CW 12Proceeds of share disposal by qualifying foreign equity investor

1. An amount that a person derives from the sale or other disposal by a qualifying foreign equity investor of a share, or option to buy a share, in a company (the resident company) is exempt income if—

2. the resident company is resident in New Zealand; and
3. the share or option, or an option or convertible note relating to the share, is bought on a day that is 12 months or more before the day of the sale or other disposal; and
4. the person who buys the share or option, or the option or convertible note relating to the share, and disposes of the share or option is a qualifying foreign equity investor from the time of the purchase to the time of the disposal; and
5. at some time in the 12-month period that starts from the time of the purchase referred to in paragraph (b), the shares of the resident company are quoted on no official list of a recognised exchange; and
6. the resident company meets the requirements of either or both of subsections (2) and (3).

7. A resident company meets the requirements of this subsection if, throughout the period referred to in subsection (1)(c), the resident company does not have as a main activity 1 or more of—

8. land development:
9. land ownership:
10. mining:
11. provision of financial services:
12. insurance:
13. construction of public infrastructure assets:
14. acquisition of public infrastructure assets:
15. investing with a main aim of deriving, from the investment, income in the form of interest, dividends, rent, or personal property lease payments that are not royalties.

16. A resident company that has a main activity of providing capital in the form of debt or equity funding to other companies meets the requirements of this subsection if,—

17. throughout the period referred to in subsection (1)(c), each other company that is resident in New Zealand—
    1. does not have, as a main activity, an activity that is referred to in subsection (2)(a) to (c) and (e) to (g); and
    2. does not have, as a main activity, an activity that is referred to in subsection (2)(d) and (h) and is not the provision of capital to other companies; and
    3. does not provide capital, directly or indirectly, to a company that is resident in New Zealand and has, as a main activity, an activity that is referred to in subsection (2)(a) to (c) and (e) to (g); and
    4. does not provide capital, directly or indirectly, to a company that is resident in New Zealand and has, as a main activity, an activity that is referred to in subsection (2)(d) and (h) and is not the provision of capital to other companies; and
18. throughout the period referred to in subsection (1)(c), each other company that is not resident in New Zealand does not provide capital, directly or indirectly, to a company that is resident in New Zealand and has, as a main activity, an activity that is referred to in subsection (2)(a) to (h); and
19. for each other company there is a time in the period referred to in subsection (1)(c) at which—
    1. the shares of the other company are quoted on no official list of a recognised exchange; and
    2. the shares of the resident company are quoted on no official list of a recognised exchange.

20. In this section,—

    foreign exempt entity means a person who—

    1. is established as a legal entity under the laws of a territory that is approved for the purposes of this section by the Governor-General by an Order in Council or under the laws of a part of such a territory; and
    2. has persons (the members) who hold interests in the capital of the legal entity and who are entitled to shares of the income of the legal entity; and
    3. under the laws of the territory or part of the territory is not subject to a tax on income other than as a body that handles income of the members; and
    4. is resident in no territory that has laws that treat the legal entity as being subject to a tax on income other than as a body that handles income of the members; and
    5. does not have a member who—
       1. has, when treated as holding the interests of any person who is associated with the member, an interest of 10% or more in the capital of the legal entity; and
       2. is resident in no territory that is approved for the purpose of this section by the Governor-General by an Order in Council; and
    6. does not have a member who, when treated as holding the interests of any person who is associated with the member, has an interest of 10% or more in the capital of the legal entity and who would—
       1. be entitled to receive an amount derived from a disposal to which this section would apply; and
       2. receive an amount referred to in subparagraph (i) that, in the absence of this section, would have been reduced by a tax imposed by the Act on the amount or on the proceeds of the disposal in the hands of the legal entity; and
       3. in any circumstances under the laws of the territory in which the member is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a financial benefit in the form of a payment, credit, rebate, forgiveness, or other compensation for the reduction referred to in subparagraph (ii); and
    7. does not have a holder of a direct or indirect interest in the capital of the legal entity who,—
       1. is resident in New Zealand:
       2. when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more

