FIF (Foreign Investment Fund)

The Foreign Investment Fund (FIF) rules tax New Zealand residents on deemed income from offshore share portfolios and foreign funds, rather than waiting for an actual dividend or sale. The rules exist because many countries don't require companies to distribute profits, so taxing only realised dividends would let investors indefinitely defer NZ tax on foreign growth shares.

Individuals (and eligible trusts) get a $50,000 de minimis exemption based on the original cost basis of their offshore holdings, not current market value — if your total cost basis across all FIF interests is $50,000 or less, the FIF rules don't apply and ordinary dividend/capital gains treatment applies instead. Above that threshold, investors can choose the lower of two methods: the Fair Dividend Rate (FDR), which deems 5% of the opening market value as taxable income regardless of actual performance, or Comparative Value (CV), which taxes the actual increase in value plus dividends received.

Companies get no de minimis exemption and must use the FDR method exclusively — they cannot elect CV even if their FIF investments fell in value during the year. Common exemptions from FIF altogether include most Australian-listed shares on the ASX all ordinaries index (subject to conditions) and holdings covered by the transitional resident exemption.

A newer optional method, the revenue account method (RAM), applies from 1 April 2025 for eligible new migrants and returning New Zealanders who became NZ tax resident on or after 1 April 2024 and were non-resident for at least 5 years beforehand. Instead of FDR's unrealised 5%, RAM taxes dividends in full plus 70% of realised gains (and allows the same 70% of realised losses to offset RAM income) on qualifying pre-residence unlisted shares, deferring tax until an actual dividend or sale instead of an annual deemed return.