New Zealand on an Investor Visa

[aspiring_kiwi]

Has anyone here moved to New Zealand on an investor visa, especially as a US citizen? Did you invest in NZ stocks & bonds, and if so, how did you handle/avoid PFIC issues?

I'm thinking about going down this road in the future, and am trying to understand how the financial aspects of this might work. The investor visa requires investment in New Zealand, in NZD, so I think that excludes all funds that aren't also PFICs. If going for a boglehead-type portfolio, it sounds like the way to go is to manually implement direct indexing (to avoid funds which would be PFICs) of the New Zealand market index, the NZX50. And for the bond portion, perhaps to directly buy individual bonds. Or maybe a PFIC isn't that bad for bond funds, though it sounds like a fund (i.e. PFIC) converts currency fluctuations into taxable events every year, which seems at least somewhat bad.

With luck, this wonderful community will have some experience or advice. (I am planning to talk to professionals for advice, but it seems better to get educated and form a preliminary plan well ahead of time)

Thank you!

[LadyGeek]

Welcome! I moved your thread to the Non-US Investing forum which is more appropriate for help with non-US questions.

[Valuethinker]

Has anyone here moved to New Zealand on an investor visa, especially as a US citizen? Did you invest in NZ stocks & bonds, and if so, how did you handle/avoid PFIC issues?

I'm thinking about going down this road in the future, and am trying to understand how the financial aspects of this might work. The investor visa requires investment in New Zealand, in NZD, so I think that excludes all funds that aren't also PFICs. If going for a boglehead-type portfolio, it sounds like the way to go is to manually implement direct indexing (to avoid funds which would be PFICs) of the New Zealand market index, the NZX50. And for the bond portion, perhaps to directly buy individual bonds. Or maybe a PFIC isn't that bad for bond funds, though it sounds like a fund (i.e. PFIC) converts currency fluctuations into taxable events every year, which seems at least somewhat bad.

With luck, this wonderful community will have some experience or advice. (I am planning to talk to professionals for advice, but it seems better to get educated and form a preliminary plan well ahead of time)

Thank you!

The New Zealand index is very skewed in composition from memory-- forest products companies, dairy companies. And something like 0.5% of total world stock market capitalisation?

NZ market for consumer financial products sounds like it is very underdeveloped due to high taxes on investment. People "save" via their houses. When they have more savings, they buy more property. What could possibly go wrong?

You should want to hold a global index. The way to do that and avoid PFIC is via US broker account and US funds. Because it appears (from what I read here) that US brokers are prone to just closing the accounts of Americans who move abroad (but this is not applied consistently) then you should probably have 2-3 separate accounts (Vanguard, Fidelity, Schwab or does IB operate in USA?).

Another problem will be how NZ tax system treats US funds or ETFs. That's something you want to investigate very carefully, because you could get caught in the reverse tax trap-- ie the equivalent of PFIC.

If you really can't do that then you are left trying to synthesize global index. There are articles here. You can do quite a bit with 20 stocks, I should think, given the concentration of the big names in the global index (the big 5 internet stocks + Berkshire Hathaway, etc).

Pensions are often covered by separate treaty so (if you can find such a treaty) you want to fill your US pension accounts as much as you can before you go.

BTW unless you have lived in NZ, tread carefully. By which I mean it really is remote, more isolated even than Australia. Granted if you are US west coast based that's not as severe as maybe it is for someone like me, based in Britain. But you are a long way from friends and family. I know several people who have come back to "old Blighty" having found that. You may find you don't want to spend the rest of your life there-- but if you do, good luck, it is a lovely country by all accounts.

[TedSwippet]

... The investor visa requires investment in New Zealand, in NZD, so I think that excludes all funds that aren't also PFICs. If going for a boglehead-type portfolio, it sounds like the way to go is to manually implement direct indexing (to avoid funds which would be PFICs) of the New Zealand market index, the NZX50. And for the bond portion, perhaps to directly buy individual bonds.

...
You should want to hold a global index. The way to do that and avoid PFIC is via US broker account and US funds. Because it appears (from what I read here) that US brokers are prone to just closing the accounts of Americans who move abroad (but this is not applied consistently) then you should probably have 2-3 separate accounts (Vanguard, Fidelity, Schwab or does IB operate in USA?).

