Foreign tax credits
If a New Zealand resident company derives overseas income that is subject to New Zealand income tax, the company is generally allowed a credit for the foreign income tax paid in respect of that income. Generally, the credit is limited to the lesser of the actual overseas tax paid on the overseas income or the New Zealand tax applicable to the overseas income.
Foreign tax credits can only be used if the taxpayer is in a tax paying position. If foreign tax credits are not claimed in the current year, they are forfeited.
Inbound investment incentives
There are limited, specific tax incentives designed to encourage the flow of investment funds into New Zealand.
Legislation encourages foreign venture capital investment into unlisted New Zealand companies. Gains derived by certain non-residents from the sale of shares (held on revenue account and owned for at least 12 months) in New Zealand unlisted companies that do not have certain prohibited activities as their main activity are exempt from income tax. The rules apply to foreign investors who are resident in all of the countries with which New Zealand has a DTA (except Switzerland) and who invest into New Zealand venture capital opportunities.
Capital investment incentives
Investment allowances on fixed assets are not available.
Elective rules allow trans-Tasman groups of companies to attach both imputation credits (representing New Zealand tax paid) and franking credits (representing Australian tax paid) to dividends paid to shareholders.
The regime allows eligible wholly owned groups of Australian and/or New Zealand companies to group for imputation purposes only. Groups with both Australian and New Zealand members are known as trans-Tasman imputation groups (TTIGs). New Zealand companies within a trans-Tasman group maintain a separate ‘resident imputation subgroup’ account.
Research and development (R&D) tax incentive
From the 2019/20 tax year, eligible R&D expenditure will give rise to a 15% tax credit. A new definition of R&D has been introduced for the purposes of these rules.
Core R&D activities which give rise to a tax credit are:
- activities that are conducted using a systematic approach
- with a material purpose of creating new knowledge or improved processes
- to resolve some scientific or technological uncertainty.
The expenditure must only relate to certain kinds of eligible R&D expenditure. This includes salary and wage costs, overhead costs, depreciation on assets, and direct expenditure on consumables and materials. Some specific activities and costs will be excluded from the tax incentive.
The incentive is available only for those taxpayers that spend between a minimum ($50,000) and maximum ($120 million) level of R&D expenditure per year. The rules allow limited cash refundability for certain loss-making entities.