need a US Delaware corp structure to place their investment. In more general terms, US investors won’t put money into NZ Ltd structure, and this means every startup from NZ has to be legally located in US to access the tech funding market.
When kiwi startup founders find out that they now own shares subject to FIF, at a Series A valuation, and are legally required to pay tax on a portion of the overall enterprise value, they either close down the business, or leave NZ. There is no cash in early stage startups to pay tax on imaginary gains.
Its a ridiculous tax, super complicated and just unfair. I am also caught in this – owning shares that could be worth something, but actually currently worth effectively nothing. I got them via an acquisition, I have no voting rights, not even the right to an annual report, no dividends ever, valuing them is very difficult.
Its basically a stealth tax that the majority populace have no idea exists or if they do think its only for the rich (despite them paying via their Kiwisavers at least) and because it affects the perceived wealthy, there is no political will to look at it, and I doubt ever will be.
When you talk to people overseas about it, they are at best confused, mostly surprised such a thing exists, makes NZ seem like the real backwater it is on these topics. You can see why if your sitting there in San Francisco with some tech shares and skills and wealth well needed in NZ and eyeing a move to the southern hemisphere, Australia seems a lot better choice.
An obscure bit of taxation law is preventing the type of high net worth, investment-ready immigrants this country says it wants to attract from relocating to New Zealand – and a new report is part of an effort aimed at fixing the issue.
The report, called *The place where talent does not want to live,* was commissioned by the American Chamber of Commerce, the Auckland Business Chamber, the Edmund Hillary Fellowship and the NZUS Council, and written by economics shop NZIER, outlines how New Zealand’s tax regime is overly punitive and even ‘hostile’ to those who move to New Zealand with offshore assets.
The report authors spoke to over 20 would-be investors affected by the current regime, whereby New Zealand taxes residents on their ‘worldwide income’ – including the paper value of offshore investments they have made, even if they are not making any returns on them. There are also situations where they can be taxed by New Zealand and by their country of origin on the same assets.
NZIER associate Peter Wilson.
The situation is particularly problematic for those from the US tech sector who want to come and live and invest in New Zealand, because they are taxed 5% of the value of companies they are invested in even if no profit is made – and tech firms often operate on a cash-burn basis for many years before turning any profit.
NZIER associate Peter Wilson has co-authored the report with US-New Zealander and economist Julie Fry, who has herself been impacted by the rules discussed in the report. Ironically, Wilson was manager of international tax at Treasury from 1990-1997 and director of tax policy 1998-2002, and as such was responsible for introducing the rules that govern how New Zealanders’ overseas assets are taxed.
He and Fry and the various business groups behind the report now feel the rules need urgent fixing to ensure the country is able to attract investors to help build particularly New Zealand’s tech industry, but also others.
“I am hoping the government, and the opposition, see as an anomaly that our immigration system, which wants these people, and our taxation system, that punishes them, need to aligned,” Wilson told *NBR*.
“We’re not raising a lot of money from these provisions now because people don’t come here – we know that, we’ve talked to them, and they say they won’t come here even though they may love the country and really want to see it succeed.”
# The problem
Fry told *NBR* she (often alongside Wilson) had been working on immigration issues for decades, and had always found New Zealand’s inability to attract and retain talent at the top of its game to be “a bit of a puzzle”.
From a height of almost 9000 people on investor or entrepreneur temporary visas in 2008, the figure is now languishing around the 3500 mark – in comparison to 550,00 people on residence and temporary visas in the country.
But Fry felt she had at least a part of the answer now: “This report that Peter and I have recently completed answers one piece of the puzzle: even though we score highly on international indices, our tax system in many ways is downright unfriendly.”
The issue is essentially that once someone spends 183 days in New Zealand within a 12-month period, or they have a residence here, they are treated as a New Zealand taxpayer, and taxed on their aforementioned ‘worldwide income’.
The Foreign Investment Fund (FIF) rules deem New Zealand residents with offshore investments to have derived either dividends, or otherwise, a notional amount of income (5% of the investment company’s value) to be taxed.
Wilson said many high-net-worth investors that came to New Zealand had an ‘oh hell’ moment when they became aware of the rules. It was particularly hard to swallow for those invested in the tech sector, where the business model was different, he added.
