New Zealand has grown as an international trust jurisdiction over recent years for a variety of reasons including its tax neutrality as regards “foreign” trusts and its economic and political stability. It is is a respected OECD and FATF member jurisdiction with a solid commercial, professional and judicial framework.
Unlike many other jurisdictions offering tax neutrality to trusts established by and for non-residents the New Zealand Foreign Trusts regime is based on deliberate tax concession rather than a contrived legislative framework intended to create a new industry for the economy. New Zealand has an extensive network of international tax treaties and low level information disclosure requirements.
- Why choose New Zealand?
- Practical Uses
- Taxation of Trusts in New Zealand
- Trustee Requirements
- Disclosure upon Settlement
- Creation of a New Zealand Foreign Trust
- Who to contact?
Why choose New Zealand?
Discretionary New Zealand foreign trusts offer a number of advantages, including protection from creditors and against laws prescribing the succession of family assets.
A New Zealand Trust settled by a non resident is not subject to New Zealand tax except on income derived in New Zealand. This is the case even if the trustee is a tax resident of New Zealand.
There are no inheritance, wealth or capital gains taxes levied in New Zealand. There is no gift duty, stamp duty, VAT or equivalent forms of indirect taxation charged on the creation, or transfer of assets to a trust, by a non resident of New Zealand.
The trust will be a foreign trust for New Zealand tax purposes if any person who has settled property on the trust has not been a New Zealand resident at any time following establishment of the trust. The three main tax advantages of a foreign trust for non-residents are:
- Only trust income having a New Zealand source will be taxed in New Zealand. Therefore all income earned outside New Zealand (‘overseas income’) is treated as being tax-free to the ‘foreign trust’;
- New Zealand does not have a capital gains tax. Therefore there will be no New Zealand tax payable on capital gains; and
- Distributions of overseas income to non-resident beneficiaries will not be subject to New Zealand tax.This includes distributions of accumulated income.
In order to ensure that a foreign trust maintains its tax-free status, the trust is required to have a qualifying resident foreign trustee acting as trustee. This is a requirement of the Taxation (Depreciation, Payment Dates Alignment, FBT and Miscellaneous Provisions) Act 2006. New Zealand Foreign Trusts Limited is a qualifying resident foreign trustee for these purposes due to its directors’ memberships of the New Zealand Law Society and the New Zealand Institute of Chartered Accountants.
Accordingly, with careful administration a foreign trust may be effectively managed free of New Zealand tax, while at the same time maintaining all of the advantages of being based in a full tax, white-list OECD member country with a first class legal system. Other advantages may also include taking advantage of New Zealand’s suite of tax treaties.
Therefore, a New Zealand foreign trust offers an excellent structure for settlors and beneficiaries who do not intend to live in New Zealand.
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Practical uses of NZ trusts
The range of uses to which a trust may be employed is widespread and constantly evolving but flexibility and confidentiality are the principal advantages which a trust has over other legal forms designed to hold, preserve and transfer wealth. The trust concept has proved to be enormously adaptable and is widely used in wealth structuring including:
- Preservation of wealth
- Succession planning
- Asset protection
- Forced heirship avoidance
Aside from use in structuring personal and family wealth NZ trusts can also be used for a range of commercial purposes such as collective investment funds, asset and income securitisation and employee benefit arrangements.
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Taxation of trusts in NZ
Where the settlor of the trust is resident outside NZ the trust will be exempt from assessment in respect of NZ tax on income and capital gains arising outside of NZ. Accordingly, the trustee may make distributions out of a trust fund established in NZ without any withholding or deduction for NZ income or capital gains tax. There are no inheritance, wealth or capital gains taxes levied in NZ nor is there any gift duty, stamp duty, value added tax or equivalent forms of indirect taxation charged on the creation or transfer of assets to a trust by a non-resident of NZ.
Successive NZ governments have reviewed and endorsed this long-standing tax treatment of foreign trusts and have emphasised that there is no intention to restrict what is fundamentally a rational and fair regime, which is commercially attractive to international wealth planners.
There are minimal reporting requirements to the Inland Revenue (but important record keeping requirements incumbent on the trustees). The government has stated that the Inland Revenue will not entertain general “fishing expeditions” from tax treaty partners for information on foreign trusts. Any information so provided is subject to existing tax confidentiality laws.
NZ has an extensive network of double taxation agreements in force with its main trading and investment partners. However, since tax legislation in different countries varies considerably it is, of course, imperative that settlors and beneficiaries take independent tax advice prior to establishing an NZ trust.
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Trustee Requirements
A New Zealand Foreign Trust is required to have a New Zealand Resident Trustee. In addition, the Trust deed can provide for the trustee to appoint advisors where it is deemed necessary. However, the Trustees and the Protector will retain the responsibility of acting in the best interests of the beneficiaries.
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Disclosure Upon Settlement
A trustee of a foreign trust must provide to the Inland Revenue Department with;
- The name of the New Zealand Foreign Trust and date of settlement,
- The name and address of the Trustee, and
- Whether a Settlor is resident in the Commonwealth of Australia.
However, this information is not available to the public and there is no public registry of trusts.
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Creation of a New Zealand Foreign Trust
It is usual for a trust to be created by the execution of a formal written deed. Following execution of the trust deed a trust will come into existence upon settlement of the initial property.
Australia-Offshore is able to assist with preparation of all of the appropriate documentation and provide the following services:
- Initial advice and liaison with professional advisers;
- Drafting the trust deed and letters of wishes (or deed of retirement and appointment of trustees, as the case may be);
- Formation of underlying companies to hold trust assets;
- preparing and reviewing documentation relating to commercial transactions;
- Selecting an appropriate trustee to administer the trust.
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Who to contact?
Your business is important to us and we appreciate your interest in our services. You can call us at +61 (0) 451.673.770 or contact our consultant below.
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