What is FIF tax?

If you invest in overseas shares or ETFs (exchange-traded funds), New Zealand tax law might require you to pay tax on those investments every year, even if you haven't sold anything and haven't received any dividends. This is the Foreign Investment Fund (FIF) regime.

Why does FIF exist?

Before FIF rules were introduced, some NZ investors were parking money in overseas funds and never paying tax on the gains. They'd just let their investments grow overseas indefinitely. The FIF regime was designed to level the playing field between investing in NZ-based funds (which are taxed annually) and overseas funds.

Who does FIF apply to?

FIF rules apply to you if:

• You're a New Zealand tax resident
• You hold interests in foreign companies, overseas unit trusts, or foreign superannuation schemes
• The total cost of those investments exceeded NZD $50,000 at any point during the tax year

If you're under the $50,000 threshold, FIF rules don't apply, so you just declare any dividends you receive as normal income.

What counts as a foreign investment?

Pretty much any investment in an overseas entity, including:

• US shares (Apple, Tesla, index funds like VTI or VXUS)
• Global ETFs (Vanguard, iShares, etc.) held in overseas custody
• Overseas unit trusts or managed funds
• Shares in companies incorporated overseas (even if listed on NZX)

Note: NZ-domiciled funds that hold overseas shares (like many Kernel or Simplicity funds) are not subject to FIF in your hands. The fund itself handles the tax. This is one reason many investors prefer NZ-domiciled ETFs.

How is FIF income calculated?

There are two main methods:

1. Fair Dividend Rate (FDR): You pay tax as if you earned 5% on the opening value of your overseas investments at the start of the tax year. Simple and predictable.
2. Comparative Value (CV): Your taxable income is the actual increase in value of your investments plus any dividends received. Can be lower (or even zero) in a bad year, since it floors at $0.

You can choose whichever method gives you the lower taxable income, but you must use the same method for all your FIF holdings within a single tax year.

The NZ tax year

New Zealand's tax year runs from 1 April to 31 March. So the “opening value” for FIF purposes is your portfolio's market value on 1 April, and the “closing value” is on 31 March.