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CHANGE TO COMPANY REGISTRATION REQUIREMENTS

The Ministry of Economic Development recently released a Cabinet paper proposing significant changes to the registration requirements under the New Zealand companies regime.

The Cabinet paper identifies four broad groups of proposals to reform the registration process and improve the quality of the information available about companies. These proposals are as follows:

  • requiring companies to appoint at least one director or an agent who is ordinarily resident in New Zealand;
  • requiring directors to supply their date and place of birth information;
  • requiring all companies to apply for an Inland Revenue Department (IRD) number as part of their registration application process; and
  • enhancing the ability of the Registrar of Companies to investigate, respond to or remedy issues arising in regard to the bona fides of directors and shareholders and any integrity or compliance issues relating to company registration.

The Cabinet paper proposes that all companies that register in New Zealand will be required to apply for an IRD number at
the time of seeking incorporation. It was noted that at present, approximately 80% of companies already do so as part of the registration process, while a further significant percentage obtain a number shortly thereafter. The stated aim of this requirement is to provide a disincentive for companies trying to take advantage of New Zealand’s international standing, but which do not intend to carry out business in New Zealand.

Given the cross-matching of data within the IRD computer database, where an application for an IRD number must be made at the time of incorporation, care will need to be taken in relation to classification of the company’s business.

How it affects you

 Although the majority of companies in New Zealand have an IRD number, once the reforms are implemented, greater care will need to be taken to ensure that any stated business classification at the time of incorporation is considered at a later time when a company registers for GST.

The IRD has, for many years, reconciled/ matched the business details provided in relation to income tax and those provided in relation to GST. This has sometimes given rise to an investigation and taxation consequences. 

FOREIGN INVESTMENT PIES

Portfolio Investment Entities (PIEs) are investment vehicles and were designed to encourage investment by New Zealanders with a view to them providing for their retirement. They have been of limited use for non-resident investors previously because income allocated by the PIE to non-residents (including deemed income arising under New Zealand’s FIF rules) have been subject to tax at the 28% rate.

New tax legislation has created two categories of foreign investment PIEs to address this:

  • the ‘zero-rate PIE’ which is available now
  • the ‘variable-rate PIE’ which will be available from 1 April 2012

Non-resident investors in zero-rate PIEs will not suffer any New Zealand tax in relation to income allocated through the PIE. The zero-rate PIE, however, must invest primarily offshore and only hold minimal investments in New Zealand.

Variable-rate PIEs will be able to invest into both New Zealand and offshore markets. Non-resident investors will pay no New Zealand tax in relation to non-New Zealand sourced income, but tax will be payable in relation to New Zealand investments at variable rates depending on the nature of the income and the tax treaty position with the investor’s home jurisdiction. The principle is that, for New Zealand investments, a non-resident investor should be placed in the same position (or at least no worse a position) than if he or she had invested directly.

At present, an offer of interests in a PIE will be fully regulated (requiring a prospectus and investment statement) if made to the public in New Zealand. If the PIE is a unit trust, it will need an independent manager and trustee. The manager will also need to register as a financial service provider.

Further changes, including mandatory licensing of managers and appointment of a supervisor have been proposed, but are unlikely to be in place for at least 12-18 months.

How it affects you

If you or your client are a non-resident and are looking to invest in a New Zealand fund, the changes will provide an incentive to invest via a PIE.

If you currently have an investment in a PIE, and you either have recently worked overseas, or are looking to do so, you should speak to your advisors about how to minimise your tax cost on your investment. 
 

 

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