Foreign Investment Funds (FIF): Policy Direction, Technical Framework and Practical Implications

A Regime Under Renewed Scrutiny

The taxation of offshore portfolio investments through New Zealand’s Foreign Investment Fund (FIF) regime remains a cornerstone of the domestic tax system. The 2026 Budget, announced on 28 May 2026, signals a renewed focus on this regime, with a series of proposed reforms aimed at reducing compliance costs, addressing liquidity concerns, and enhancing New Zealand’s international competitiveness.

Key proposals include increasing the de minimis threshold from $50,000 to $100,000, expanding access to the Revenue Account Method (RAM), and targeted relief for migrants and founders. These changes are intended to reduce the tax barriers associated with offshore investment and better align outcomes with real economic income.

These developments coincide with Inland Revenue’s Long-term Insights Briefing (LTIB) released in April 2026, which considers how the tax system should evolve in response to long-term fiscal pressures, including an ageing population. While the LTIB is not prescriptive, it reinforces a broader policy direction towards maintaining a robust tax base while ensuring the system remains sustainable and internationally competitive. The renewed focus on FIF is therefore consistent with this wider narrative.

Origins and International Context

New Zealand introduced its FIF regime in the early 1990s to address a structural gap arising from the absence of a comprehensive capital gains tax. Without such rules, taxpayers could accumulate wealth in offshore investments with minimal ongoing taxation, particularly where profits were retained rather than distributed. 

The FIF regime was designed to counter this by attributing income on an annual basis, often using deemed or accrual methodologies, thereby taxing economic returns regardless of whether they were realised. 

While other jurisdictions once adopted similar approaches, the international trend has shifted. Australia, for example, introduced its FIF regime in 1992 but repealed it in 2010 due to complexity and compliance concerns, replacing it with more targeted integrity measures. As a result, New Zealand is now among the few countries to retain a broad accrual-style regime for portfolio offshore investments. 

Overview of the Current FIF Rules

Scope and Threshold
The FIF rules apply to New Zealand tax residents holding interests in offshore investments, including foreign companies, unit trusts, ETFs, and certain foreign superannuation schemes. 

A key feature is the de minimis threshold, currently set at $50,000 (measured on a cost basis). Where an individual’s total overseas investments exceed this threshold at any time during the income year, the FIF rules generally apply to the entire portfolio. 

Investments below this threshold are instead taxed under ordinary principles, typically on dividends received.

Calculation Methods
Once within the regime, taxpayers must calculate dividend, gain, or deemed income using prescribed methods, including:

• Fair Dividend Rate (FDR) – the most common method, which deems income equal to 5% of the opening market value each year.
• Comparative Value (CV) – taxes the actual annual change in value, including unrealised gains or losses.
• Cost Method and Deemed Rate of Return (DRR) – used in specific circumstances.
• Revenue Account Method (RAM) – a newer method taxing dividends and realised gains (at a discounted rate).
• Attributable FIF income method – generally used for more substantial or active investments. 

A defining characteristic of the regime is that, under methods such as FDR and CV, tax can arise even where no cash income is received.

Recent Developments and Proposed Changes

Expansion of the Revenue Account Method (RAM)
The introduction of RAM represents one of the most significant recent shifts in policy. This method taxes:

• Dividends received; and
• 70% of realised gains on disposal

Importantly, it does not tax unrealised gains, addressing longstanding liquidity concerns. Initially limited to certain migrants, the 2026 Budget proposals would extend RAM access to all New Zealand residents for unlisted foreign shares, as well as to listed shares for certain taxpayers facing overseas taxation.

Increase in the De Minimis Threshold
The proposed increase of the threshold to $100,000 reflects both inflation and the growing accessibility of international investing.

This change is expected to:

• Remove many smaller investors from the regime; and
• Reduce compliance complexity for retail portfolios.

Targeted Reforms
Additional measures include:

• Allowing continued use of the attributable FIF income method for founders whose shareholding is diluted;
• Maintaining exemptions for corporate migrations; and
• Addressing issues of double taxation for globally mobile individuals.

Practical Status Summary
At this stage, these reforms should be treated as planning assumptions rather than enacted law, with care required not to apply them retrospectively until legislative authority is confirmed.

A summary of the proposal / in progress:

• Expanded RAM access
• Increase in the de minimis threshold to $100,000
• Founder continuity and corporate migration refinements
• Additional relief for globally taxed individuals

Who is Impacted?

The FIF regime affects a wide range of taxpayers, but with varying consequences:

• Retail investors may benefit significantly from the increased threshold.
• High-net-worth individuals remain exposed but can optimise outcomes through method selection.
• Migrants and returning New Zealanders are a key focus of recent reforms, particularly through RAM.
• Founders and startup investors benefit from targeted continuity provisions.

Practical Considerations and Common Traps

From a practical perspective, the FIF regime continues to present both planning opportunities and risks:

• Threshold breaches can occur unexpectedly, particularly where investments are built up over time.
• Liquidity issues arise where tax is payable on deemed income with no corresponding cash flow.
• Method selection can materially affect tax outcomes and should be approached strategically.
• Double taxation may arise where foreign tax systems operate on a different basis.

A further practical issue we’ve increasingly observed is the misconception surrounding retail investment platforms.

Retail Platform Misconceptions
Many New Zealand investors do not appreciate that the FIF rules apply equally to offshore investments held through platforms such as Sharesies or Computershare. The fact that these platforms are New Zealand-based does not change the underlying tax treatment.

Where the underlying investments are foreign shares or funds, they will generally constitute FIF interests. In practice, investors often accumulate portfolios gradually through these platforms and inadvertently exceed the threshold, triggering FIF obligations without realising it. This is a common issue, particularly among first-time or non-advised investors. 

Concluding Remarks

The FIF regime remains one of the most technically complex and policy-sensitive areas of New Zealand tax law. While historically justified as a mechanism to protect the tax base, it has increasingly been criticised for complexity, compliance costs, and divergence from international practice.
The 2026 Budget proposals, when considered alongside Inland Revenue’s LTIB, suggest a gradual shift toward simplification, improved cash-flow alignment, and enhanced international competitiveness. The expansion of RAM and the proposed increase in the de minimis threshold represent meaningful, albeit incremental, steps in that direction.

However, the core framework of the FIF regime remains intact. For most taxpayers with material offshore investments, it will continue to be a central consideration in their tax profile. In particular, the rise of retail investment platforms has broadened the population exposed to FIF, with many investors entering the regime unintentionally due to a lack of awareness of its application.

For clients, the key takeaway is the importance of proactive management of offshore investment exposure. Understanding when the FIF rules apply, selecting appropriate calculation methods, and structuring investments efficiently can materially impact both tax outcomes and cash flow. As the regime continues to evolve, maintaining this visibility will be critical to ensuring sustainable and compliant outcomes.