Generally good advice for most (tax-accursed!) US citizens living outside the US, but the specific problem with this appears to be that it would not qualify as an "investment in New Zealand" for NZ investor visa purposes. The requirements are very specific:

https://www.immigration.govt.nz/new-zea ... categories

The least-bad option here seems to be individual NZ stocks and bonds. Anything else might either fall outside the visa requirements, or fall into the US's abominable PFIC tax trap.

[halfnine]

I am not trying to be churlish here but at the dollar values we are talking about to get an investment visa in New Zealand one can easily affort to get top notch professional advice on how to arrange one's assets. That would surely be the path I would be taking.

[jebmke]

I am not trying to be churlish here but at the dollar values we are talking about to get an investment visa in New Zealand one can easily affort to get top notch professional advice on how to arrange one's assets. That would surely be the path I would be taking.

Obtaining an investor visa isn't always motivated by financial concerns. In some cases, it is the only way to obtain permanent residency in another country. Canada used to have one but I believe it was either eliminated or severely curtailed a few years ago.

[halfnine]

I am not trying to be churlish here but at the dollar values we are talking about to get an investment visa in New Zealand one can easily affort to get top notch professional advice on how to arrange one's assets. That would surely be the path I would be taking.

Obtaining an investor visa isn't always motivated by financial concerns. In some cases, it is the only way to obtain permanent residency in another country. Canada used to have one but I believe it was either eliminated or severely curtailed a few years ago.

We might be talking past each other on this. One has to be willing to invest multi-millions in New Zealand in order to qualify for residency. Americans (or those subject to USA tax laws) who have such large sums of assets can afford and are best served by paying for professional guidance. The professional fees paid are a pittance compared to the tax ramifications of getting it wrong.

[TedSwippet]

I am not trying to be churlish here but at the dollar values we are talking about to get an investment visa in New Zealand one can easily affort to get top notch professional advice on how to arrange one's assets. That would surely be the path I would be taking.

Obtaining an investor visa isn't always motivated by financial concerns. In some cases, it is the only way to obtain permanent residency in another country. Canada used to have one but I believe it was either eliminated or severely curtailed a few years ago.

We might be talking past each other on this. One has to be willing to invest multi-millions in New Zealand in order to qualify for residency. Americans (or those subject to USA tax laws) who have such large sums of assets can afford and are best served by paying for professional guidance. The professional fees paid are a pittance compared to the tax ramifications of getting it wrong.

For reference, the cheapest NZ investor visa requires a NZ$ 750k (US$ 530k approx) investment. It's not the sort of money most people would carry in their wallets, but it is the sort of money one might get from, say, selling an average property in one of the most populous US states. Not really the territory of the mega-rich.

Other options are indeed "multi-millions", and range from NZ$ 3mm (US$ 2.1mm) to NZD 10mm (US$ 7mm). It is not clear though which of these options the topic author is researching.

[Valuethinker]

I am not trying to be churlish here but at the dollar values we are talking about to get an investment visa in New Zealand one can easily affort to get top notch professional advice on how to arrange one's assets. That would surely be the path I would be taking.

Obtaining an investor visa isn't always motivated by financial concerns. In some cases, it is the only way to obtain permanent residency in another country. Canada used to have one but I believe it was either eliminated or severely curtailed a few years ago.

Post the NAFTA trade agreement (and presumably now with its successor) it got a lot easier to move across "the world's longest undefended border". At least for Canadians wanting to work in the USA.

I presume something similar for Americans in Canada? I think the main prerequisite is a valid job offer-- although there may be some need to prove that there is not an equivalent Canadian who can fulfil the role.

Canadian professions like the law and medicine are notorious for erecting their own licensing barriers-- I think in either case one would basically have to redo one's degree in Canada, regardless of recognised qualifications at home.

So most of the Americans I knew were academics-- the Canadian university system expanded massively in the late 60s/ early 1970s, and that brought in a lot of very talented people.

I remember one American high school teacher I had -- they argued successfully with Immigration Canada that they needed someone who spoke 8 languages! That proved hard to find a domestic candidate.

