Tax concessions for certain non-resident companies
2013 legislation repeals the residual tax concessions for certain non-resident investment companies in the Income Tax Act 2007.
Sections LZ 2 to LZ 5, and "non-resident investment company" and "development investments" in section YA 1 of the Income Tax Act 2007; Income Tax (Non-resident Investment Companies) Order 1970; Income Tax (Non-resident Investment Companies) Order 1972; Income Tax (Non-resident Investment Companies) Order (No 2) 1972; Income Tax (Non-resident Investment Companies) Order (No 3) 1974
The residual tax concessions for certain non-resident investment companies in the Income Tax Act 2007 have been repealed as they have outlived their original purpose and are inconsistent with New Zealand's broad-base, low-rate tax system. Moreover, retaining the tax concessions posed a revenue risk.
Background
The Income Tax Act 2007 provided residual tax concessions for certain non-resident companies investing in projects specified in four Orders in Council. The main concession related to interest derived by these non-resident investment companies from specified projects.
The income tax on interest derived by a non-resident investment company from a specified project was limited to the lower of the New Zealand company tax rate and the tax rate imposed in the non-resident company's home country. This was done by providing a tax credit for the amount (if any) by which the New Zealand company tax exceeded the amount of home tax. A similar concession applied for dividends derived by a non-resident investment company from specified projects. The interest paid to the non-resident investment company from these specified projects was also exempt from non-resident withholding tax.
The tax concessions for non-resident investment companies were generally repealed in 1995 as they were considered inconsistent with a broad-base, low-rate tax system, and were considered to be largely redundant in light of international tax reforms at that time. However, the concessionary rules were grandparented for the four Orders in Council then in force. The Orders in Council were:
- Income Tax (Non-resident Investment Companies) Order 1970;
- Income Tax (Non-resident Investment Companies) Order 1972;
- Income Tax (Non-resident Investment Companies) Order (No 2) 1972; and
- Income Tax (Non-resident Investment Companies) Order (No 3) 1974.
Key features
The residual tax concessions for certain non-resident investment companies in the Income Tax Act 2007 have been repealed, and related Orders in Council also revoked. The concessions outlived their original purpose and are inconsistent with a broad-base, low-rate tax framework.
Application date
The amendments apply from the 2013-14 income year.