New Zealand PM John Key has intervened to speed up implementation of the country’s ‘financial hub’ project, which will see the current tax rate for foreign investment funds administered in New Zealand drop from 28% to zero. Richard Snowden, tax partner with Mallesons Stephen Jaques, has welcomed the move as Australia is already considering similar regulatory changes, expected sometime near the end of next year. “The move is positive, the more you can attract foreign funds to the region the better,” he said. Foreign funds will look to Australia as a comparison with New Zealand for investing from off-shore and the Australian market is still a lot bigger and far more developed in the funds industry than New Zealand, according to Snowden.
With more than A$1.4trn of funds under management but less than 3% of fees derived from Australian investment management funds coming from off-shore, Australian fund managers may see this as an opportunity to increase that number, Snowden said. Funds that may not otherwise consider either Australia or New Zealand will now take a second look.
According to reports in the New Zealand Herald Prime Minister Key had been in discussions with a major overseas bank which assured him NZ$2.5bn worth of funds would be moved into the country within two years once the tax reforms are enacted. The other added bonus, Snowden said, is a flow-on effect where businesses performing support functions for fund managers start to develop as the local market builds up.
Other small countries such as Ireland have had success with similar policy regimes to that being considered and prove that countries don’t have to be big to succeed in this area. This sort of policy creates a positive tax environment for business and investment without any of the negative connotations placed on tax havens such as the Cayman Islands because Australia and New Zealand both have strong legal and regulatory frameworks and solid reputations in this area, Snowden said. He also said that Australia has been lucky in that the mining boom has helped attract and retain foreign investment, but that if it ever finishes, financial services will become more important.
The other Asia-Pacific markets that are seeing more funds invested are Hong Kong and Singapore and Australia already has mutual agreement on offering documents in place with those jurisdictions, which allow for the withholding tax on foreign funds administered in the area to be reduced or not applied. This is something else New Zealand will do in order to achieve ‘financial hub’ status.