FIF Guide

A foreign investment fund is an offshore investment that typically includes but isn't limited to investments or shares in foreign companies, foreign unit trusts, foreign superannuation schemes, and insurers under a foreign life insurance policy.

Any income attributable to an investor, such as yourself, from these types of investment is considered FIF or foreign investment fund income. If you are not exempted from the FIF rules you should work out your FIF income under one of the below methods. Note: that you may be considered to have received FIF income before receiving any actual money as the income or gains do not have to be realised to be considered taxable.

Here are the five types of FIF calculation methods:

• 01. Fair Dividend Rate (FDR)
• 02. Comparative Value (CV)
• 03. Method Cost Method (CM)
• 04. Deemed Rate of Return (DRR)
• 05. Attributable FIF Income method (AIM)

You are generally required to disclose your FIF interest to the Inland Revenue Department. To do this you will require the following details:

• A. The investment's name.
• B. The country of incorporation or tax residence for the investment.
• C. The market value in New Zealand dollars at the beginning or end of the tax year. This is one of the key pieces of information for the FIF calculators above.

Here is a quick summary of the different FIF calculation methods:

Fair Dividend Rate (FDR) - This method cannot be used if the interest is a non-ordinary share or if you have used the Comparative Value method (CV) for another interest that is a share in a foreign company for which FDR would be allowed. If it is not possible to determine the opening market value except by an independent valuation, you may use the Cost Method (CM method).

Comparative Value (CV) - If the attributing interest is a share in a foreign company, its use is limited to natural persons, eligible trustees, non-ordinary shares and share users under a returning share transfer. It must be used if the attributing interest is a non-ordinary share unless it is not practical to determine the market value at the end of the year.

Method Cost Method (CM) - If the interest is a share in a foreign company it can only be used if FDR is allowed but not practical because it is not possible to determine the market value at the start of the year except by an independent valuation.

Deemed Rate of Return (DRR)  - This method can only be used if the case of a non-ordinary share if the Comparative Vaue (CV) method is not practical

Attributable FIF Income method (AIM) - The attributable FIF income method is limited to interests in FIFs that are companies (as opposed to FIFs that are foreign superannuation schemes or foreign life insurance policies). Portfolio investment entities that hold interests in foreign companies cannot use the attributable FIF income method.

A person cannot use the attributable FIF income method if they cannot obtain sufficient information to perform the calculations. Generally, a person must hold a 10% or greater income interest in a foreign company in order to apply the attributable FIF income method.

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