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What is Approved Issuer Levy 

New Zealand International Tax Policy on Non-Resident Interest Income.

Foreign Investment Fund regime (FIF) was introduced in New Zealand from the 2008 income tax year), and the Controlled Foreign Companies regime (CFC) from the 2010 income tax year.

One of the policy effects of these changes was to attract foreign investment in New Zealand.

Approved Issuer Levy was introduced to make changes in interest income withholding tax regime.

Approved Issuer Levy

This was introduced by New Zealand Government in Budget 1991. The scheme was introduced to make foreign investment in New Zealand tax friendly. Under this scheme interest income of non-tax resident earned in New Zealand can be zero rated of NRWT provided a levy of 2% of interest income is paid. The scheme is not intended for the associated parties.

The purpose of this scheme is to attract foreign capital in New Zealand and make New Zealand attractive for them to invest. The whole idea is to bring foreign investment in New Zealand so that New Zealand resident have access to the capital. The Government perceived that NRWT on interest income paid to non-tax residents of New Zealand discouraged foreign investment and increased the cost of borrowing to New Zealand tax residents.

In a global capital markets, Non-residents will only invest in New Zealand if they get better rate of return. And the deduction of NRWT will reduce the after-tax rate of return. Thus, a levy of 2% was introduced.

What are the options for Non- Resident New Zealand Investor?

On interest income a choice is available between NRWT or AIL

Non-resident lender can choose to get deduction on interest income at NRWT rates. NRWT rates are about 15%, if DTA (Double Tax Agreement) exists between both tax jurisdiction then this rate is dropped to 10%. With Australia rate is only 5%.

OR

Approved Issuer levy option can be selected, where the rate is 2%. This is not a tax; this is just a levy. Anyone can bear the cost of borrowing borrower or lender. However, usually is charged to the lender via fees. The Interest income is not taxable in New Zealand. In Non-resident home country this income would be subject to worldwide income inclusion rules. Thus, it may need to be included in the tax return, but there will not be any tax credits available. As 2% levy is not a tax credits, whereas NRWT is available as tax credits.

Once Approved Issuer Levy option is selected, then NRWT is deducted at 0%. Section RF 12(2) ITA 2007

For any investments with the New Zealand Government the cost of 2% levy is not passed to the offshore investors. This was done to make things more attractive for offshore investors New Zeeland Debt Management office pays 2% withholding tax on behalf of investors. (source: https://debtmanagement.treasury.govt.nz/investor-resources/economic-overview/nz-govt-securities-market)

Majority of Bank in New Zealand pass 2% AIL cost to the offshore investor.

For example: source terms and condition of the ANZ Bank clause 2.15

https://www.anz.co.nz/resources/e/c/eca0d7e8-4d69-48f2-9d7c-2e37ba7ece62/anz_country_schedule_new_zealand_institutional.pdf?MOD=AJPERES

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