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NEW ZEALAND
OFFSHORE TRUST FORMATION

ADVANTAGES

A NEW ZEALAND TRUST IS ONE OF THE MOST EFFECTIVE TAX PLANNING TOOLS AVAILABLE TODAY

IT IS TAX-FREE IF THE BENEFICIARIES ARE NON-RESIDENT, AND IF THE TRUST INCOME IS SOURCED OUTSIDE NEW ZEALAND

UNLIKE OTHER TRUST CENTRES, NEW ZEALAND ALSO HAS NO “FORCED HEIRSHIP” PROVISIONS

 

 

GENERAL OVERVIEW
The trust is a vehicle by which a person's wealth can be protected and enhanced for the future benefit of the family and other parties.

Whilst the origin of the trust concept is much debated, it is generally held that the modern trust can be dated back to medieval Britain and the time of the Crusades. During this period a crusading knight would spend long periods of time abroad and would thus transfer ownership of his property to a trusted third party, so that if he should be die he could take comfort in the fact that his family would inherit his estate. Essentially a trust is a method by which the legal title of specific assets and property can be transferred from one person to another whilst for the benefit of others.

The Settlor is the person who places the assets into the Trust.

he Beneficiaries are those that are entitled to benefit from the Trust (the Settlor may also be a beneficiary). The beneficiaries can be defined by the Settlor at the establishment of the Trust and are named in the Trust Deed (the constitutional document that defines the parameters of the Trust) and others may be added later at the discretion of the Trustees possibly in consideration of the Settlor's Letter of Wishes.

The Trustees are defined as the legal owners of the trust assets, who have a fiduciary duty of care when administering the Trust in accordance with the terms of the Trust Deed and Trust Law. Whilst the trustees have legal title to the assets, they do not have any beneficial interest, this means that:

• They may not profit personally from the trust assets
• The trustees may only use the assets of the trusts for the benefit of the beneficiaries
• The trust assets cannot be seized by creditors of the trustees


 

THE POSSIBLE BENEFITS OF UTILISING A TRUST

CONFIDENTIALITY
Trust deeds in New Zealand are confidential documents and are not publicly registered.

ESTATE PLANNING
Assets held in trust do not form part of the Settlors estate upon their death, thus the trustees may use these assets for the benefit of those beneficiaries specified by the Settlor or trust deed, thereby avoiding legal complexities and associated costs.

TAX PLANNING
A specifically-worded trust can help to reduce or eliminate inheritance tax or estate duty liabilities arising on the death of the Settlor, but also income or capital gains tax liabilities of the Settlor and/or beneficiaries during their lifetime.

PROTECTION AGAINST LOSS OF ASSETS
Assets can be protected from loss which could result from an unsuitable marriage or other relationship; in particular persons or classes of person can be excluded from benefiting from the trust.

PROTECTION AGAINST CREDITOR CLAIMS
A properly established trust will protect assets from personal claims against the Settlor or his estate provided that such trusts were established in good order.

VOIDANCE OF FORCED HEIRSHIP
Assets held in a New Zealand trust are subject to New Zealand law which has no forced heirship provisions.

PROTECTING THE INTERESTS OF FAMILY MEMBERS (MINORS
OR
VULNERABLE DEPENDANTS)

Assets placed in a trust for the benefits of minors or other vulnerable dependents, can be kept separate from those of the Settlor and/or other interested parties.

WHAT ASSETS CAN BE HELD IN A TRUST?
• Bank accounts
• Stocks and shares (including private companies)
• Insurance or Assurance policies
• Real and/or intellectual property

NEW ZEALAND FOREIGN TRUST OVERVIEW
A New Zealand trust is derived from and is similar to a UK trust. A New Zealand trust, which is settled by a non-resident Settlor and which has no New Zealand sourced income, is not liable for tax in New Zealand. Neither the Settlor, nor the trustee, nor beneficiaries (providing the beneficiaries are non residents) are liable for New Zealand tax.

If New Zealand sourced income is received, then tax is due only on this New Zealand portion of income. A New Zealand registered Corporate Trustee is formed to act as the sole trustee for the trust. World trading will provide tax free income in New Zealand .

The Corporate Trustee has a different function from a trading company or corporation, which is the commonly used structure in other jurisdictions. The Corporate Trustee owns assets and operates the business in a trustee role on behalf of the trust and its beneficiaries. This trust can in turn own the shares or business assets in any existing or newly formed offshore companies, or own the assets directly.

TRADING TRUST WITH A CORPORATE (COMPANY) TRUSTEE
This is used for asset protection and income splitting. It contains business assets and suits most types of trading businesses and services, other than cases where income is from an individual's own personal exertion. This precludes for example people who are sole practitioners using their own personal exertion and selling time rather than selling goods.

