Many countries develop and manage their tax policies to influence socio-economic behaviour. N.Z. is one such example.

N.Z. has traditionally been slow to prepare its inhabitants for retirement. Other countries have had compulsory superannuation for decades, such as and including Australia.

The structure of N.Z.’s retirement savings schemes contain some unique factors. Those nuances can create stress beyond measure for new migrants with U.S. citizenship or lawful permanent residency [1]. Such folks are bound by U.S. tax and reporting laws for as long as they are U.S. citizens or green card holders.

This article takes a deep dive into the mechanics of N.Z.’s KiwiSaver scheme through the lens of a U.S. tax practitioner. The author has in-depth experience in N.Z. and U.S. tax matters concerning U.S. citizens and green-card holders in N.Z. 

KiwiSaver: the way that most Kiwis save for retirement 

KiwiSaver is a voluntary means available to residents of N.Z, including new migrants, to save for their retirement. Introduced on July 1, 2007, under the 2006 KiwiSaver Act and administered by the country’s revenue authority, IRD, the scheme has been widely adopted, modified, and expanded. Expanded provisions include the popular first homebuyers’ savings withdrawal provisions, and the government tax credit.

Upon entering employment an employer is legally required to enroll an employee, who can opt out any time between two weeks and eight weeks into employment.

The account is then sponsored by the employer, with employer contributions statutorily set at a minimum of 3% of the gross compensation of the employee.

In contrast to U.S. retirement accounts, (for example the ever-popular and longstanding Section 401-k plan, for which the deferred compensation (untaxed) component of contributions is a set amount adjusted annually for inflation), contributions to KiwiSaver employment-sponsored schemes are based on a percentage of the employee’s gross remuneration.

The maximum amount currently able to be contributed by an employee is 10% of gross remuneration. In practice an employee might contribute 10% and an employer might contribute the minimum 3%, or some combination between those two numbers. This is a contractual issue between the parties agreed as part of the employment relationship. Factors as seniority, level of specialization that the employee brings to the business, and thus value that the employee provides to the business play a part in the bargaining power of the parties.

As mentioned earlier, the key goal of N.Z.’s KiwiSaver policy is to encourage Kiwis to save for retirement. One way that this is facilitated is by way of the account holder’s ability to make voluntary contributions. These can be in addition to employment contributions, in the case of any employment sponsored scheme.

Another way that N.Z.’s tax policy encourages savings is via government incentive. Initially the government ‘kick-start’ contribution enabled new account holders to enjoy a $1,000 contribution from the government upon set up. This was repealed on 21 May 2015. Four years after KiwiSaver was launched, on July 1, 2011, further incentive to save was added with the introduction of the government tax credit – up to $521 payment into the account on an annual basis. Account holders qualify if they contribute at least $1042.86 annually to their account by way of employee or voluntary contributions.

Contrasting the way that many other countries’ tax codes treat the employer contribution, N.Z.’s system is to tax the employer’s contribution to an employee’s fund with the Employer Superannuation Contribution Tax (ESCT). This tax, levied at a rate of between 10.5%-39% [2], correlates to the employee’s gross income on a progressive scale.

This is an important point not to be overlooked and is discussed next.

By way of the ESCT deduction from employer contributions, these will result in an after-tax contribution of less than the employee contribution. How much less is governed by the rate at which the ESCT is taxed.

For U.S. citizens and green card holders in NZ, having an employer sponsored KiwiSaver is a desirable outcome from a N.Z. tax perspective. Regardless of tax bracket or the level of compensation, tax savings can be obtained. This is due to the lower PIE tax rate at which income earned within the KiwiSaver is taxed, tax-free capital gains, and the government tax credit are not income-tested.

U.S. tax treatment 

By way of its nature, structure and fiscal intentions, prima-facie KiwiSaver takes the form of a foreign trust for US tax purposes. As such, unless an exemption applies the accountholder is subject to Section 6048 information reporting requirements [3]. Section 6048 covers reporting by a foreign trust on Forms 3520 and 3520-a.

For N.Z. KiwiSavers, reporting on Form 8621 Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. person also must be considered. Unlike other countries’ tax treaties with the U.S., for example, the U.K, N.Z.’s income tax treaty with the U.S. does not contain a requirement for the country of residence (say, N.Z., if the U.S. expatriate is a resident for tax treaty purposes of N.Z. as defined in the N.Z. – U.S. tax treaty) to tax the pension fund, that is, the KiwiSaver, only on distribution. 

