On 12 March 2025, Revenue Minister Hon Simon Watts announced significant amendments to New Zealand's Foreign Investment Fund (FIF) rules, aimed at reducing the tax burden on migrants and returning New Zealanders. These changes follow the issuance of a 2024 issues paper “Effect of the FIF rules on immigration: proposals for amendments" (available here).

Since the publication of this article additional details about the proposed FIF changes for new migrants have been made publicly available by Inland Revenue (see here).

As foreshadowed in the issues paper, the reform is currently focused on new migrants (despite many tax practitioners having argued that the reform should extend beyond new migrants to everyone). We expect that these changes will be welcomed by new migrants who will be able to apply the changes retrospectively from 1 April 2024.

Key issues with current FIF rules

The FIF issues have long been identified as a significant factor discouraging migrants from migrating to New Zealand and offshore Kiwis from returning, particularly those in the tech and start-up sectors holding valuable foreign equity interests. The main problem with the FIF rules for such investors is that the FIF rules apply to tax residents (subject to certain concessions) on deemed income amounts, whether the investors have received a return on their investment or not.  

Proposed reforms

While the announcements are light on detail, at a high level the government has announced that a new "Revenue Account Method" will be introduced, allowing qualifying new migrants to calculate FIF income on a realisation basis, thereby taxing gains only when they are realised. Other key points include:

• New migrants only: Despite strong submissions arguing the reform should extend to everyone, at this stage the proposal only applies to migrants.

• Investment restrictions: Importantly, it appears that the Revenue Account Method would only be applicable to FIF interests acquired by a non-resident before they move to New Zealand.

• Non-easily disposable interests: The changes are intended to apply to FIF interests that are not easily disposable (except where migrants are at risk of double tax due to continuing citizenship based taxation – such individuals may be able to apply this method to all of their interests). This leaves a question mark over whether the Revenue Account Method would be able to be applied to listed equities that can be disposed of easily. If listed equities are excluded, that may significantly reduce the benefit of this reform.  

• Implementation date: The changes will apply to migrants who become New Zealand tax residents on or after 1 April 2024.

Timeline and further details

• Legislation introduction: The proposals will be tabled in Parliament as legislation in August 2025, with more specific details to be provided at that time.

• Public submissions: The public will have the opportunity to make further submissions on the legislation to ensure it works as intended and to refine details such as which FIF interests the rules apply to.

• Legislation passage: The legislation is expected to pass through Parliamentary processes by March 2026.

Minister Watts acknowledged the need for further adjustments to the FIF rules and related international tax settings to encourage both migration and local investment. The Government will continue to review the impact of the FIF rules on New Zealand residents, with more updates expected later in 2025.

We recommend that new migrants, including those reaching the end of their transitional residence period, should carefully consider the affect of these changes on their tax positions.  

This article was co-authored by Liam Sutherland a solicitor in our Tax team.