Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Recharacterisation of certain transactions - Emigration of resident companies

FL 2: Treatment of companies that become non-resident and their shareholders

You could also call this:

“Rules for taxing companies and their owners when companies move overseas”

This law talks about what happens when a company that used to be based in New Zealand moves to another country. It applies to companies that were living in New Zealand but are now leaving.

When a company decides to leave New Zealand, the law says we need to pretend some things happen just before they go. First, we imagine the company sells all its stuff and then buys it back at the current market price. This is like hitting a reset button on the value of everything the company owns.

Next, we pretend the company is closing down and giving out all its leftover money to the people who own parts of it (called shareholders). The law says we should act as if this pretend money is actually given out.

Lastly, each person who owns a part of the company (a shareholder) is treated as if they got their share of this pretend money. It’s like they each got a special payment just before the company left New Zealand.

Remember, this is all make-believe for tax purposes. The company doesn’t really sell its stuff or give out money. It’s just a way for the tax system to handle companies that are moving out of New Zealand.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516621.

Topics:
Money and consumer rights > Taxes
Previous

FL 1: What this subpart does, or

“This subpart explains tax implications when a New Zealand company moves overseas or changes status”

Next

FL 3: Treatment of companies that start being treated as non-resident and their shareholders, or

“Rules for companies becoming non-resident and their shareholders' tax responsibilities”

Part F Recharacterisation of certain transactions
Emigration of resident companies

FL 2Treatment of companies that become non-resident and their shareholders

  1. This section applies in relation to a New Zealand resident company that—

  2. either—
    1. is not treated under a double tax agreement as not being a New Zealand resident; or
      1. has been treated under a double tax agreement as not being a New Zealand resident since before 30 August 2022; and
      2. stops being a New Zealand resident.

        1. Immediately before the company stops being a New Zealand resident, the company is treated as—

        2. disposing of its property to a person, and reacquiring the property from the person, for consideration equal to the market value of the property at the time; and
          1. making a distribution in money as a dividend to its shareholders of an amount that would be available for distribution at the time if the company were treated as going into liquidation.

            1. Immediately before the company stops being a New Zealand resident, each shareholder of the company is treated as being paid a distribution in money as a dividend of the amount the shareholder would be entitled to at the time if the company were treated as going into liquidation.

            Notes
            • Section FL 2: replaced (with effect on 30 August 2022), on , by section 68 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).