“If you’ve got an idea, but no money, there is a venture capital industry that puts you in touch with people with money and expertise in growing companies, and you will contractually bind yourself together until the venture is viable.
“And so a number of people we’ve talked to, they’ve got a contractual obligation not to sell their shares until the company is viable – the golden handcuffs that keeps the people with the ideas attached to the company; likewise, funders have the same obligation. The company, meanwhile is just burning through capital, not earning any income as it develops its ideas and goes to market.
“But during that startup development phase, where the companies aren’t earning any cash income, New Zealand tax laws treats them as if the company is.”
Michael Cullen and John Key are the main reasons FIF will be extremely difficult to reform.
Exclusively from a revenue perspective it’s a genius policy from Cullen. The yearly revenue FIF generates is a cash cow for any government. For just the NZ Super Fund and KS, the tax take via the FDR accounts for 2% of the total tax revenue. This is not including non-KiwiSaver PIEs and other FIF revenue.
Switching to a regime on a realisation basis will leave a significant revenue deficit. Due to the nature of a CGT it will take time for this gap to reduce. This will likely hinder any business case for comprehensive reform – governments will simply believe it’s too expensive. This is seen with the TWG report recommending FIF is kept.
Also this is not factoring in lobbying efforts from NZX etc.. to keeping the taxation of foreign shares as penal as possible.
Best case scenario will be smaller adjustments to make it fairer I.e not having to pay tax on negative years for the PIE’s. And reducing the FDR to 3%.
This tax is definitely damaging our economy disproportionately to the amount of revenue it brings in.
I’d rather a CGT than this.
I hesitate to support something that is clearly a bought-and-paid-for piece by wealthy business interests, but I do think FIF needs to be reviewed. $50,000 NZD of foreign investments is just way too low now; when was the last time this was indexed to inflation? In saying this, NZ doesn’t have a comprehensive capital gains tax and I’m not sure if that I would want that changed at the same time as FIF.
At the very least increase the limit normal households would need to invest overseas based on a balanced portfolio.
The current 50k limit is nothing compared to the amount you need to retire which are in the millions…
Dual citizen here US and NZ, this thread is making a lot of sense to me. I’m sick 🤢of getting taxes both ways, even with the tax treaty NZ treats my non taxable funds in the states as assets and thus taxes them. It means we spend at least 3000/year on just getting our taxes done let alone paying anything owing. I don’t trust myself to do them right for both countries.
Tax the rich, CGT and stop the overseas assets tax. Such a silly situation we’re in.
It’s better to buy property. If you are returning home you sell any shares and buy property for a tax advantage. Property is the new economy. And if property is in trouble we will lower interest rates and buy more property
Yeah this a bonkers tax that doesn’t affect the vast majority of voters so it gets very little coverage and only helps reinforce the one-track property investment mindset. So glad there’s some visibility around the issue.
Certainly affecting my families plans to move home.
Fif tax bleeds the majority of kiwisaver investors in Nz. Hardly ever discussed. Has a massive cost to retirement vs a TET scheme or even better an EET scheme. Only Nz could come up with something so dumb. Thanks to Michael Cullen. [https://www.stuff.co.nz/business/money/132893837/the-capital-gains-tax-you-dont-know-youre-paying](https://www.stuff.co.nz/business/money/132893837/the-capital-gains-tax-you-dont-know-youre-paying)
As someone who pays FIF. I dislike it. I would be happier with a higher income tax or a cap gains tax or a wealth tax. At least that would be fair as opposed to punishing certain types of investments.
So system which hinder immigration are an issue when they also effect the greater accumulation of wealth by the wealthy. What about the housing crisis? What about wave shortfalls? A person would be mad to immigrate here if Australia was an option!
Perhaps the bigger issue here is that America is one of only 2 countries that taxes its citizens overseas. FIF might be a reasonable price for immigrants to pay if these people weren’t also subject to US taxes (and complex/ costly US tax reporting requirements) on top of NZ taxes. It’s the double taxation/ reporting that makes it all too hard. The US should implement residence based taxation, like the rest of the world.
Unless that “key talent” is building affordable housing, who gives a shit.
Reads like an article written by the rich with a view to them staying rich and not paying their fair share. Ah well, not the sort of immigrants we want anyway.
Too bad for them, oh well not my problem.