New Zealand: Related Information
Inward Investment Incentive Program
There are relatively few incentive schemes as such in New Zealand aimed at foreign investment although the government has made changes to the general tax regime in 2008 aimed partly at encouraging foreign investment.
Anyone filming a large budget production in New Zealand may be eligible for assistance under the Large Budget Screen Production Grant Scheme. This scheme does not include tax incentives as such, although any grants that are made are exempt from income tax.
The 2008 tax package which reduced the coporate tax rate from 33% to 30% also introduced a 15% tax credit for research and development expenditure. To qualify for the credit, a business must control the R&D project, bear the financial and technical risks of it, and own the project results. The R&D must be carried out predominantly in New Zealand. R&D credits will be paid out in cash to loss-making businesses such as start-ups.
Expenditure eligible for the tax credit includes the cost of employee remuneration, the depreciation of tangible assets used primarily in conducting R&D, overhead costs, and the costs of consumables and payments to entities conducting R&D on behalf of the business.
Non-tax incentives are available for investments in activities that encourage export
expansion, regional development and employment. These are provided directly by the government in the form of financial support.
The New Zealand Approved Issuer Levy
The Approved Issuer Levy scheme permits a New Zealand resident to pay interest to a non-resident lender without having to deduct Non-Resident Withholding Tax at 15%, and instead to apply a levy of just 2% to the gross interest paid.
Curiously, this concession is contained in the New Zealand Stamp and Cheque Duties
Amendment Act (No 2) 1991, which allows an "approved issuer" to make written application to the Commissioner for registration of:
- (a) any transaction involving money lent to that approved issuer; or
- (b) any class of transactions involving money lent to the approved issuer.
Anyone can apply to be an Approved Issuer, and the conditions are as follows:
- All the securities on which the zero rate of NRWT is to apply must be registered using form IR397;
- The Issuer must not be associated to the non-resident lender (very widely defined);
- The non-resident lender and the Issuer must agree that AIL applies. We recommend that an agreement in writing is made stating that AIL applies.
Non-residents who have a fixed establishment in New Zealand are not liable for NRWT so zero-rating does not apply.
The Approved Issuer legislation can be used in setting up what amounts to an offshore finance company, which providing it is independent of the depositors, can accept global deposits, earn high interest (for example if invested in New Zealand in the range of 7.75% - 10.5% for 12 months) and pay the depositors a lesser interest rate.
Mining And Petroleum Extraction Companies
Mineral and petroleum mining companies have specific taxation regimes under New Zealand law which give them incentives to underpin development. Under a set of rules introduced in 2004, and due to expire in 2009, some types of revenue from extraction activities are exempt from tax. Non-resident petroleum companies are also able to use the deductibility rules applying to branches (their favoured form of entity in New Zealand) to offset non-New Zealand expenses against local income.
The government wishes to change this situation and is currently reviewing the tax regime for extraction companies. In particular, the government will legislate to close the branch taxation loophole.
“Under current law, New Zealand petroleum miners can offset their expenditure in other countries against the revenue from their New Zealand operations,” Finance Minister Michael Cullen and Revenue Minister Peter DunneDr Cullen and Mr Dunne said in March 2008.
“That means New Zealand might receive less income tax than expected on profits from oil production in New Zealand, which is particularly unacceptable when oil production revenue from New Zealand is at an all time high and predicted to grow.
“To safeguard our taxing rights on our petroleum resources, the government will amend the Income Tax Act to ensure that expenditure on petroleum mining operations undertaken through a foreign branch cannot be offset against petroleum mining income from New Zealand.
“That will bring New Zealand’s taxation of petroleum mining revenue into line with the practice of a number of other countries.
“The changes will be included in the next taxation bill and, once enacted, will be effective from today. Expenditure incurred before today will not be affected by the changes."