New
Zealand Tax-Efficient Business Forms
A
trading trust (i.e. a trust that carries on
a business) can be used as an alternative to
a limited company. It has a trust deed and can
confer wide powers and discretions on trustees.
Income
derived by the trustee in an income year and
distributed to beneficiaries (within six months
of the end of the income year) is taxed at the
beneficiaries’ marginal tax rate, but
non-distributed income is taxed at the trustee
rate (currently 33%) and subsequently can be
distributed to beneficiaries free of tax. Tax
losses cannot be passed on to beneficiaries.
Trading trusts appear to work best for owners
of small and medium-sized businesses.
Investors, including trusts, can use a portfolio
investment entity (PIE), such as a managed fund,
which invests the contributions from investors
in different types of investments, and calculates
its tax based on each investor's prescribed
investor rate. This can be reduced to 12.5%
for investors that qualify for a lower rate.
Trustees can collectively choose 0%, 19.5% or
30% to best suit the trust's beneficiaries.
The primary objective of the introduction of
the limited partnerships regime was to facilitate
growth in New Zealand's venture capital and
private equity industries. While a limited partner
is prevented from being involved in the day-to-day
management of the limited partnership, he or
she can become involved in key decision-making
activities via a “safe harbour”
mechanism. As there is no capital gains tax
in New Zealand, a limited partner is only taxed
individually at his or her personal marginal
rate in proportion to his or her share of the
partnership's income.
The New Zealand Venture Investment Fund (NZVIF)
was established by the government in 2002 as
a New Zealand-based private equity fund of funds
investor that manages fund of funds investments
as well as direct co-investments. NZVIF currently
has NZD200m of funds under management, through
two vehicles – the NZD160m Venture Capital
Fund of Funds and the NZD40m Seed Co-investment
Fund. All its investments are made either through
privately managed venture capital funds or alongside
experienced angel investors.
In 2010, the government changed the controlled
foreign company (CFC) rules, introducing an
exemption for active income earned by those
foreign companies that are controlled by New
Zealand investors, and is also considering similarly
modifying the foreign investment fund rules.
However, investment income is still taxable,
limiting the use of New Zealand as a regional
headquarters (without the use of double taxation
treaties).
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New Zealand Tax-Privileged Business
Sectors
The
New Zealand screen production industry has been
subject to a special tax regime since the early
1980s. Film production expenditure incurred
up to the completion of New Zealand films, including
expenditure incurred in acquiring a “film
right”, may be 100% deducted in the year
a films is completed.
Since
2003, production companies filming large budget
productions in New Zealand have also been offered
an incentive known as the Large Budget Screen
Production Grant (LBSPG), which provides a rebate
of 12.5% of the qualifying New Zealand production
expenditure (with a minimum of NZD15m) to film
and television production companies. From July
2007, the incentive was enhanced to 15% and
extended to post, digital and visual productions
(with qualifying expenditure between NZD3m and
NZD15m). Applicants must be either a New Zealand-resident
company or a foreign corporation operating with
a fixed establishment in New Zealand for the
purposes of lodging an income tax return.
In addition, from July 2008, a Screen Production
Incentive Fund (SPIF) grant is available for
film and other screen formats deemed to have
significant New Zealand content. Grants are
available of 40% or 20% of the qualifying New
Zealand production expenditure on eligible feature
films (minimum NZD4m) or television or other
format screen productions, respectively. The
qualifying expenditure of a film with an SPIF
grant is deductible over two years, rather than
qualifying for an immediate deduction incentive.
An
income equalisation scheme is available to allow
farmers, fishers and foresters, who are eligible
taxpayers, to even out fluctuations in income
by spreading their gross income from year to
year.
While forestry has been a sector much supported
in New Zealand, there are no industry-specific
tax incentives. However, for investors with
other New Zealand income sources, the costs
of developing a forest can be deducted for tax
purposes. Normally, it will be most effective
to purchase and own a forestry investment in
New Zealand using a corporate structure, particularly
for a foreign investor.
A 15% tax credit on qualifying research and
development expenditure was introduced for the
2009 income year, but was rescinded from 2010
onwards.
There are no special economic zones with tax
incentives in New Zealand.
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