Tax changes for company migrations

New rules announced in March mean that companies migrating from New Zealand will have to pay tax on all income and, in some cases, capital gains derived before migrating.

Migrations

Companies migrate from New Zealand when they cease to be New Zealand tax resident and become tax resident in another country.

This usually occurs when a company changes its place of incorporation, although it might also occur when a company moves its centre of management from New Zealand.

In some cases, migrations could provide a significant tax benefit by allowing the repatriation of profits and capital gains to a parent company's jurisdiction free of New Zealand tax. The new rules are intended to prevent that.

New rules

As of 21 March 2005, a migrating company is treated as having disposed of all its assets and liabilities immediately before migrating, for their market value. The company is then treated as if it had liquidated at the time it ceased to be a New Zealand resident.

The potential tax consequences of this include taxable gains arising on assets held on revenue account, the realisation of capital gains on assets not held on revenue account, and the creation of a new cost base for assets remaining in New Zealand.

The existing rules that apply to liquidations of New Zealand companies also apply to the migrating company. This means that:

1. withholding tax is payable on the deemed dividend of its shareholders' funds;



2. distributions will not be treated as dividends to the extent that the migrating company has available subscribed capital;



3. capital gains can be distributed free of New Zealand tax, although gains distributed to non-resident company shareholders holding 20% or more of the migrating company are subject to non-resident withholding tax; and



4. imputation credits can be attached to dividends paid by the migrating company.

Enquiries and information

For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.