Controlled Foreign Companies

Controlled foreign companies (CFCs) are companies based overseas but controlled by New Zealand residents. They must not be a tax resident in New Zealand, or if a New Zealand tax resident, they must then be treated as a foreign company via the application of a relevant double tax treaty agreement.

A company may be a tax resident in New Zealand if it is incorporated in New Zealand, has its head office in New Zealand, its centre of management is in New Zealand, or directorship control is exercised from New Zealand.

There are three tests for determining the CFC status of a foreign company:

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Cross Border Structuring

International businesses are increasingly affected by tax, legislative and regulatory developments throughout the world. Understanding the impact of business operations and transactions between countries is vital for success. Some common types of income include;

  • Earning income from employment or self-employment
  • Interest you earn in New Zealand and/or overseas
  • Dividends from shares in New Zealand and/or overseas companies
  • Portfolio Investment Entities (PIEs)
  • Interest in an overseas life insurance policy
  • Controlled Foreign Companies (CFCs)
  • Foreign superannuation funds and pensions
  • Social security pensions from New Zealand and/or overseas
  • Buying and selling property and rental properties in New Zealand and/or overseas
  • Buying and selling shares
  • Trusts

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Foreign Investment Funds

The FIF tax rules that were introduced for the years beginning on or after 1 April 2007 aimed to encourage savings by low and middle income earners and to remove inconsistencies in the old rules which overtaxed some investors using New Zealand-based managed funds, were biased in favour of direct investment in offshore shares, and favoured investment in certain countries over others.

A foreign investment fund (FIF) is an offshore investment that is:

  • a foreign company
  • a foreign unit trust
  • a foreign superannuation scheme
  • an insurer under a foreign life insurance policy

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Migration Structuring

Are you considering moving offshore, or alternatively coming to New Zealand (NZ), and would like to know more about how your changes in circumstances may affect your present tax residency status, and/or tax filing obligations? 

Then rest assured, our tax team is suitably qualified to advise you on all aspects of tax residency, including when you are likely to trigger a tax resident/non-resident status from a NZ income tax perspective, how any double tax treaty agreement (DTA) between NZ and your destination/departure country may apply to you, and what all these considerations may mean from a NZ tax filing obligation perspective. 

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Tax Residency Opinions

At Gilligan Sheppard, we can review your tax residency status for you, provide an opinion in this regard and then advise you of your New Zealand income tax obligations as applicable. The issue applies not only to people looking to come to New Zealand for a period, but equally to those looking to go overseas, particularly on an employment secondment or the traditional ‘overseas experience’ (OE). You certainly do not want to return to New Zealand and discover you suddenly have a huge tax bill with all sorts of penalties attached. 

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