Four years in which New Zealand doesn't tax your foreign income

This is the most favourable arrangement you will come across in this entire journey, and it appears in almost no Dutch emigration guide. New Zealand gives new residents a temporary tax exemption of roughly four years on almost all of their foreign income.

Who gets it

You are a transitional resident if you:

• become a tax resident of New Zealand on or after 1 April 2006, and
• were not a tax resident of New Zealand in the ten years before that, and
• have never been a transitional resident before.

If you meet those, you get the exemption automatically. There is no form, no application and no assessment. For the average Dutch person moving to New Zealand for the first time, that is simply the case.

The exemption runs for 48 months from the end of the month in which you meet the conditions for tax residency. And you can get it only once in your life — if you come back later, it is used up.

What does and doesn't fall under it

Exempt is the majority of your foreign income from capital:

• interest on foreign accounts
• dividends from foreign shares
• rental income from your Dutch home
• income from foreign investment funds (the FIF income — see below)

Not exempt is income from work. Wages and income from personal services that you earn abroad remain taxed as normal. So it is about capital, not labour. If you work in New Zealand, that income is New Zealand income anyway and falls outside this arrangement.

Note what this means for your Dutch pension. Under the tax treaty, private pensions and annuities are taxed exclusively in your country of residence — in this case New Zealand. Discuss with a tax adviser how those payments relate to the exemption before you start drawing them; the difference can run into the tens of thousands. Your AOW (the Dutch state pension) is a different story: that stays taxed in the Netherlands as long as you are a Dutch citizen.

The trade-off you need to know

Here is the catch, and it is one that affects families. If you apply for Working for Families — the New Zealand child support scheme, including Best Start — then the exemption ends. That also applies if your partner applies for it while being a transitional resident themselves.

So you cannot combine the two, and you have to choose. The sum is different for each household:

• Little foreign capital, but children? Then Working for Families is almost always the better choice — the exemption brings you little then.
• A rented-out home in the Netherlands, or an investment portfolio? Then the exemption can be worth more per year than the child scheme, and for four years.

Do the sum before you apply for anything. An application you make "just to see" what comes out can cost you the exemption.

What happens after those four years

Put the end date in your diary the moment you arrive. As soon as the window closes, the ordinary New Zealand rules apply, and the most important of those is the FIF regime for foreign investments.

The main rule: if, as an individual, you hold foreign shares and funds with a cost of less than NZ$ 50,000, you don't have to calculate FIF income. If you go above that, you are taxed annually under a deemed method — in principle on an assumed return, not on what you actually received. Whoever knows box 3 will recognise the idea; only the outcomes are different, and there is more than one calculation method.

In practice that means: know before the window closes whether you are above NZ$ 50,000, and then get advice on the method that is most favourable for your portfolio. It is a choice that follows you for years.

And the tax year itself

One more detail that causes confusion in the first year: the New Zealand tax year runs from 1 April to 31 March. That doesn't coincide with the Dutch calendar year, and it doesn't coincide with your arrival date either. In the year of your move you therefore deal with two systems and two calendars — all the more reason to write down your arrival date and the end date of your exemption somewhere from day one.