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HM 55C: Modified source rules
or “Special rules for determining income sources for foreign investors in certain NZ investment funds”
You could also call this:

“Rules for foreign investors in special New Zealand investment funds”

This law is about people from other countries who want to invest in special investment funds in New Zealand called foreign investment PIEs. If you’re not from New Zealand and want to invest in these funds, you need to follow some rules.

You can ask to be treated as a ‘notified foreign investor’ if you meet certain conditions. You can’t live in New Zealand, be a controlled foreign company, or be a foreign investment fund that a New Zealand resident owns more than 10% of. Also, you can’t be a non-New Zealand trustee of a trust that isn’t a foreign trust.

You need to give the investment fund some important information about yourself. If you don’t meet these rules, the fund will treat you differently when it comes to taxes.

Sometimes, the fund might treat you as a notified foreign investor even if you’re not really eligible. This can happen if you make a mistake in your application or if your situation changes and you forget to tell the fund.

The tax department (called the Commissioner) can tell the fund to ignore your application if they think you don’t meet the rules. If this happens, the fund must treat you as a non-resident investor instead.

If you want to stop being a notified foreign investor, you can tell the fund at any time.

There’s a special rule for trustees who become ineligible because of a certain tax choice. The fund can keep treating them as a notified foreign investor until the end of the tax year.

If you’re a transitional resident (someone who’s recently moved to New Zealand) investing in a special type of fund called a foreign investment zero-rate PIE, you can choose a different tax rate.

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Next up: HM 55E: Changes in status of investors in foreign investment PIEs

or “How foreign investment PIEs handle changes in investor residency or status”
Next

Part H Taxation of certain entities
Portfolio investment entities: Using tax credits

HM 55DRequirements for investors in foreign investment PIEs

  1. This section applies to determine the treatment of a non-resident person who is an investor in a multi-rate PIE that chooses under section HM 71B to become a foreign investment PIE. This section overrides section HM 32(1).

  2. If the person meets the requirements of subsections (3) and (4), they may notify the PIE that they wish to be treated as a notified foreign investor.

  3. The person must not be—

  4. resident in New Zealand; or
    1. a CFC; or
      1. a FIF for which the item income interest in section EX 50(4) (Attributable FIF income method), for a person who is a New Zealand resident and the FIF, is 10% or more; or
        1. a non-resident trustee of a trust that is not a foreign trust.

          1. The person must provide the PIE with the information set out in section 28D(1) of the Tax Administration Act 1994.

          2. If the person does not meet the requirements of subsections (3) and (4), the PIE must treat them as a non-resident person to whom schedule 6, table 1, row 2 (Prescribed rates: PIE investments and retirement scheme contributions) applies.

          3. Despite subsection (5), the PIE may rely on the notification given by a person and treat them as a notified foreign investor in the following circumstances:

          4. the person notifies the PIE that they wish to be treated as a notified foreign investor, but they have misrepresented their eligibility for notified foreign investor status:
            1. the person is a notified foreign investor but becomes resident in New Zealand and does not advise the PIE of the change in status:
              1. the person has notified the PIE that they are a notified foreign investor but do not in fact meet the requirements for that status.

                1. The Commissioner may advise a PIE to disregard notification by an investor under subsection (2) if the Commissioner considers on reasonable grounds that the person does not meet or no longer meets the requirements of subsections (3) and (4). As soon as reasonably practicable after receiving the advice, the PIE must treat the investor as a non-resident person described in subsection (5).

                2. A notified foreign investor who wishes to have their notified foreign investor status cancelled, must notify the PIE. The status may be cancelled at any time.

                3. If a trustee of a trust who meets the requirements of subsections (3) and (4) notifies the PIE that the trustee wishes to be treated as a notified foreign investor and later becomes ineligible to be a notified foreign investor because of an election under section HC 33 (Choosing to satisfy income tax liability of trustee) for the trust, the PIE must continue to calculate the tax liability or tax credit of the PIE for the income year in which the election is made and earlier income years as if the trustee continued to be a notified foreign investor until the end of the income year.

                4. Despite subsection (3)(a), a transitional resident who is an investor in a foreign investment zero-rate PIE may choose the prescribed investor rate set out in schedule 6, table 1, row 10.

                Notes
                • Section HM 55D: inserted, on (applying for the 2012–13 and later income years for a foreign investment variable-rate PIE and a notified foreign investor in the PIE), by section 79(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                • Section HM 55D(8B) heading: inserted, on , by section 149 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                • Section HM 55D(8B): inserted, on , by section 149 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).