U.S. residents of countries such as the U.K. are exempt from Form 8621 reporting on foreign pension funds treated as a foreign trust for U.S. tax purposes.  The absence of provisions in the N.Z. – U.S. tax treaty requires consideration of any exemptions that may be available under Sections 1298(f) of the Internal Revenue Code. In other words, Section 6048 does not apply to gain an exemption from PFIC reporting. 

The following discussion explores two possible exemptions from Section 6048 reporting requirements. Both are primary sources of tax law authority [4] and are binding types of authority.

The first source is Internal Revenue Code section 402(b), and the second source is Revenue Procedure 2020-17 (Rev. Proc. 2020-17).

We will now look at the provisions of each of these applied to NZ’s KiwiSaver scheme for the purposes of determining whether either source provides an exemption from Section 6048 information reporting requirements for KiwiSaver.

Internal Revenue Code Section 402(b)

For U.S. income tax purposes, a KiwiSaver falls into the category of a Non-Qualified Deferred Compensation Plan. The Internal Revenue Code sets out what constitutes a Qualified Deferred Compensation Plan in Section 401. Section 401 includes qualified pensions, profit-sharing, and stock bonus plans. One of the key requirements is that the plan must be U.S. based. KiwiSaver is not U.S. based and is thus not a Qualified Deferred Compensation Plan. 

The classification of qualified or non-qualified for U.S. tax purposes then becomes relevant when applying Section 501(a) – Exemption from tax on corporations, certain trusts, etc. Section 501(a) Exemption from tax states: 

An organization described in subsection (c) – Exempt organizations or (d) – Religious and apostolic organizations or section 401(a) shall be exempt from taxation under this subtitle unless exemption is denied under section 502 or 503.

As mentioned, KiwiSaver, being a non-U.S. plan, is kicked out of the section 501 exemption. Section 402 Taxability of Beneficiary of Employees’ Trust contains provisions for such retirement plans, stating:

Contributions to an employees’ trust made by an employer during a taxable year of the employer…. for which the trust is not exempt from tax under section 501(a) shall be included in the gross income of the employee in accordance with section 83 (relating to property transferred in connection with performance of service), except that the value of the employee’s interest in the trust shall be substituted for the fair market value of the property for purposes of applying such section. 

So, the value of the employee’s interest, including the employer contributions, however excluding the basis will be taxable. That is, the employee’s interest in the trust.  The amount which is taxed then becomes included in the employee’s basis in the KiwiSaver. That, is, the amount which the account holder is entitled to receive back without any U.S. tax liability, that is, at the time of withdrawal. 

The following comments are in relation to the reporting requirements of a KiwiSaver (as opposed to the inclusion in gross income requirements under Section 402(b)(1). 

Section 402(b)(3) is a key provision:

A beneficiary of any trust described in paragraph (1) shall not be considered the owner of any portion of such trust under subpart E of part I of subchapter J (relating to grantors and others treated as substantial owners).

However, the regulation to section 1.402(b) states that employee contributions can only be incidental to the employer contribution. That is, if the employee contribution exceeds the employer contributions, then the employee contributions are no longer incidental and then the exemption won’t apply.

To what degree should this pivotal section be applied to employee sponsored KiwiSavers, in the event that the account holder has contributed only employee contributions matched equally (or more than equally) by their employer?

This is an important consideration. In the author’s opinion, having applied professional judgement against years of dealing with the Internal Revenue Code it would seem that treading with caution yet with common-sense are the appropriate measures.

The issue at stake is whether the KiwiSaver should be reported as a foreign trust by way of the employer contribution exceeding the employee contribution due to the effect of the ESCT, discussed above.

For the most conservative, reporting as a foreign trust may be the most desirable option.

Let’s revisit the concept of a circumstance, arising to a particular outcome for U.S. tax purposes, being defined to be ‘incidental’. The contributions, disregarding the reduced employer contribution portion, would otherwise match the employee’s, in cases where both parties contribute equally to the KiwiSaver.

Should the portion by which the employer’s contribution is reduced, being the ESCT, be sufficient for the KiwiSaver to fail the exemption otherwise available in Regulation 1.472? That is a matter for discussion. It is important to take into account that this is a reporting issue; and not an issue of a shortfall of U.S. income tax.

