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Tax exemption for new residents to NZ

New Zealand is undoubtedly one of the world’s most beautiful countries and one of the best in which to live. It is far removed from the world’s troubles, offers high standards of living and excellent economic opportunities. In the context of location independence, it offers the opportunity to live tax-free, legally, thanks to a four year foreign sourced income exemption for new residents. This guide covers how the exemption works.

Program details

While many of the exemption programs (Uruguay, Israel, Chile etc) are complicated and overburdened with rules, this is not the case here. As long as you are a new resident, you qualify. A new resident is one who has not resided at any point in New Zealand during the previous ten fiscal years. You can be a New Zealand citizen or the citizen of a third country, it does not matter, as long as you meet the ten years requirement.

The exemption is valid for 49 months, starting on your first day of residency. It is non-renewable and can only be granted once in a lifetime.

The types of income included in the exemption are:
1. Controlled foreign company (CFC) income
2. Foreign investment fund income
3. Foreign income subject to non-resident withholding tax
4. Foreign income subject to approved issuer levy
5. Income arising from the exercise of foreign employee share options
6. Accrual income (from foreign financial arrangements)
7. Income from foreign trusts
8. Rental income derived offshore
9. Foreign dividends
10. Foreign interest
11. Royalties derived offshore
12. Income from employment performed overseas before coming to New Zealand
13. Gains on sale of property derived offshore (held on revenue account)
14. Offshore business income

It is important to understand that foreign-sourced income is income that arises outside of New Zealand. For example, you cannot exempt income earned providing freelancing services while living in New Zealand, even if none of your clients are New Zealand-based. You can, on the other hand, exempt income earned providing those services while outside of New Zealand. This makes the exemption particularly useful for those who live off their investments (provided that they are not in NZ-based assets / instruments) and / or their overseas business (provided they do not actively manage it while in New Zealand).

How to apply

To qualify for the exemption, you must first become a tax resident. For most people, this means spending at least 183 days in New Zealand during a fiscal year. This also means getting some sort of resident visa and while there are many options, for most location independent entrepreneurs the only suitable one will be the Entrepreneur Visa. The visa is valid for up to three years and to qualify you must simply register a business in New Zealand and invest 100000 NZD in it. After two years in the country on this visa, you can apply for permanent residency and after five years of permanent residency, citizenship. Interestingly, becoming a New Zealand citizen also grants you the right to live and work in Australia.

Once you have qualified as a resident, and assuming you also meet the ten-year rule, you will be automatically granted the exemption. During the four year period, simply leave your foreign sourced income off your yearly tax return. You can learn more about the exemption on the IRD website.

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