New Zealand is an appealing place for both returning Kiwis and new migrants to put down roots – but there are tax implications to be mindful of before doing so.
There has been plenty of discussion recently about the potential drawbacks of New Zealand’s foreign investment fund (FIF) regime and the impact it may have on attracting migrants to New Zealand.
As with all stories, there are two sides to this – and we should heed the Karate Kid’s mantra of ‘balance’ when considering the impacts of the FIF regime.
The FIF regime: A tale of two sides
What is FIF?
The FIF regime is New Zealand’s way of taxing income from certain foreign investments. You can read more about the FIF on the Inland Revenue website and in our recent article.
How does FIF impact new migrants and returning New Zealanders?
The FIF tax settings affect individuals and entities with investments outside New Zealand unless these investments fall below the $50,000 threshold (for individuals and some specific types of trust) or they hold certain Australian investments. This includes the likes of entrepreneurs and tech workers who move – or return – to New Zealand with stock options or equity in the overseas ventures they were involved in. Some see this as a potential barrier to attracting highly skilled workers and investors to New Zealand.
Understanding the fair dividend rate – an example scenario
Under the FIF regime, a person’s taxable income is typically calculated as 5% of the market value of the shares at the start of the income year. Under this method, known as the fair dividend rate (FDR) method, the 5% FDR return is taxable income and any actual dividends received are not taxed.
To illustrate how the fair dividend rate works, we’ve designed a few different scenarios:
Firstly, imagine John has shares in Bob’s Books Inc. The FIF rules assume you’d get a 5% dividend on those shares. So, John is taxed on that hypothetical 5% return (based on the market value of the share at the start of the income year, 1St April).
For example: John’s Bob’s Books shares at 1St April 2025 have a value of $1,000. The taxable income is $50, and the tax liability is $16.50 (if John is a 33% taxpayer).
This could seem fair, but here’s where it gets interesting:
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The no-dividend conundrum (and the area where most commentary is focused)
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Suppose Bob’s Books doesn’t pay dividends. John still owes tax on that theoretical 5% dividend - but where’s the cash to pay the tax?
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John might need to sell some shares just to cover the tax bill. This may not be ideal, especially if he’s a long-term investor.
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The dividend bonanza
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Now, imagine Bob’s Books is generous and showers John with a 10% dividend. Suddenly, the FIF rules start to look more appealing. For example, John pockets $100 in dividends, but his taxable income remains capped at 5%. This shows the balance we mentioned above.
Trading vs investing – an example scenario
Let’s introduce Jemima and now assume both she and John are share traders. Jemima’s speciality is New Zealand domestic shares, while John's is foreign shares (subject to the FIF regime).
In this example, John’s Bob’s Books shares are sold on 2nd April 2026 for $5,000. Jemima has Kiwi Veg shares, which she also bought for $1,000 and sold for $5,000. Neither investment generates a dividend.
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Jemima the trader
While New Zealand does not have a capital gains tax, it does tax the profit when shares acquired for trading or for sale are sold. Jemima has a taxable income of $4,000 and a tax liability of $1,320.
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Contrast with John the (FIF) trader
Here’s the twist: gains on the sale of shares acquired for trading purposes are taxable (as above) unless they’re a FIF. John’s taxable income remains capped at 5% of the market value as at 1st April. In this case, this is $300 and a tax liability of $99.
Economically, John and Jemima have succeeded in their investments, and both generated the same amount of wealth, except Jemima’s investment – in New Zealand domestic shares - means she pays more tax. Perhaps this is a better story to tell prospective new migrants?
New Zealand’s tax landscape - highlights
For prospective migrants to New Zealand, the tax landscape can be complicated and the FIF rules are just one of the implications you should consider.
So, in terms of balance, what else can new migrants expect from the New Zealand tax landscape?
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New migrants can enjoy a tax holiday from most foreign-sourced income (including FIF interests) for the first four years of becoming a resident.
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New Zealand does not have a capital gains tax, which is unusual globally.
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There is no stamp duty on purchasing your home or investment property.
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New Zealand does not have inheritance tax, wealth tax, or land tax.
If you’re thinking about moving to New Zealand or have already arrived and want guidance on your tax matters, BDO can help. Reach out to your local BDO adviser or learn more about our Global Tax Immigration Services here.