Chief among these are tax settings, which frequently discourage visa holders from putting down roots and keep their relationship with New Zealand “temporary and transactional”.
MinterEllisonRuddWatts tax partner and report co-author Andrew Ryan highlighted the potential for tax rules to prevent visa holders from making a “deeper commitment” to New Zealand, including moving here permanently.
He said the report is not intended as a political critique.
Nevertheless, the tax concerns cast in doubt key benefits of the scheme emphasised by the Government and especially by Immigration Minister Erica Stanford – that visa holders will make further investments, beyond those required by the scheme, and that they will thereby bring the value of their business acumen and global networks to local companies.
So far, the vast majority are passive investors, preferring listed stocks, bonds and managed funds, especially for private credit.
Immigration Minister Erica Stanford says many AIP visa holders will have a long-term commitment to New Zealand; however, a new report says our tax rules push them away. Photo / Mark Mitchell
MinterEllisonRuddWatts’ clients include AIP visa applicants.
The report described the mismatch between tax settings and the aim that visa holders connect deeply here as “one of the strongest tensions” underlying AIP.
Despite some recent changes, it suggested New Zealand’s Foreign Investment Fund (FIF) rules remain problematic.
These cover residents’ offshore holdings, including in equities, venture capital investments, and private companies.
A common concern among visa holders is that they will be double taxed on their worldwide holdings and income if they become New Zealand tax residents (bilateral tax treaties address only some of the related problems).
American citizens are especially sensitive, since they are always subject to US tax even when they live abroad permanently.
Of special concern are venture capital investments made in the US, frequently exempt from federal tax there through a provision called the Qualified Small Business Stock exemption.
Americans who become New Zealand tax residents, however, find that these frequently long-held assets are taxed by New Zealand (under FIF rules) after a transition period elapses.
AIP visa holder Courtney Andelman says some of the scheme’s rules are a disincentive to settling in New Zealand.
AIP visa holder Courtney Andelman told the Herald these rules are a strong disincentive to settle in New Zealand: “The value captured in these investments was created entirely within the US ecosystem… before most of us started even toying with the idea of time in New Zealand, taxing those gains feels like territorial overreach, a claim on returns New Zealand had no hand in generating.”
New Zealanders wishing to return after successfully investing and building businesses abroad also face the same set of issues.
Revenue Minister Simon Watts previously told the Herald that Inland Revenue (IR) is continuing to review FIF rules, as well as a key trigger for determining tax residency, “permanent place of abode” (PPOA).
The report also flagged PPOA as problematic, since some visa investors worry they will trigger tax residency unwittingly through the likes of home ownership and developing strong community and business ties.
Non-residents can be deemed tax resident under one of two tests. The first is a count of days in the country in any 12-month period. The second rests on an IR view that a person’s New Zealand home and connections amount to permanence; it is not clearly defined.
Ryan said providing prospective visa holders with greater clarity and upfront information on tax matters and rules such as PPOA would improve the programme and that rule changes should also be considered.
He also suggested the scheme is not well served by fragmented responsibility, which is spread across Immigration New Zealand, part of the Ministry of Business, Innovation and Employment and Invest NZ, an autonomous Crown entity.
Stanford is Immigration Minister, while Todd McClay, Trade and Investment Minister, has purview over Invest NZ.
Furthermore, IR is responsible for tax rules under Watts.
The report also warned the illiquidity of approved investments may become problematic.
AIP visas fall into two categories: “balanced” and “growth”. The former requires a $10 million investment over five years and allows a wide range of investments, the latter requires $5m invested over three years and requires riskier investment, more closely tied to improving productivity and long-term economic growth.
More than two-thirds of the AIP visas issued are growth visas, and holders of those have overwhelmingly preferred a handful of private credit managed funds.
Ryan said this may create “redemption pressures”, especially in 2028 and 2029 when the first large cohort of growth visa holders seeks to exit the funds, the more so if many of these investors are not deeply connected to New Zealand and prefer to withdraw their money from the country.
The upshot would be reputational risk for individual funds, the broader programme, and for New Zealand as a general investment destination.
Another liquidity risk would be a decline in the number of new visa applicants, and therefore in the amount of new money flowing into funds.
Part of the programme’s popularity is clearly linked to global upheaval including war in eastern Europe and the Middle East and deep political division in the US.
Abatement of these push factors and or competition from visa schemes in similar countries, could easily dent demand.
In recent years Canada, the UK and Australia have all cancelled their investor visa schemes.
The report was based on interviews with 16 visa investors as well as various New Zealand service providers, including in immigration, tax and investment advice.
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