Short Answer: They are a NZ tax regime that can tax the annual increase in value (unrealised gain) of your foreign investments, like Indian shares and mutual funds, once your total cost exceeds $50,000 NZD.

Long Answer: The Foreign Investment Fund (FIF) rules are designed to prevent NZ residents from deferring tax by holding investments that accumulate value offshore without distributing income (like growth-focused mutual funds). Instead of just taxing dividends, the rules impose a yearly tax on a deemed rate of return (5% under the common Fair Dividend Rate method) on the opening value of your holdings. This means you can owe tax even if your investments lose money/">money that year.

Short Answer: Most Indian equities (shares), equity mutual funds (ELSS, growth funds), index funds (Nifty, Sensex ETFs), and hybrid funds with equity exposure. Plain bank FDs and debt funds are usually excluded.

Long Answer: A FIF is broadly defined as a foreign company, unit trust, or superannuation scheme. This includes:

• Shares: Direct holdings in companies listed on NSE/BSE (e.g., Reliance, Infosys).
• Equity Mutual Funds & ETFs: Any fund investing primarily in shares (e.g., HDFC Equity Fund, ICICI Prudential Bluechip, Nippon India ETF Nifty 50).
• Hybrid Funds: If they have more than 20% allocation to shares, they are typically FIFs.

Exclusions include simple debt (like NRE/NRO FDs), life insurance policies (tested separately), and direct ownership of physical property.

Short Answer: If the total cost of all your FIF investments (worldwide) is NZD $50,000 or less at any time in the tax year, you are exempt from the FIF calculation methods.

Long Answer: The threshold applies to the aggregate cost of all FIF interests. “Cost” generally means the original purchase price in foreign currency, converted to NZD at the exchange rate on the date of purchase. You must include all similar foreign investments (e.g., shares from other countries). If the total cost ever exceeds $50,000 NZD during the tax year (even for one day), the exemption is lost for that entire year for all your FIF holdings.

Short Answer: In total. You must add up the cost of ALL your Indian (and other foreign) equity mutual funds, ETFs, and direct shares.

Long Answer: The IRD looks at your global FIF portfolio. You cannot claim exemption for one Indian mutual fund if the combined cost of it and your other FIFs (e.g., another Indian fund, shares in an Australian company) exceeds $50,000 NZD. You must aggregate across all accounts and jurisdictions. This is a common trap for those with multiple smaller holdings.

Short Answer: You must use a specific method to calculate FIF income each year. The most common are the Fair Dividend Rate (FDR) and Comparative Value (CV) methods.

Long Answer: Once subject to FIF, you must choose an approved method:

• Fair Dividend Rate (FDR): Tax = 5% of the opening market value (OMV) of each investment. This is the default and most common method. You pay tax on this 5% deemed return, regardless of actual performance.
• Comparative Value (CV): Tax = Closing Value + Disposals – (Opening Value + Acquisitions). This taxes the actual change in value (realised and unrealised). You can choose this method if it gives a lower income or a loss.

The choice can be made annually per FIF.

Short Answer: Use the Net Asset Value (NAV) or unit price at the start and end of the NZ tax year (March 31), converted to NZD.

Long Answer: For the FDR method, you need the opening market value as of April 1. For CV method, you need values on April 1 and March 31. For Indian mutual funds, use the published NAV per unit on those dates. Multiply by the number of units you hold. Convert the resulting INR value to NZD using the appropriate exchange rate (e.g., RBNZ rate for that date). Keep detailed records of NAVs and exchange rates.

Short Answer: No. If you use the FDR method, dividends are generally ignored for tax purposes. If you use the CV method, dividends increase the closing value.

Long Answer: The whole point of the FDR method’s 5% deemed rate is to approximate a pre-tax dividend return. Therefore, actual dividends received are not added to your income; the 5% FDR amount is your taxable income. However, any foreign tax (like Indian TDS on dividends) paid can often be claimed as a credit against your NZ tax on the FIF income. Under the CV method, dividends are effectively taxed as part of the overall gain.

Short Answer: If you’ve been paying FIF tax under the FDR method, the sale is generally tax-free for gains up to the amount already taxed. Gains above that may be taxable.

Long Answer: The FIF regime aims to tax gains as they accrue. Under FDR, the 5% annual charge is meant to cover both income and capital growth. When you sell, you calculate a “FIF cost base,” which is your original cost plus all previous years’ FIF income amounts (the 5% charges you paid tax on). If your sale proceeds exceed this adjusted cost base, the excess may be taxable as a further capital gain. If they are less, you may be able to claim a deductible loss.

Short Answer: Usually not. They are often classified as foreign superannuation schemes, which have their own distinct (and also complex) tax rules in NZ.

Long Answer: The Public Provident Fund (PPF), Employee Provident Fund (EPF), and similar retirement vehicles are generally not FIFs. Instead, they fall under NZ’s foreign superannuation rules. These have different taxing points, often upon withdrawal or transfer to a NZ scheme, and may be eligible for a 4-year exemption. Do not apply FIF rules to these; seek specific advice.

Short Answer: Almost certainly yes. A PMS typically holds a direct portfolio of shares on your behalf, and those individual shareholdings are each FIFs.