    foreign exempt partnership means an unincorporated body that—

    1. is established under the laws of a territory that is approved for the purposes of this section by the Governor-General by an Order in Council or under the laws of a part of such a territory; and
    2. consists of persons (the partners); and
    3. under the laws of the territory or part of the territory is not subject to a tax on income other than as a body that handles income of the partners; and
    4. has at least 1 partner (the general partner) who is liable for all debts of the unincorporated body and who has significant involvement in, and control of, the business activities of the unincorporated body; and
    5. has at least 1 partner (the special partner) whose liability for debts of the unincorporated body is limited and who has limited involvement in, and control of, the business activities of the unincorporated body; and
    6. does not have a general partner who is resident in no territory that is approved for the purposes of this section by the Governor-General by an Order in Council; and
    7. does not have a partner who—
       1. has, when treated as holding the interests of any person who is associated with the partner, an interest of 10% or more in the capital of the unincorporated body; and
       2. is resident in no territory that is approved for the purpose of this section by the Governor-General by an Order in Council; and
    8. does not have a partner who, when treated as holding the interests of any person who is associated with the partner, has an interest of 10% or more in the capital of the unincorporated body and who—
       1. would under the Act in the absence of this section, be subject to tax on an amount derived from a disposal to which this section would apply; and
       2. would in any circumstances under the laws of the territory in which the partner is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a financial benefit in the form of a payment, credit, rebate, forgiveness, or other compensation for a payment of the tax referred to in subparagraph (i); and
    9. does not have a holder of a direct or indirect interest in the capital of the unincorporated body who,—
       1. is resident in New Zealand:
       2. when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more

    foreign exempt person means a person who—

    1. is resident in a territory that is approved for the purposes of this section by the Governor-General by an Order in Council; and
    2. is not a legal entity that meets the requirements of paragraphs (a) to (c) of the definition of foreign exempt entity; and
    3. is not part of an unincorporated body that meets the requirements of paragraphs (a) to (c) of the definition of foreign exempt partnership; and
    4. under the laws of the territory or part of the territory derives the proceeds from a disposal of shares or options that are held by the person; and
    5. is not a person who—
       1. would under the Act in the absence of this section, be subject to tax on an amount derived from a disposal to which this section would apply; and
       2. would in any circumstances under the laws of the territory in which the person is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a financial benefit in the form of a payment, credit, rebate, forgiveness, or other compensation for a payment of the tax referred to in subparagraph (i); and
    6. does not have a holder of a direct or indirect interest in the capital of the legal entity who,—
       1. is resident in New Zealand:
       2. when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more

    qualifying foreign equity investor means a person who is not resident in New Zealand and who is 1 or more of—

    1. a foreign exempt entity:
    2. a person who is part of a foreign exempt partnership:
    3. a foreign exempt person.

21. For the purpose of this section, whether a person is resident in a territory other than New Zealand is determined—

22. under a double tax agreement that is in force between New Zealand and the territory, if there is an agreement and it provides for the residency of the person; or
23. otherwise, under the laws of the territory.

24. The Governor-General may by Order in Council—

25. approve a territory for the purpose of this section:
26. withdraw the approval of a territory for the purpose of this section.

27. An Order in Council under subsection (6) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).

Compare

• 2004 No 35 s CW 11B

Notes

• Section CW 12(4): substituted (with effect on 1 April 2008), on 6 October 2009, by section 42 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
• Section CW 12(4) qualifying foreign equity investor: inserted (with effect on 1 April 2008), on 27 February 2014, by section 17 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
• Section CW 12(5)(a): substituted, on 1 April 2008, by section 328(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
• Section CW 12(5)(b): substituted, on 1 April 2008, by section 328(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
• Section CW 12(7) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
• Section CW 12(7): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
• Section CW 12 list of defined terms 1990 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).