The fact that the employer contribution will be less than the employee’s contribution is only incidental in the above situation. The Internal Revenue Code recognizes the concept of a situation being incidental. One example is in Reg 1.472(b) itself, which states that if the employee’s contribution is ‘incidental’, the exemption will not apply. Another example is in Reg. 1.679-2 Trusts treated as having a U.S. beneficiary:

Section 1.679-2 (a) (1) contains the general rule:

(i) No part of the income or corpus of the trust may be paid or accumulated to or for the benefit of, directly or indirectly, a U.S. person;

Section 1.679-2 (a) (2) (ii) contains an exemption:

Certain unexpected beneficiaries:  Notwithstanding paragraph (a)(2)(i) of this section, for purposes of paragraph (a)(1) of this section, a person who is not named as a beneficiary and is not a member of a class of beneficiaries as defined under the trust instrument is not taken into consideration if the U.S. transferor demonstrates to the satisfaction of the Commissioner that the person‘s contingent interest in the trust is so remote as to be negligible.

It is the author’s opinion that the intentions of the Internal Revenue Code can be interpreted to include that inadvertent circumstances arising from a situation could be taken to be incidental to the situation. Therefore, in cases where a KiwiSaver account holder has contributed purely from employment funds (employee and employer contributions) they should consider the availability of the exemption under Reg. 1.472(b) carefully, and not completely discount it by way of the ESCT.

Rev. Proc. 2020-17

In 2020 the IRS issued an exemption from certain information reporting requirements for U.S. persons. The purpose of which is to grant relief from penalties imposed under section 6677, and to exempt eligible individuals with eligible foreign retirement accounts from foreign trust reporting requirements.

Rev. Proc. 2020-17 addresses the compliance and enforcement of section 6048 of the Internal Revenue Code [5]. Section 6048 requires information reporting by U.S. persons to the IRS in respect of transactions with, and ownership of foreign trusts. Failure to comply is addressed in Section 6677, discussed later in this article.

Rev. Proc. 2020-17 states that if the United States has no significant tax interest in obtaining the required information, then an exemption shall apply. This aligns reporting requirements with those already in existence for certain foreign compensatory trusts. This is provided that the recipient of the distribution reports the distribution as compensation income on an applicable federal income tax return [6].

Like all things U.S. tax-related, the exemption may or may not be available and this depends on the individual facts of the individual retirement account holder.

Requirements for the exemption are as follows.

  1. The individual obtaining to whom the exemption might apply must be either a U.S. citizen or a U.S. tax resident.
  2. The individual must be compliant with all U.S. federal income tax returns to the extent required under U.S. tax law and who has reported as income any contributions to, earnings of, or distributions from, an applicable tax-favoured foreign trust on the applicable return.
  3. The account must qualify as a tax deferred foreign retirement trust as defined in Rev. Proc. 2020-17.
  4. The fund must be one that is subject to, or available if requested, local country reporting to the country’s authority.
  5. Only contributions with respect to income earned from the performance of personal services are permitted.
  6. Contributions to the retirement account are either:
  1. limited by a percentage of earned income of the participant,
  2. subject to an annual limit of US $50,000 or less to the trust, or:
  3. subject to a lifetime limit of US $1,000,000 or less to the trust.

Definition of a ‘tax-favoured foreign retirement trust’ for Rev. Proc. 2020-17 purposes 

  1. Must have one of the following aspects:
  • contributions to the trust that would otherwise be subject to tax are deductible or excluded from income tax;


  • contributions to the trust that would otherwise be subject to tax are taxed at a reduced rate;


  • if the contributions are not subject to tax relief, then they give rise to a tax credit or re otherwise eligible for another tax benefit (such as a government subsidy or contribution),


  1. taxation of investment income earned by the trust is deferred until distribution or the investment income is taxed at a reduced rate. 


As discussed above, KiwiSaver contributions can be from up to four sources. None of these are mutually exclusive, and an individual is not only entitled to, but is encouraged to contribute from more than one source.

Employer contributions (if any) are made from pre-taxed gross compensation of the employee. As mentioned, these are calculated on gross income of at least 3%. The Employer Superannuation Contribution Tax (ESCT).

Depending on the individual’s marginal income tax rate there may or may not be less tax paid than if the employer contribution was paid to the employee, versus into the KiwiSaver account.

The third contribution comes from the New Zealand Government, if at least $1,024 is contributed annually to the KiwiSaver, and is the ‘Government Tax Credit’.

The vehicle through which KiwiSavers are held is referred to as a Portfolio Investment Entity (PIE). These achieve tax savings as the PIE pays the tax at reduced rates capped at 28%. The individual sets the rate depending on their expected earnings.

If at the end of the fiscal year the income taxed within the PIE has been taxed at the correct rate, there is no further income tax payable. If the income has been taxed at a rate higher or lower than the PIE tax paid, the individual adjusts and either pays or receives the differential on their annual income tax return.