[quantAndHold]

A few years back I was researching this for myself, and at that time, the government had a person who you could talk to that would help you find investments that would be appropriate for your needs and meet their investment rules. I never followed through (2008 happened, and things fell apart on both sides), but if you’re serious about this you might contact them and have a chat.

[aspiring_kiwi]

Yes, the NZ stock market is relatively small and skewed. Even their main nzx50 index is heavily weighted towards the top 5 stocks. The ENZL etf seems to only hold 24 stocks. On the other hand, this does make direct indexing quite feasible. To avoid PFICs, it would seem that I'd need to carefully review stock reports to exclude companies with too much passive income or assets, including REITs and maybe others?

For bonds, if I'm buying them directly, under what circumstances would it make sense to hold a PFIC anyways? I'm assuming that I'm going to be buying mostly (NZ) government bonds.

* it seems like the bond commissions tend to be a bit high, around 0.4% (and yields are low)
* to meet immigration's requirements, the funds need to be constantly invested, so I'd either need to buy bonds that mature after the investment period ends, or else would need to monitor and actively reinvest funds at maturity (which means paying more commission)
* I haven't bought individual bonds before, and am under the impression that there's extra care needed to evaluate bond prices on the market

On the PFIC side:
* there exist funds ("PIE"s) that have low 0.1% expense ratios, though maybe for the NZ total bond market rather than just government bonds
* for bonds, there should be negligible capital gains/losses, and dividends are going to be taxed by both countries (modulo the US foreign tax credit), so I think the PFIC's impact, assuming the mark-to-market election, would be taxation on phantom gains/losses due to currency fluctuations. Is there any other drawback?
I don't expect to have huge amounts of ordinary income (today, mostly qualified dividends and capital gains) -- can ordinary losses in excess of ordinary income + 3K capital gains be carried forwards?
Given the low interest rates, I expect relatively little in dividends, and for bonds, negligible capital gains. Their 5 yr government bond is yielding around 1.6% right now.
* extra PFIC paperwork

Under these circumstances, is buying a PFIC for bonds really all that bad?

(And yes, when I'm ready to go through with this, I'll absolutely be consulting with professionals. I think that means a US tax advisor, a NZ tax advisor, and a NZ investment advisor, taking into account appropriate boglehead skepticism about investment advisor advice.

edit to add: and I suppose I should talk to the government MBIE investor advisor. They do say that they can review proposed investments to advise if they're acceptable, though I highly doubt they'd offer advice.

I do think it's important to gather other advice ahead of meeting with the pros. It helps to be educated so you know what to ask about and can better ascertain if the advisor is good. And at this point, I'm just trying to get a grasp of how this might play out. thank you!)

[jebmke]

I am not trying to be churlish here but at the dollar values we are talking about to get an investment visa in New Zealand one can easily affort to get top notch professional advice on how to arrange one's assets. That would surely be the path I would be taking.

Obtaining an investor visa isn't always motivated by financial concerns. In some cases, it is the only way to obtain permanent residency in another country. Canada used to have one but I believe it was either eliminated or severely curtailed a few years ago.

We might be talking past each other on this. One has to be willing to invest multi-millions in New Zealand in order to qualify for residency. Americans (or those subject to USA tax laws) who have such large sums of assets can afford and are best served by paying for professional guidance. The professional fees paid are a pittance compared to the tax ramifications of getting it wrong.

agreed; were I to try to relocate out of the US I would definitely seek high quality advisor, with particular knowledge on the tax regime in the destination (as well as US taxation). I used to use PWC for business purposes (as well as my own tax advice while outside the US) but there are a variety of options depending on the country.

[Watty]

Something to keep in mind is that New Zealand only has a population of around 5 million people. That is roughly the same as the Phoenix metropolitan area.

The small size will not only make investments more expensive because they do not have the economy of scale but you also need to be a lot more concerned about the liquidity since if you need to sell some investment there may not be much of an active market for it.

[halfnine]

...for bonds, there should be negligible capital gains/losses, and dividends are going to be taxed by both countries (modulo the US foreign tax credit), so I think the PFIC's impact, assuming the mark-to-market election, would be taxation on phantom gains/losses due to currency fluctuations. Is there any other drawback?

