Tax putting off the venturesome

Tax issues made New Zealand less attractive for international venture capital investors than Australia, the chief executive of the Government's venture capital fund said yesterday.

Franceska Banga, of the New Zealand Venture Investment Fund (VIF), was appearing before Parliament's education and science select committee for the fund's annual financial review. The fund was set up in 2001 with $100 million of taxpayers' money to finance business start-ups in partnership with private-sector venture capital.

But Banga said tax laws and the lack of legislation enabling limited liability partnerships had held back offshore venture capital investment.

In spite of this, $180 million had been committed for investment through the VIF Programme, with $120 million from private investors and $60 million from VIF itself.

VIF has five funds managed by private-sector fund managers. They have made 22 investments in 17 companies. Initial investments range from $150,000 to $8 million.

Banga said limited liability partnership structures were the standard vehicle used globally for venture capital funds. They enabled investors to be treated according to their own tax position rather than that of the company they were investing in. That meant long-term investors were normally tax exempt.

Banga later told the Herald VIF was aware of three or four potential offshore investors who had walked away from New Zealand because of tax issues.

The VIF wanted an environment where this country was at least as competitive as Australia, which had legislated for limited liability partnerships. Investors in venture capital funds there won't be taxed on those investments. The Government here is considering legislating for limited liability partnerships.