Jones Law Tax Specialists
Moving or Returning to New Zealand?
Make the Most of any Tax Exemptions
With no capital gains tax, no stamp duty and no inheritance taxes, New Zealand is a relatively low tax jurisdiction. Recent cuts to personal tax rates further improve the landscape. In addition, New Zealand has specific tax exemptions to encourage you to move to New Zealand. Make the most of them.
New Zealand Tax Landscape
| New Zealand has numerous tax advantages, including no generally applicable capital gains tax, no stamp duty on property transactions and no inheritance taxes. In addition, there are no social security taxes and no compulsory superannuation contributions. Running counter to most other jurisdictions, instead of raising personal tax rates, New Zealand has recently cut its top personal tax rates sharply, with effect from 1 October 2010. Most notably, the top tax rate has been reduced from 38 percent to 33 percent, which compares favourably with the 50 percent tax rate paid by most high earners in the United Kingdom, for example. Some aspects of New Zealand’s tax system are far from straight forward, including the complex foreign investment fund rules, which may result in gains on offshore shares, life insurance and pensions being taxed annually on an unrealised basis, notwithstanding that you may not have received any cash return. You should seek advice to see whether any exemptions may apply to your investments. |
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New Migrant Tax Exemption
Fortunately, you may not have to worry about tax on your offshore investments for some time. A specific tax incentive is available to new migrants and New Zealanders returning after an absence of 10 years or more, in the form of the transitional resident tax exemption.
If the exemption applies, foreign sourced income, other than salary and wages or income from the supply of services, will be exempt from tax in New Zealand for four years after you first become tax resident in New Zealand. During the exemption period, interest on foreign deposits, dividends derived from offshore, offshore pensions and other offshore investments will not be taxed in New Zealand. This allows you to consider whether you want to stay in New Zealand permanently and gives you time to determine how each of those investments will be taxed when they are brought into the New Zealand tax net.
To maximise the effect of the transitional resident exemption, care should be taken to ensure that the start date of your residence in New Zealand is not unintentionally triggered earlier than expected. Tax residence is a concept distinct from permanent residency under immigration policies. A person becomes tax resident in New Zealand if they have a permanent place of abode in New Zealand or if they are personally present for an aggregate of 183 days in any 12 month period. Under the 183 day test you will be deemed to be tax resident in New Zealand from the first of those 183 days. A brief visit to New Zealand to attend a job interview or scope the housing market may therefore result in backdating your residence start date.
If you qualify for the transitional resident tax exemption, consider whether you really want to bring your
money onshore. If you place funds in a New Zealand bank account, you will derive interest income which is taxable in New Zealand. It may be worth exploring if you can derive the same return offshore at a lower tax rate. That income would be exempt from tax in New Zealand.
Overall, New Zealand offers a stable business and legal environment, with a relatively low tax cost to doing business and raising a family. This, coupled with the targeted incentives encouraging new migrants to try out the country before subjecting their worldwide assets to the New Zealand tax net, make it a move well worth considering.
The above article is provided for general information purposes and does not constitute legal advice. Please contact Jones Law to obtain a legal opinion on your specific circumstances.
