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)
- Deemed rate of return
- Attributable FIF income method
If you would like to know more about International & Cross Border Tax, click here.