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Annex II: The foreign investor tax credit and the approved issuer levy.

The approved issuer levy (AIL) is charged at 2 per cent on interest payments to nonresidents (for certain debt instruments that are registered with the tax department). The liability for AIL rests with the payer of the interest. Since the AIL is a deductible expense, the net tax rate for a company is 1.34 per cent.

The foreign investor tax credit (FITC) results in the combined New Zealand company tax and non-resident withholding tax (NRWT) being a maximum of 33 per cent for non-residents. This regime extends the benefits of New Zealand's imputation regime to non-resident shareholders of New Zealand companies. The FITC effectively implies that New Zealand foregoes the revenue from the non-resident withholding tax. The extent of the shareholders' benefits depend on their home country treatment of dividends received and tax credits. Since most countries allow full tax credit for withholding payments, the majority of revenues foregone by New Zealand accrue to the foreign investor, thereby contributing to a lower cost of capital in New Zealand. This would not be the case if the NRWT was simply abolished: in that case, the tax revenue foregone by New Zealand would mostly accrue to foreign governments, leaving the cost of capital in New Zealand unaffected.

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Publication:OECD Economic Surveys - New Zealand
Article Type:Brief Article
Geographic Code:8NEWZ
Date:Dec 1, 2000
Previous Article:Annex I: The tax system in 2000.

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