How to Buy Shares in New Zealand

Buying shares in New Zealand offers individuals a pathway to participate in the country’s economy and potentially grow their wealth. This guide outlines the essential steps and considerations for investing in the New Zealand share market, from initial preparation to ongoing management of investments. A well-informed approach requires understanding local market dynamics and regulatory environments.

Preparing for Share Investment

Shares represent units of ownership in a company. In New Zealand, the primary marketplace for trading shares is the NZX (New Zealand Stock Exchange), where companies list their shares for public trading.

Choosing an investment platform is a foundational step. Several types are available to retail investors in New Zealand, including traditional brokers, online platforms for self-directed trading, and robo-advisors. When selecting a platform, consider transaction fees, the range of investment options (particularly NZX-listed shares), ease of use, and customer support. Some platforms, like Sharesies, offer access to NZX companies, exchange-traded funds (ETFs), and international markets.

To set up an investment account in New Zealand, you typically need to provide identification and documentation. This commonly includes photo identification (e.g., passport or driver’s license), proof of residential address (e.g., utility bill or bank statement), and an IRD (Inland Revenue Department) number. These requirements comply with anti-money laundering (AML) and countering financing of terrorism (CFT) regulations, ensuring the legitimacy of financial transactions.

Once the account is established, funding it is the next step to enable share purchases. Common methods for depositing funds include direct bank transfers or direct debits from a linked New Zealand bank account. The specific funding options and any associated processing times will vary depending on the chosen investment platform.

Executing Share Purchases

With an investment account established and funded, buying shares involves navigating your chosen platform and placing an order. Most online platforms feature an interface where investors can search for specific companies by name or stock code. Once a company is selected, the platform displays current market data, including its share price, enabling the investor to decide on the number of shares to purchase.

When placing a buy order, investors typically have options regarding the order type. A market order instructs the platform to buy shares immediately at the best available current market price. This prioritizes speed of execution but does not guarantee a specific price. Conversely, a limit order allows an investor to specify the maximum price they are willing to pay per share. The order will only be executed if the share price falls to or below that specified limit, offering price control but with no guarantee of execution if the price target is not met.

After an order is placed, the platform processes it for execution on the NZX. For market orders, this often occurs almost instantly during market hours. For limit orders, the order remains active until it is either filled at the specified price or cancelled. Once a trade is executed, a confirmation is typically provided, and the shares are recorded in the investor’s account, usually with settlement occurring within two business days (T+2).

Transaction costs are associated with placing share trades. These typically include brokerage fees, charged by the investment platform for facilitating the trade. These fees can be a fixed amount per trade or a percentage of the transaction value, often with a cap. For example, some platforms may charge a 1.9% transaction fee on the amount invested, capped at NZD $25 for NZX shares. Information on these fees is usually detailed in the platform’s pricing schedule.

Managing Your Share Investments

Owning shares in a New Zealand company comes with certain rights for the investor. These generally include the right to receive dividends (distributions of a company’s profits) and voting rights at company meetings, allowing shareholders to influence significant company decisions. Shareholders typically have liability limited to the amount invested in their shares.

Dividends are a common way for New Zealand companies to distribute profits to shareholders, typically paid directly into the investor’s bank account. A notable feature of the New Zealand tax system is the imputation credit system, which aims to prevent the double taxation of company profits. Companies that have paid New Zealand income tax on their profits can attach imputation credits to dividends. These credits represent the tax already paid by the company and can be used by New Zealand resident shareholders to offset their personal income tax liability on the dividend income.

Regarding tax implications for share investments in New Zealand, dividends from New Zealand companies are considered taxable income. The company typically withholds tax on these dividends and pays it to the Inland Revenue Department (IRD) on the investor’s behalf. Generally, capital gains on the sale of New Zealand shares are not subject to a specific capital gains tax.

However, an exception applies if the investor is trading shares with the dominant intention of profiting from capital gains, rather than holding them for long-term investment. In such cases, profits from share sales may be treated as taxable income. For investments in foreign shares, if the total cost exceeds NZD $50,000, the Foreign Investment Fund (FIF) rules may apply, which have different tax implications.

The process of selling shares is largely the reverse of buying them. Investors navigate to their portfolio on the investment platform, select the shares they wish to sell, and place a sell order. Similar to buying, options for sell orders include market orders to sell immediately at the current price or limit orders to sell at or above a specified price. Once the sell order is executed, the proceeds, minus any applicable brokerage fees, are typically credited to the investor’s account.