As a result of its mid-shore, white listed status, New Zealand provides an ideal platform for international tax planning through the prudent use of trusts. In addition, New Zealand’s mid-shore status means that trusts have access to tax treaty benefits, potentially reducing the overall tax burden of the structure.
TAX POSITION
New Zealand (“NZ”) offers an interesting trust structure to those who have no connectors with the jurisdiction, whereby it is possible to establish NZ resident trusts which are exempt from NZ tax. Key to the tax treatment of NZ trusts is the residence of the settlor, rather than the residence of the trustee.
In a common scenario, where a settlor gifts non-NZ assets to a NZ trust, for the benefit of non-NZ beneficiaries, the principal tax exemptions would be:
Income Tax – none in NZ (provided there is no NZ source income);
Capital Gains Tax – none in NZ (there is no Capital Gains Tax in NZ);
Inheritance Tax – none in NZ (there are no inheritance taxes in NZ).
A NZ Trust, operated by a NZ resident trustee, which receives income from any place, other than NZ, receives the income tax free (in NZ).
If the funds are invested outside NZ, no tax is payable on that income in NZ.
The NZ Inland Revenue Department states:
Beneficiaries who are not NZ residents for tax purposes only have to pay NZ income tax on trust income derived from NZ
Beneficiaries who have no NZ income therefore pay no tax in New Zealand.
CONFIDENTIALITY AND REPORTING REQUIREMENTS
The NZ domestic reporting requirements relating to foreign settlor trusts are minimal. For example, the identity of the settlor is not disclosed and a copy of the trust deed is not provided to, or registered with, any tax or government authority in NZ.
The only notification requirement is upon the trustee with respect to the formation of the trust, by reference to the name of the trust and the settlement date, as well as the identity of the trustee. Where the trustee, like Forbes Hare NZ, is a qualifying trustee (i.e. a trustee which has a professional person as manager (or trustee)), it will never be subject to tax in NZ on its overseas income.
There is no obligation to file trust accounts, or to have trust accounts audited. The trust deed, together with details of the beneficiaries and records of directly held trust assets must, however, be held in NZ.
FORMALITIES FOR NZ TRUSTS
There are no formalities specific to the formation of NZ trusts, save those which would ordinarily apply to a trust established under the laws of a common law jurisdiction.
USES FOR NZ TRUSTS
We have seen a steady rise in the use of NZ Trusts over the last five years, particularly for clients based in Latin America and Asia. NZ has a well-developed and flexible trustlegislation based on the English common law. New Zealand is not featured on any anti-tax avoidance black list, nor is it considered to be a tax haven. It is a member of the OECD and has a network of 38 Double Taxation Treaties in force with its main trading and investment partners, including Chile, Mexico and Spain.
Lorraine Bartlett
