New Zealand Targets Investment Growth with Major Tax Reforms in Budget 2025

The New Zealand Government has announced a suite of tax reforms in Budget 2025 aimed at boosting foreign investment and supporting the country’s startup ecosystem. Finance Minister Nicola Willis outlined the measures, saying they are part of a broader strategy to remove investment barriers, enhance productivity, and foster long-term economic growth.

Unlocking Foreign Investment Potential

At the heart of the Government's plan is a $65 million allocation to reform New Zealand’s thin capitalisation rules. These rules currently restrict the amount of tax-deductible debt foreign investors can allocate to New Zealand ventures, limiting their ability to finance large-scale infrastructure projects.

“The purpose of these rules has been to prevent base erosion and profit shifting by multinationals,” Minister Willis said. “But there's now growing concern that the rules may be discouraging investment in precisely the kinds of capital-intensive infrastructure projects our economy needs to grow.”

The proposed reforms are still subject to a consultation process, but the intent is clear: New Zealand wants to attract more foreign direct investment (FDI) and leverage the global expertise that often comes with it. The country’s relatively low capital intensity and FDI levels have been cited as structural weaknesses contributing to low productivity rates.

“We need to strike a better balance between protecting our tax base and encouraging the investment that supports job creation, higher wages, and public services,” Willis added.

Empowering Startups Through Smarter Tax Rules

An additional $10 million has been earmarked to reform the taxation of employee share schemes—a move welcomed by startups and unlisted companies. The change will allow employees to defer their tax liability on shares until a liquidity event, such as the sale of the company or the shares, occurs.

“Startups rely heavily on employee share schemes to attract and retain high-quality talent when they can't compete with established companies on salary alone,” Willis said. “The current tax system penalises employees by taxing them before they can access the value of their shares. That’s a barrier to growth.”

This measure is expected to encourage more startups to offer equity-based incentives, fostering innovation and entrepreneurship across the country.

A Broader Push for Business-Friendly Reforms

The Budget 2025 announcements also reaffirm the Government’s commitment to modernising New Zealand’s tax system more broadly. Ongoing work includes reducing compliance burdens associated with fringe benefit tax (FBT) and adjusting foreign investment fund (FIF) and residence rules.

These adjustments aim to make New Zealand a more attractive destination not just for traditional investors but also for digital nomads, remote workers, and high-skilled migrants.

“This is about building a 21st-century economy that works for all New Zealanders,” Willis stated. “By making it easier for businesses to access capital and talent, we’re laying the groundwork for sustainable, inclusive growth.”

Strategic Alignment with Economic Goals

The Government’s strategy dovetails with its long-term goal of transitioning to a higher-growth economic model. By making targeted changes to tax policies that have previously acted as roadblocks, officials hope to unleash a wave of investment and entrepreneurial activity that can uplift national productivity levels.

While critics may raise concerns about potential risks to the tax base, the Government insists that these reforms are carefully calibrated and will be implemented with oversight and transparency.

The combination of foreign investment incentives and startup-friendly policies reflects a deliberate effort to cultivate a more dynamic, globally integrated economy—one capable of withstanding economic shocks and generating higher living standards for future generations.