Foreign Shares

A person returning to New Zealand may have acquired shares in foreign companies while they were overseas. Where the person becomes a New Zealand tax resident and do not have transitional residency status, the person is required to:

  • Return income on accrual basis in respect of the foreign shares under the controlled foreign company or foreign investment fund rules, or
  • Return any dividends received on cash basis as assessable income from the foreign company.

Generally, Controlled Foreign Company rules deal with more substantial shareholdings held by New Zealand tax residents, while the foreign investment fund regime applies to smaller (portfolio) shareholdings.

Controlled Foreign Company or Foreign Investment Fund?

First, we need to work out whether the overseas company is a “foreign” company for income tax purposes. A foreign company is a company that is not resident in New Zealand under domestic laws or is treated under a double tax treaty as not being a tax resident in New Zealand.

The next step is to work out whether the controlled foreign company or foreign investment fund rules apply. There is an overlap between controlled foreign company and foreign investment fund rules, but only one set of rules will apply. This will depend on several things, including the person’s level of shareholding. Under both controlled foreign company and foreign investment fund rules there are various exemptions.

Where controlled foreign company rules apply, a set of rules in the legislation determine the measurement and calculation of passive income and the amount that is to be included in the taxpayer’s income tax return.

Where foreign investment fund rules apply, income can be calculated under one of the following methods. Choosing the most tax efficient method requires consideration of the type of entity holding the foreign shares and the taxpayer’s circumstances:

  • Fair Dividend Rate (FDR)
  • Comparative Value (CV)
  • Cost
  • Deemed rate of return
  • Attributable FIF income method

If you would like to know more about International & Cross Border Tax, click here.

Foreign Shares Assistance

Please refer to our people for more information on who we are and how we can help you understand the tax implications for holding foreign shares.

We offer a no obligation 30min free consultation where we can discuss:

  • whether you or your entity is subject to the controlled foreign company or foreign investment fund;
  • highlight any tax issues and opportunities; and
  • how we can add value and assist.
Book a Consultation