One way or the other, this shows that the New Zealand KiwiSaver meets the definition of a tax-favoured foreign trust for the purposes of applying the potential exemption.

In addition to being required to be a tax-favoured foreign trust, annual information reporting with respect to the trust must be available to the relevant tax authority (in this case New Zealand’s inland Revenue Department.

New Zealand KiwiSaver schemes are governed by the KiwiSaver Act 2006. Contained within this Act are various references to the Financial Markets Conduct Act 2013 notably that there is a register of managed investment schemes. KiwiSaver is highly regulated in New Zealand from both a tax perspective and a reporting perspective and Inland Revenue is the central administrator.

However, by way of the nature of KiwiSavers allowing individuals to make voluntary contributions as is government policy, the exemption will not be available in any case unless, in addition to the above criteria, the KiwiSaver instrument prohibits contributions from funds which are not made from income earned from the performance of personal services.

The key takeaway is that KiwiSavers need to be classified into employment related or non-employment related.  If employment related, the exemption from 2020 won’t be of any use, but the original Section 402(b) of the Internal Revenue Code may provide an exemption if the provisions are met under that section.

Costs of compliance 

According to IRS instructions for the preparation of each form, the time it takes to prepare each form usually required to report a foreign trust are set out below.

Form 3520[7]  6 hours 40 minutes

Form 3520-a[8] 3 hours 24 minutes

Form 8621[9]  20 hours 34 minutes

Even by the IRS’ estimate of the time it takes to complete the forms, the above numbers clearly fall way short of the estimated 32 hours recently commented on as being the amount of time the IRS specifies as the preparation time required to complete each form.

In practice, a competent U.S. tax preparer can complete these forms in a lot less time than what the IRS states is required.

What else do the IRS estimates of times required to complete each form say about the forms themselves? That Form 8621 forms the bulk of the workload.

In my experience it takes a maximum of two to three hours to complete each form. Our expertise in this area – and thus time, cost, and stress savings – is passed on to our clients through years of experience in this field, with our fees set in accordance and reflecting my estimated preparation time.

NZ US Tax Specialists’ annual fees for reporting are currently as follows:

Form 3520 $800

Form 3520-a $900

Form 8621 $1200

Total $2900[10]

The reasons to comply: penalties for failure-to-file 

Form 3520 has a failure to file penalty of the greater of US $10,000 or 35% of the value of the trusts’ gross assets [11].

Generally, the initial penalty is equal to the greater of $10,000 or the following (as applicable).

  1. 35% of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust in Part I.
  2. 35% of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution in Part III.
  3. 5% of the gross value of the portion of the foreign trust’s assets treated as owned by a U.S. person under the grantor trust rules (sections 671 through 679), if the foreign trust (a) fails to file a timely Form 3520-A and furnish the required annual statements to its U.S. owners and U.S. beneficiaries, or (b) does not furnish all of the information required by section 6048(b) or includes incorrect information. If a foreign trust fails to file Form 3520-A, the U.S. owner must complete and attach a substitute Form 3520-A to the U.S. owner’s Form 3520 by the due date of the U.S. owner’s Form 3520 (and not the due date for the Form 3520-A, which is otherwise due by the 15th day of the 3rd month after the end of the trust’s tax year) in order to avoid being subject to the penalty for the foreign trust’s failure to timely file Form 3520-A. For example, a substitute Form 3520-A that, to the best of the U.S. owner’s ability, is completed and attached to the U.S. owner’s Form 3520 by the due date for the Form 3520 (such as April 15 for U.S. owners who are individuals), is considered to be timely filed. See section 6677(a) through (c) and the instructions for Part II and Form 3520-A. Additional penalties will be imposed if the noncompliance continues for more than 90 days after the IRS mails a notice of failure to comply with the required reporting. If the IRS can determine the gross reportable amount (defined later), then the penalties will be reduced as necessary to assure that the aggregate amount of such penalties does not exceed the gross reportable amount

Form 3520-a has a failure to file penalty of the greater of $10,000 or 5% of the value of the trust’s gross assets [12].

Form 8621 has a failure to file penalty of $10,000 per Passive Foreign Investment Company unreported.

Our work with the Competent Authority 

We are working on a submission to the Competent Authority to seek tax treaty relief which has been on offer to other countries which have signed a tax treaty with the U.S.


