PIE fund or direct shares: which is better for tax?

There are two ways a New Zealand investor usually gets exposure to overseas shares: buy a New Zealand fund that holds them for you (a PIE), or buy the shares directly through a broker like Hatch, Sharesies or Interactive Brokers. The investments can look almost identical. The tax treatment isn't, and the gap can be worth hundreds of dollars a year. For most people, PIE vs direct investing comes down to two things: what rate your gains are taxed at, and how much paperwork you're willing to do.

Both routes still run into the FIF tax rules. The difference is who does the work and what rate applies.

The two routes at a glance

• PIE (Portfolio Investment Entity): a New Zealand fund does the FIF calculation inside the fund and taxes your share at your prescribed investor rate (PIR), which for individuals tops out at 28%. You don't file anything for it.
• Direct: you own the shares yourself, apply the FIF rules on your IR3, and the income is taxed at your marginal rate, which goes up to 39%. More control, more admin.

How a PIE is taxed

When you invest in a multi-rate PIE that holds international shares, the fund works out its FIF income (almost always using the Fair Dividend Rate method) and attributes your slice to you. That income is taxed at your PIR.

Your PIR depends on your income over the previous two years. For individuals there are three rates as at the 2025-26 year: 10.5%, 17.5% and 28%. The top rate is capped at 28% no matter how much you earn. So if your salary puts you on a 33% or 39% marginal tax rate, your foreign-share income inside a PIE is still only taxed at 28%.

💡 Good to know: since the 2020-21 tax year, IRD squares up your PIE income in your end-of-year assessment. If your PIR was too low you pay the difference; if it was too high you get refunded. But the correct PIR is still capped at 28%, so a high earner never pays more than that on PIE income.

The catch on the rate is that you have to give the fund your IRD number and the right PIR. Leave it blank and the fund applies the default 28%, which might be higher than you should be paying.

How direct investing is taxed

Hold the shares directly and you become responsible for the FIF maths yourself. You work out your FIF income each year, choose between the FDR and CV methods, and declare the result on your IR3. It's then taxed at your marginal rate alongside your salary.

That's more effort, but it buys you two things a PIE can't:

• Method choice. You can use FDR one year and elect CV the next, picking whichever gives the lower income. A PIE is locked into FDR.
• The de minimis exemption. If the total cost of your foreign shares stayed under NZ$50,000 all year, the FIF rules don't apply to you at all, and you just return the actual dividends. A PIE gives you no such exemption.

A worked example

Say you hold $100,000 of international shares in a year where the market rises, so FDR is the method in play either way. FDR income is 5% of $100,000, or $5,000, the same figure whether you hold directly or through a PIE, because the PIE also uses FDR.

Here's the tax on that $5,000 of FIF income at each marginal rate:

Your marginal rate	Direct: tax on $5,000 FIF income	PIE: tax at 28% PIR	You save with the PIE
33%	$1,650	$1,400	$250
39%	$1,950	$1,400	$550

The higher your marginal rate, the more the 28% cap is worth. For a top-rate earner that's $550 a year on a $100k holding, every year, with no tax return to file for it.

When direct investing wins

The PIE isn't automatically ahead. Two common situations flip it:

A flat or down year. Because a direct investor can elect CV, a year where your shares fall flat or drop can mean little or no FIF income, sometimes zero. The PIE is stuck applying FDR's flat 5%, so it taxes you on a gain you didn't make. Over a run of weak years, that method choice can outweigh the rate difference.

A small portfolio. If your foreign shares cost under $50,000 all year, holding directly keeps you under the de minimis threshold, so you skip FIF entirely and only pay tax on the dividends you actually received, often well under 5% of value. The same money in a PIE is taxed on FDR income from the first dollar.

⚠️ Watch out: the headline "28% cap" only helps if your marginal rate is above 28%. On a 10.5% or 17.5% rate, you can sometimes do better holding directly, and a PIR set too high just means waiting for IRD to refund the difference after year-end.

So which should you choose?

As a rough guide:

• A PIE tends to win if you're on a 33% or 39% marginal rate, your portfolio is well over $50k, and you'd rather not deal with FIF calculations at all.
• Direct tends to win if you're under the $50k de minimis, you're on a lower marginal rate, or you want the flexibility to switch between FDR and CV in down years.

None of this counts the non-tax differences: fund management fees on one side, brokerage and admin time on the other. Both can matter as much as the tax. If you already hold directly, the calculator works out your FIF income both ways so you can see what you'd actually owe.

Key takeaways

• A PIE caps tax on your foreign-share income at a 28% PIR and handles FIF for you; direct holdings are taxed at your marginal rate, up to 39%.
• The 28% cap is most valuable to 33% and 39% earners, worth a few hundred dollars a year on a six-figure holding.
• Direct investing keeps method choice (FDR vs CV) and the $50k de minimis exemption, both of which a PIE loses.
• Small investors under $50k, and anyone in a flat or falling market, can be better off holding directly.

Sources: IRD prescribed investor rate guidance (IR861) and the FIF rules in the Income Tax Act 2007. Rates and thresholds are current for the 2025-26 tax year and can change. This is general information, not tax advice.