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In recent years, many New Zealand small businesses have expanded their business to offshore markets. The reason for this is obvious that the demand for their businesses have increased significantly.

We believe before expanding your business, you should be familiar with tax obligations you face in New Zealand.

For tax purposes these businesses are called Controlled Foreign Company (CFC).

What is CFC?

In simple terms, CFC is a controlled foreign corporation, which is owned and controlled by NZ resident. The decision-making power and ownership held with NZ residents.

How you are taxed?

Active business exemption (EX 21 B)

You will be taxed on your attribute CFC income based on active business test. Active business is also called as “non-attributing active CFC”.

If your passive income of the CFC is less than 5% of total gross income, then your CFC will be non-attributing CFC.

Passive income includes – dividend, interest, rent and royalties. Your passive income or loss derived or incurred from foreign company will be considered as being income or loss derived or incurred by New Zealand resident shareholders.

Any passive income losses are subject to jurisdictional ring-fencing, meaning you can offset the CFC losses only against CFC income from where actually you incurred loss.

 

Disclaimer: The following answer necessarily sets out general principles only. The facts of particular cases always need to be considered carefully, and it may be necessary to obtain advice from a tax expert.

 

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