Taken from article originally published 12 June 2024

Migration to and from New Zealand tends to come in waves of people leaving and arriving. Whilst the New Zealand media is currently heavily focused on outbound migration, less discussed is the large number of new US citizen migrants to the country. We in the US tax field are seeing a surge of inbound migration at the moment.

With this in mind, it seemed timely to discuss five of the most common key issues facing new US migrants have before their move:

1. Transitional Residency

It is very common that new migrants will ask me “what do I need to do before leaving the US?”. Fortunately, in most cases, the answer is very little. This is due to NZ having the “transitional residence period”, whereby passive income may be excluded from NZ taxable income for a 48 month period after beginning tax residency.

Many clients are usually concerned that IRAs or 401Ks need to be withdrawn before departing the US, however in most cases, little needs to happen before departure.

It is very important however to obtain both NZ and US tax advice before departure, as transitional residency has many factors which affect eligibility.

2. KiwiSaver

Google “KiwiSaver US tax”, and a sleuth of articles and forum posts will pop up advising that KiwiSaver is a bad bet for US citizens. However, this is not always the case.

With correct tax planning, KiwiSaver complexity can be driven down to a minimum and in many cases, it still works out as a beneficial financial investment. However, as above, US tax advice should be sought before opening a KiwiSaver account.

Again, this can wait until you’re in the country.

3. US Investments

Many US investments can cause significant NZ tax complications, through the FIF tax regime.

However, most US based investments would likely be considered “passive income” and thus have no immediate NZ tax implication, provided you qualify for NZ transitional residence. In this case, then you do have the first four years to plan your investments effectively, and determine whether the eventual NZ tax liability is likely to create issue. Seeking advice to confirm that you will indeed be a transitional resident is essential.

4. Remote Employment

Whilst previously rare, we now see a very large number of migrants moving to New Zealand and retaining their former US employment.

This can be a great move, however it can come with complicated tax requirements.

In many cases, working in NZ for a foreign employer, can still mean you’re treated as an NZ employee for tax purposes. This can mean paying tax to NZ on your US wages, rather than the US.

However, steps do need to be taken to avoid double taxation, and obtaining both NZ and US tax advice before beginning remote employment is strongly recommended.

5. IRAs and 401ks

Holding or maintaining a US based retirement fund whilst living in New Zealand is not necessarily problematic, however continuing to contribute to a fund can create complications.

In the case of some US retirement vehicles, there is the possibility of double taxation upon withdrawal, however this is limited to certain schemes such as Roth accounts.

The 4-year transitional residence period is an excellent opportunity to develop a plan ahead for US based retirement schemes, and in some cases, it does pay to withdraw early once a new migrant has arrived in NZ.

As with each of the 5 points above, obtaining US and NZ tax advice can prevent problems arising later down the line.

Summary

Moving from the US to NZ is indeed a big task, but steps can be taken to avoid tax headaches and make the move as simple as possible from a financial perspective.

At the US Tax Team New Zealand, we work with a wealth of other professionals in areas such as NZ immigration, US law,  US immigration law and NZ tax law amongst many other fields including wealth managers. By maintaining a strong network with our peers, we’re able to ensure our clients obtain the advice and assistance they need.

If you’re considering a move to New Zealand and looking to better understand the US tax implications, reach out today – info@usatax.nz.