Individual bonds will have minimal capital gains/losses in New Zealand. However, OTOH, the individual bonds will have capital gains/losses based on the exchange rate fluctuation between when you bought them and when they come due when paying your US taxes. So, overall, this would have similar effect to the mark-to-market of a PFIC.

[aspiring_kiwi]

...for bonds, there should be negligible capital gains/losses, and dividends are going to be taxed by both countries (modulo the US foreign tax credit), so I think the PFIC's impact, assuming the mark-to-market election, would be taxation on phantom gains/losses due to currency fluctuations. Is there any other drawback?

Individual bonds will have minimal capital gains/losses in New Zealand. However, OTOH, the individual bonds will have capital gains/losses based on the exchange rate fluctuation between when you bought them and when they come due when paying your US taxes. So, overall, this would have similar effect to the mark-to-market of a PFIC.

Similar, but with individual bonds, you pay taxes on the net exchange rate fluctuation once, when you sell (or the bond matures), but with the PFIC, you'd pay every year?

Besides time-value-of-money considerations, under what situations would you come out worse at the end under PFIC rules?
Can ordinary losses in excess of ordinary income be carried forwards?
I also saw that losses on a given PFIC can only be deducted to the extent that there were previous gains ("unreversed inclusions"). I need to study this more, but it sounds like the net result after liquidating might be comparable.

[halfnine]

...for bonds, there should be negligible capital gains/losses, and dividends are going to be taxed by both countries (modulo the US foreign tax credit), so I think the PFIC's impact, assuming the mark-to-market election, would be taxation on phantom gains/losses due to currency fluctuations. Is there any other drawback?

Individual bonds will have minimal capital gains/losses in New Zealand. However, OTOH, the individual bonds will have capital gains/losses based on the exchange rate fluctuation between when you bought them and when they come due when paying your US taxes. So, overall, this would have similar effect to the mark-to-market of a PFIC.

Similar, but with individual bonds, you pay taxes on the net exchange rate fluctuation once, when you sell (or the bond matures), but with the PFIC, you'd pay every year?

Besides time-value-of-money considerations, under what situations would you come out worse at the end under PFIC rules?
Can ordinary losses in excess of ordinary income be carried forwards?
I also saw that losses on a given PFIC can only be deducted to the extent that there were previous gains ("unreversed inclusions"). I need to study this more, but it sounds like the net result after liquidating might be comparable.

Yeah, I don't have the particular answer to those questions. I was just trying to point out that individual bonds could end up taxed overall quite similarly to bonds that ended up classified under PFIC rules. I wasn't sure if that had been taken into consideration in the intial anaylsis. I agree it's a bit more complicated than that but I also agree that the net result after liquidating might be comparable. It is also possibly the case that one will only prove to be better or worse than the other ex-post and there isn't much one can do about that.

[aspiring_kiwi]

I saw this article today about American interest in NZ's new Investor Visa and thought I'd post an update:

We went ahead with the investment and have been in NZ for a couple years now. Decided to avoid PFICs and invested in individual NZ government bonds and individual stocks. It's a small stock market: the main index has just 50 stocks, and really most of that is in the top 20 stocks, so direct indexing is quite feasible. Most of the investment advisors were against indexing (no surprise there) but we decided to stick with the index and it's worked out fine. I haven't compared to their sample initial allocations, so I don't know if we came out ahead for sure. ANZ private was helpful and supported us, and they had relatively low costs for this market. In USD terms, we've lost money due to the weakening of the currency (good in NZD terms, but significantly down in USD terms).

Overall, it was the right move for us and we're quite happy to be in New Zealand.

https://www.rnz.co.nz/news/national/544 ... g-new-visa

The old investor visa categories (as low as $2.5M NZD, invested in stocks and bonds) were closed and replaced by a $15M visa that has seen little uptake. That $15M excludes bonds and can be reduced to $5M if invested in higher risk individual businesses, but that's a lot to put into a risky non-diversified investment. NZ is offering a somewhat relaxed investor visa that opens next month. This relaxes the investment required to $10M NZD (about $6M USD) that can be invested in stocks and bonds.

