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IR4 Question 38 Foreign-sourced dividends

Generally, funds would use the default FIF income calculation method (the fair dividend rate) which does not tax dividends separately. However, the foreign tax deducted from the dividend can be claimed as a credit against the tax payable on the calculated FIF income.

A credit for any tax paid by the foreign company (on its earnings) may be allowed in calculating the amount payable by the New Zealand company. Any NRWT deducted from the foreign dividend paid to the New Zealand company may also be allowed as a credit.

Information about exempt foreign dividends

Although most foreign dividends received by companies are exempt from tax, you should still answer “Yes” to this question if the company receives an exempt foreign dividend.

Foreign dividends from some investments are taxable. These should be included in the tax return as income from overseas. Dividends on foreign investments are taxable in three situations:

  • When the investment gives the company a direct income interest of less than 10% in a foreign company, but the investment is one of certain investments that are excluded from the normal FIF rules (see Question 18 at IR4 Question 18 Overseas income for the most common exclusions).

  • When the dividend relates to an investment in fixed-rate shares (“fixed-rate foreign equity”).

  • When the dividend paid is tax-deductible in a foreign country by a foreign company (a “deductible foreign equity distribution”).

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