09 July 2008

NEW ZEALAND: The competitiveness of New Zealand’s international tax rules are likely to improve if legislation changes proposed during the Government’s Budget announcement go ahead.

The proposal, announced by Finance Minister Michael Cullen on 22 May, is aimed at putting New Zealand on par with its competitors so it is better able to compete in foreign markets.

The main feature is a tax exemption for New Zealand-resident business with active income from offshore. Currently, this income is taxed except for that generated from seven countries on a “grey list”. 

Australia is the only country to remain on the list. The Government says this will remove the burden of compliance costs associated with meeting the active business test for businesses looking to set up across the Tasman.

PricewaterhouseCoopers tax partner Geoff Nightingale told Radio New Zealand National’s Morning Report programme on 7 July that the proposed changes are positive overall.

He said New Zealand has had a harsh international tax regime and has been out of sync with other jurisdictions for a couple of decades. If the proposed changes are legislated, New Zealand will be brought into line with other jurisdictions.

He told Morning Report the proposed changes may also influence decision-making when companies invest offshore as they will base decisions on risk and their best rate of return, rather than issues around income tax.