[Valuethinker]

I saw this article today about American interest in NZ's new Investor Visa and thought I'd post an update:

We went ahead with the investment and have been in NZ for a couple years now. Decided to avoid PFICs and invested in individual NZ government bonds and individual stocks. It's a small stock market: the main index has just 50 stocks, and really most of that is in the top 20 stocks, so direct indexing is quite feasible. Most of the investment advisors were against indexing (no surprise there) but we decided to stick with the index and it's worked out fine. I haven't compared to their sample initial allocations, so I don't know if we came out ahead for sure. ANZ private was helpful and supported us, and they had relatively low costs for this market. In USD terms, we've lost money due to the weakening of the currency (good in NZD terms, but significantly down in USD terms).

Overall, it was the right move for us and we're quite happy to be in New Zealand.

https://www.rnz.co.nz/news/national/544 ... g-new-visa

The old investor visa categories (as low as $2.5M NZD, invested in stocks and bonds) were closed and replaced by a $15M visa that has seen little uptake. That $15M excludes bonds and can be reduced to $5M if invested in higher risk individual businesses, but that's a lot to put into a risky non-diversified investment. NZ is offering a somewhat relaxed investor visa that opens next month. This relaxes the investment required to $10M NZD (about $6M USD) that can be invested in stocks and bonds.

It's great that you took the time to post an update. Thank you.

NZ is in many ways "the lucky country" in terms of location, population & way of life. You have the advantages of a First World country & culture, but an exceptional natural environment and much less of the social hierarchy of "the olde worlde". NZ really is genuinely egalitarian. Whilst we cannot say the treatment of the Maoris has been benign, they are in a much better place than the aboriginal peoples in Australia or Canada, say.

The main challenge I would pose to anyone who thinks about moving there is just how far away it is. Not only the travel time and distance, but also the time zones - it makes it very hard to stay in touch with friends and family in Europe or even the USA. Also many things are quite expensive as a result -- transportation costs and a very small domestic market make that.

[aspiring_kiwi]

the time zones - it makes it very hard to stay in touch with friends and family in Europe or even the USA. Also many things are quite expensive as a result -- transportation costs and a very small domestic market make that.

The time zone would be bad for Europe -- we're about as far off as you can be. 11 hr time shift from London, 12 hr from Paris.

The US isn't too bad though. Depending on the season, we're 3-5 hours offset from California (both countries have daylight savings, but opposite times of year, with 1 month overlapping during the shoulder season). Hawaii doesn't follow daylight savings and is always just 1 hour ahead (but 1 day behind).

Coming here, it's very apparent how spoiled the US is to have easy access to year-long fruits and vegetables from Mexico and South America. Here, you eat what's in season.

[THY4373]

Thanks for update OP. I haven't made it to NZ yet but typing this from Tasmania so relatively speaking not far from you. I agree the time difference to even the east coast of the US is not horrible. I wouldn't want to do business with US from here but keeping in touch with friends and family hasn't been bad. The distance and travel time is long though. To some this might as much a feature as a bug though. I know of a young US couple (they both worked in high tech on west coast) that moved to NZ about two years ago via some non-investor process who are loving it. They took a pretty good pay cut but seem very happy there.

I have just started to process of getting my second citizenship via my mother for the UK not an investment visa so pretty minimal cost and complexity I only have to pay a fee for the citizenship ceremony.

[Valuethinker]

the time zones - it makes it very hard to stay in touch with friends and family in Europe or even the USA. Also many things are quite expensive as a result -- transportation costs and a very small domestic market make that.

The time zone would be bad for Europe -- we're about as far off as you can be. 11 hr time shift from London, 12 hr from Paris.

The US isn't too bad though. Depending on the season, we're 3-5 hours offset from California (both countries have daylight savings, but opposite times of year, with 1 month overlapping during the shoulder season). Hawaii doesn't follow daylight savings and is always just 1 hour ahead (but 1 day behind).

Coming here, it's very apparent how spoiled the US is to have easy access to year-long fruits and vegetables from Mexico and South America. Here, you eat what's in season.

I should have checked re time zones. The Pacific Ocean is so wide that I thought it would be more.

Agree re year round fruit and vegetables. We (UK) have South Africa & Morocco. Also Caribbean bananas. And hothouse grown food from Netherlands.