Govt to scrap approved issuer levy on corporate bonds

Interest on listed or widely held bonds will be exempt from the 2% approved issuer levy (AIL) as the Government seeks to encourage more foreign lenders to participate in the New Zealand corporate bond market.

A number of restrictions are proposed on the exemption so issuers hoping to attract foreign interest will need to consider the legislation carefully, and to make submissions if they believe it requires amendment.  No submission date has yet been set.

The Bill

The exemption is provided for in the Tax (International and Remedial Matters) Bill now before the House.  It will apply from the date the Bill receives the Royal Assent, to both existing corporate bonds and those yet to be issued.  The Bill allows interest to be paid without the application of either AIL or non-resident withholding tax on registered securities issued by approved issuers if the security is:

  • denominated in NZ dollars

  • at the time of issue, offered to the public, and not privately placed

  • not asset-backed, and

  • either listed on an exchange registered under the Securities Market Act 1988 (currently only the NZDX qualifies) or which at the time of the payment of the interest, or previously, meets certain “widely held” requirements.

The “widely held” requirements are that:

  • there are 100 or more holders of the security

  • the issuer has reasonable grounds for expecting that 100 or more of the holders are not associated with other holders, and

  • no person or group of associated persons holds more than 10% by value of the securities.

In addition, the registrar and paying agent for the security must carry on their activities in New Zealand.


The Government Commentary refers to the proposal as a 0% rate of AIL but, from a legal perspective, it is simply an exemption.  The restriction on asset-backed securities is intended to apply to securitization vehicles, rather than to prevent the exemption applying to secured debt.  The Government’s concern is that securitizations coupled with a tax exemption could result in significant damage to the New Zealand tax base, by allowing the profit margin on New Zealand lending to be easily moved offshore.

There is no change to the requirement that AIL can only be paid on interest derived by a person who is not associated with the payer.  Issuers should consider whether the existence of a trustee for bondholders has the unintended consequence that this requirement is currently not met.

For further information or assistance in preparing a submission, please contact the lawyers featured.

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Related topics: Tax; International tax; Foreign investment; New Zealand productivity

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