Applying the FIF rules
Taxation (International Investment and Remedial Matters) Act 2012 changes the Foreign Investment Funds rules and how they are applied from 1 Jul 2011.
If an exemption from the FIF rules applies, the normal domestic tax treatment applies. This generally includes taxation of any dividend and taxation of gains on sale if the FIF interest is held on revenue account.
If no exemption from the FIF rules applies, the choice of FIF method determines the tax treatment. In particular, using the new attributable FIF income method means that dividends will not usually be taxable if received by a company. Using the other methods, dividends are usually ignored entirely.
In addition, dividends will usually be taxable when they are received from exempt FIFs (exceptions are dividends received by companies from CFCs or FIFs that satisfy the section EX 35 exemption). In contrast, dividends will usually be exempt if the FIF rules apply (an exception is when a dividend is received by a person who is not a company and that uses the attributable FIF income method for that FIF).
The exemptions from the FIF rules and the foreign dividend exemptions are explained below.
Except when otherwise noted, the changes to the FIF rules apply to income years beginning on or after 1 July 2011.