  1. Seek advice from an expert in the tax jurisdictions of both N.Z. and the U.S. in advance of transferring any type of property to a foreign entity.
  2. Irrespective of the complexities for U.S. persons with KiwiSavers these should be still attractive retirement vehicle savings options.
  3. KiwiSaver does not need to be an expensive U.S. tax reporting exercise every year.
  4. US tax rules do not account for NZ retirement accounts. There is no tax treaty relief. IRS primary source authority provides no relief from the requirements to report as a foreign trust.
  5. Neither private, nor employment sponsored KiwiSaver schemes qualified for the relief under RP 2020-17, by way of the ability to make voluntary contributions. The fact that a KiwiSaver scheme may in effect be funded only from employment – or self-employment – isn’t enough. Unfortunately, it is by way of N.Z.’s encouragement to save, thus promoting voluntary contributions, that KiwiSaver has not qualified.
  6. Employment sponsored KiwiSaver schemes administered under the regular method are unlikely to qualify under section 402b by way of the net employer contributions always being less than the employee contributions.
  7. This is, however, up to interpretation. The application of section 402(b) may be of use for some account holders; less likely the higher than gross compensation is due to the range between the net employer contribution and the employee’s contribution increasing due to the increased ESCT rate. As previously mentioned, the top rate is 39%.
  8. When weighing up the application of Section 402(b), materiality should be considered; an individual who is on the lowest ESCT rate of 10% will have a differential of only 10% between the employer and the employee contribution and thus should be able to use the provisions to claim the exemption – provided the other provisions of section 402(b) are met. Of note is that the income must be declared.
  9. Proc. 2020-17 does not provide an exemption from FBAR or Form 8938 reporting under any circumstances.
  10. If you have unmet reporting obligations seek U.S. tax advice from an experienced practitioner. Do not do what is called a ‘quiet filing’ and submit any international information returns past their due date. For one, this is illegal practice, and will inevitably result in the penalties discussed earlier being imposed. There are no warnings with the IRS, and no grace periods for late filed information returns.

Through the eyes of a seasoned U.S. tax professional, the tax policies of N.Z. and the U.S. are at work influencing socio-economic behaviour. IRS intended, through the delivery of RP 2020-17, to restrict the section 6048 reporting exemption only to foreign retirement accounts that cannot be funded by anything other than income from the performance of personal services.


  1. Reporting packages now available.


We are currently offering the following Kiwisaver U.S. tax reporting packages: 

Child KiwiSaver Package: NZ $1,040 plus GST (if any) including Forms 3520, 3520-a and 8621 for any non-working dependent child.

 Adult KiwiSaver Package: NZ $2,990 plus GST (if any) including Forms 3520, 3520-a and 8621.

 Terms and Conditions apply; please visit

  1. Through our experience and expertise in all matters NZ – US tax related we have identified a solution for the issue related to gaining an exemption for NZ employment sponsored KiwiSavers as set out under ‘Internal Revenue Code Section 402(b)’ above.

Exclusive to clients who sign for their 2022 U.S. income tax returns we will guide you through the process to ensure that your employment sponsored KiwiSaver can claim the exemption discussed under ‘Section 402(b)n exemption. This offer has terms and conditions which will be available shortly.


The information contained in this article is of a general nature and is not intended to provide investment advice nor does it fully cover all the elements of NZ KiwiSaver schemes.  No responsibility will be accepted for any reliance on the information in this article. Specific taxation advice should be sought. We provide in-depth expertise and solutions to our clients in this area.  


[1] United States’ Lawful Permanent Residents are otherwise referred to as Green Card Holders.

[2] See the rates at which the ESCT is currently imposed at Employer superannuation contribution tax (ESCT) —

[3] See 26 U.S. Code § 6048 – Information with respect to certain foreign trusts | U.S. Code | US Law | LII / Legal Information Institute (

[4] For U.S. tax purposes, the primary sources are tax law authorities that must be followed. These are the Internal Revenue Code, U.S. Treasury Regulations, Revenue Rulings, and Revenue Procedures.

[5] 26 U.S. Code § 6048 – Information with respect to certain foreign trusts | U.S. Code | US Law | LII / Legal Information Institute (

[6] Page rp-20-17.pdf (

[7]2021 Instructions for Form 3520 (

[8] Page 7: 2021 Instructions for Form 3520-A (

[9] Page 15: Instructions for Form 8621 (Rev. January 2022) (

[10] Rates are stated in New Zealand dollars and are subject to GST at 15% for residents, are current as at October 26, 2022 and are subject to change without advance notice.

[11] 2021 Instructions for Form 3520 (

[12] 2021 Instructions for Form 3520-A (