New Zealand investors hungry for onshore PIE funds – tax developments for APAC fund managers and investors

New Zealand investors are increasingly seeking out improved returns that are only available by investing in a mix of offshore markets but, as their offshore portfolios grow, they encounter the somewhat punitive foreign investment fund (FIF) regime. One solution to this issue is for New Zealand investors to invest into a New Zealand onshore portfolio investment entity (PIE). A PIE is a tax-advantaged status that can be obtained for various New Zealand entities. Investment managers have been offering PIE “feeder funds” (a New Zealand PIE investing into another, typically offshore, investment fund), to enable New Zealanders to invest into offshore funds while benefiting from reduced income tax rates.

In March 2026, New Zealand Inland Revenue (Inland Revenue) released draft guidance confirming that PIEs can invest in land development activities, without breaching PIE status. While this treatment was broadly expected it will result in PIEs being increasingly used as a tax-efficient investment vehicle, both for domestic New Zealand investors and also for offshore investors who are looking to invest in New Zealand. Previously, while other structures may have been favoured, these changes to New Zealand’s tax settings will likely further increase the popularity of PIEs.

Offshore investments and the FIF rules

The FIF rules generally apply to investments of less than 10% held by a New Zealand tax resident in a foreign company, including a fund. There are various calculation methods investors can use based on their specific circumstances, with the most common being the fair dividend rate (FDR) annual method.

Under the FDR annual method, a New Zealand resident investor is deemed to derive taxable income each year calculated as 5% of the New Zealand dollar market value of the investor’s total offshore portfolio at the beginning of the income year (adjusted for any quick sales).

A modified version of the FDR method, the FDR periodic method, applies to certain investors – in particular a “unit valuer” which would include most PIE funds. Broadly, a unit valuer is a unit trust, a fund of funds, or another entity that invests on behalf of others and values its own investors’ interests periodically throughout the income year.

Under the FDR periodic method, an investor is deemed to derive taxable income calculated as:

• 5% of the New Zealand dollar market value of the investor’s total offshore portfolio at the start of the unit valuation period; multiplied by
• a fraction equal to the number of days in the period divided by 365 (adjusted for any quick sales).

The investor’s income for the year is the total of the amounts calculated for each valuation period in the year.

Under both of these FIF methods, a New Zealand investor (including a New Zealand PIE feeder fund) will be attributed an amount of income which will be taxable at the investor’s marginal tax rate.

For a New Zealand individual investor with a higher income tax rate (ie earning over NZD180,000) that attributed income will be subject to a tax rate of 39%. Whereas, in a PIE, the maximum tax rate will be 28%, with no further tax on distributions.

In addition, the New Zealand tax rate applying to trustee income was lifted in 2024 from 33% to 39%, leading investors to increasingly consider other options for tax-efficient investment.

The new wave – the rise of the retail investor

In recent years, there has been a rise in access to investing products targeted at retail investors. For New Zealand purposes, retail investors are generally investors who are not “wholesale investors” under the Financial Markets Conduct Act 2013 (FMCA). In broad terms, that includes investors who do not meet wholesale investor criteria based on (among other things) their investment business status, portfolio size, transaction size, experience working in an investment business, asset/turnover thresholds, or government agency status.

New products allow retail investors to access investments (especially offshore securities) with the touch of a button on their phone, which has had the flow-on effect of more New Zealanders being caught by the FIF rules.

Greater access to investments in offshore securities has not necessarily resulted in a better understanding of the tax implications.

The 11% tax rate differential between the individual tax rate and trust tax rate and the maximum tax rate for income in a PIE and the increasing number of New Zealand investors (including retail investors), means that fund managers are increasingly looking at establishing PIEs.

PIE types

To add some complexity, the New Zealand rules enable the establishment of several different types of PIEs, including:

• Multi-rate PIEs;
• Listed PIEs;
• Foreign investment variable-rate PIEs; and
• Life fund PIEs.

There are some variations in the tax treatment of PIEs, although in most cases income derived by a multi-rate PIE from its investments (including FIF income) is generally taxed at investors’ prescribed investor rates (PIRs), which (depending on the investor’s income and residency) range from 0% to 28%. Where PIE tax is correctly calculated and paid, distributions to New Zealand resident investors are generally not subject to further New Zealand income tax.

New offerings – PIE feeder funds

For the reasons above, we have seen a rise in PIE feeder funds facilitating New Zealand tax resident investment into offshore investments, with offshore investment managers utilising a “fund host”. For offshore fund managers looking to tap into the New Zealand market, these fund hosts provide a platform for offshore fund managers to have their funds hosted and marketed to New Zealand investors.

Where these feeder funds are in the form of a foreign investment variable-rate PIE, non-New Zealand tax resident investors are taxed at 0% on foreign-sourced income, making feeder funds an attractive product offering for both New Zealand and offshore investors.