Long Answer: A PMS account is not a single fund; it’s a managed account holding individual stocks. Each Indian company share you own through the PMS is a separate FIF. You must aggregate the cost of all those shares with your other FIF holdings to test against the $50k threshold. The FIF calculation (FDR or CV) would then apply to the total value of the share portfolio.

Short Answer: If it’s a NZ PIE (very rare for Indian funds), it’s exempt from FIF rules. An Indian-domiciled fund is almost never a NZ PIE.

Long Answer: A Portfolio Investment Entity is a specific NZ tax structure (like some KiwiSaver funds). For a foreign fund to be a “foreign PIE,” it must meet strict criteria and elect into the regime. No mainstream Indian mutual fund or ETF has done this. Therefore, your Indian fund is a FIF, not a PIE. Do not confuse this with the fund being a “portfolio of investments.”

Short Answer: The “De Minimis” exemption was removed. The $50,000 cost threshold is now the only general exemption.

Long Answer: Prior to 2021, there was an additional exemption for holdings under $10,000 NZD in a single FIF (the “de minimis” rule). This is no longer available. The landscape is now simpler but stricter: if your total FIF cost > $50k, all holdings are in the regime.

Short Answer: In the “Foreign Investment Fund income” section, you report the total FIF income calculated under your chosen method(s).

Long Answer: You must complete the FIF section of the IR3. This involves listing your FIFs, their opening values, the method used for each, and the resulting income. For FDR, income = (Total Opening Value x 5%). This amount is added to your total income and taxed at your marginal rate. The IRD provides worksheets (IR445) to help with the calculation.

Short Answer: Purchase statements, annual statements showing units held, NAVs/unit prices at March 31 and April 1, dividend statements, and a log of exchange rates used.

Long Answer: Maintain for at least 7 years:

• Proof of purchase cost and date (contract notes).
• Annual holding statements from your broker or fund house.
• Screenshots or official data showing the NAV/share price on March 31 and April 1 each year.
• Records of any dividends reinvested or received.
• A spreadsheet tracking opening/closing NZD values, FIF income calculations, and the evolving FIF cost base.

Short Answer: Seek professional advice immediately and consider making a Voluntary Disclosure to the IRD to reduce penalties.

Long Answer: Unreported FIF income is a high-risk area for the IRD, especially with CRS data sharing. Penalties for not taking reasonable care can be 20% of the tax shortfall. By making a Voluntary Disclosure before the IRD contacts you, you can reduce penalties by 75% or even 100%. A tax advisor can calculate your historical liabilities, prepare the disclosure, and manage communication with the IRD. Ignoring it is the worst option.

Short Answer: Yes, typically. Indian REITs are listed entities that invest in property, making them foreign companies and thus FIFs.

Long Answer: While they distribute rental income, Indian REITs are structured as trusts listed on stock exchanges. Under NZ tax law, a unit in a foreign unit trust (like a REIT) is a FIF. Therefore, the FIF rules apply to your holding, not just the distributions. The distributions may be treated as dividends for the purposes of the FDR method (i.e., ignored, as the 5% covers it).

Short Answer: No. Direct ownership of physical property is not a FIF. However, rental income and capital gains on sale are separately taxable in NZ.

Long Answer: FIF rules apply to financial investments. A physical apartment is a direct asset. You must declare any net rental income (after expenses) as foreign income annually. Upon sale, any gain is likely a taxable capital gain in NZ (subject to rules around main home exemption if it ever was your main home). This is a different, but still important, tax obligation.

Short Answer: The DTA does not override the FIF rules. NZ retains the right to tax the investment income of its residents under its domestic law (which includes the FIF regime).

Long Answer: The DTA allocates taxing rights. For dividends and capital gains from shares, India often has a limited right to tax (e.g., 10-15% on dividends). The DTA confirms NZ’s primary right to tax you as a resident. The FIF tax is a NZ income tax. You may be able to claim a foreign tax credit for any Indian dividend distribution tax (DDT) or capital gains tax paid upon sale, against your NZ FIF or capital gains tax liability.

Short Answer: Strategically, yes. Selling a portion of holdings to bring your total FIF cost below $50k before March 31 can avoid the entire FIF regime for that year.

Long Answer: Because the threshold test is based on cost, not value, you can strategically sell higher-cost lots to reduce your aggregate cost base below $50,000 NZD. This is a legitimate planning technique to simplify compliance. Be mindful of any actual capital gains on that sale (which would be separately taxable) and the 72-hour rule (you can’t repurchase the same investment within 72 hours to artificially reduce cost).

Short Answer: Not necessarily. For long-term growth, Indian markets may offer returns that outweigh the complexity and tax cost of the FIF regime. Professional advice can help you manage it.

Long Answer: The decision should be investment-led, not purely tax-led. The FIF tax (often 1.39% to 1.95% of asset value per year, depending on your tax rate) is a cost of holding. If your expected return is significantly higher, it may be worth retaining. The key is to understand the cost, comply correctly, and factor it into your investment returns. Simplifying by consolidating into fewer funds or using a NZ-based platform that offers Indian exposure (and handles tax) could be an alternative.