This trust has, as its sole trustee, a limited liability company. The persons who would normally be trustees in their own name in a trading trust instead of taking these positions, become directors of this trustee company.

Thus a company and trust structure are linked. The advantages of full limited liability protection for the business and also personally for the Trustees is achieved. Also the ability to trade with the company using a name that is completely different from the trust, is achieved.

WHEN IS A TAX HAVEN NOT A TAX HAVEN?
New Zealand is not generally regarded as being a tax haven. It is better known for sheep, the All Blacks, the flightless Kiwi bird, and as holder of the Americas Cup for a period of time.

However, let’s take a look at some of the taxation features that apply in New Zealand.

The tax treatment of Trusts in New Zealand is worthy of more than passing attention. This has come about as a result of the government’s desire to attract overseas investment to New Zealand. All too often governments make political statements saying that they want to attract much needed investment from overseas but then they seem to do their level best to discourage
such investment through either controls (for example, Malaysia), or punitive taxes (for example, Australia). In New Zealand the government has actually put in place legislation that does attract investment from overseas. This is particularly apparent in the case of trusts.

Genuine offshore trusts with beneficiaries and Settlor outside New Zealand are not liable to any form of taxation in New Zealand on income earned elsewhere.
Let me give you my simple definition of a tax haven. “If you do not live there, or do business there, then you do not pay tax there.” Of course, there are many qualifications to this simple statement but the statement does generally sum up the situation.

Now, according to our definition, many countries in the world do qualify as tax havens, including New Zealand. You simply need to ensure that you are properly structured to legally take advantage of the particular situation. The following tables summarize the tax treatment of trusts in New Zealand.

OVERSEAS SETTLOR/ NZ TRUSTEE (FOREIGN TRUSTEE)
SETTLOR
TRUSTEE
INCOME
BENEFICIARY
TAX TREATMENT
Resident Overseas
NZ Resident
NZ Source
NZ Resident

Trustees liable tax

- as agent for beneficiary income

-On any income which is Trustee income

Resident Overseas
NZ Resident
Overseas source
NZ Beneficiary
-Trustees liable to tax as agent for beneficiary
if income is beneficiary income with credit
allowable for overseas tax paid limited to
NZ tax suffered on overseas income.
-No NZ tax liability if trustee income (Sec. 288 (3))
Resident Overseas
NZ Resident
NZ Source
Overseas beneficiary
Trustees liable to tax:
-Beneficiary Income: Interest and dividends subject
to Non-Resident Withholding Tax; other income, e.g.
Rents, subject to tax at individual rates
-tax on any trustee income
Resident Overseas
NZ Resident
Overseas source
Overseas beneficiary
-No NZ tax liability whether income is
beneficiary income or trustee income

 

OVERSEAS SETTLOR/OVERSEAS TRUSTEE
SETTLOR
TRUSTEE
INCOME
BENEFICIARY
TAX TREATMENT
Overseas
Resident
Overseas
Resident
NZ Source
NZ Resident
Trustees are liable on trustee income. The payer of interest,
royalties or dividends to the trustees will be liable to deduct
non-resident withholding tax.
Beneficiary income:-
The beneficiary is liable to New Zealand tax. The trustees
Are technically liable as agents for the beneficiary.
The payer of interest, royalties or dividends will deduct
withholding tax on income paid to the trustee even if that
income is classified as beneficiary income.
Overseas
Resident
Overseas
Resident
Overseas
Source
NZ Resident
No New Zealand tax liability on trustee income.
Beneficiary liable to New Zealand with a credit allowed for
overseas tax paid, limited to the New Zealand tax liability.
Trustee technically liable as agent for the beneficiary
Overseas
Resident
Overseas
Resident
NZ Source
Overseas
Resident
Payer of interest or dividend liable to deduct Non-resident
withholding tax. If income other than Non-Resident
Withholding Income, pay tax at individual rates
Overseas
Resident
Overseas
Resident
Overseas
Source
Overseas
Resident
No NZ tax implications whatsoever.

 

NZ SETTLOR/NZ TRUSTEE
SETTLOR
TRUSTEE
INCOME
BENEFICIARY
TAX TREATMENT
NZ
Resident
NZ
Resident
NZ Source
NZ
Resident
Trustees liable to tax:
- as agent for beneficiary if income is beneficiary
income
- on any income which is trustee income
NZ
Resident
NZ
Resident
Overseas
Source
NZ
Resident
Trustees liable to tax:
- as agent for beneficiary if income is beneficiary
income
- on any income which is trustee income
With credit allowable for overseas tax paid limited to NZ
Tax suffered on overseas income
NZ
Resident
NZ
Resident
NZ Source
Overseas
Resident
Trustees liable to:
- Deduct Non-Resident withholding tax on interest,
Royalties and dividend income paid as beneficiary
incom
e
- Pay tax as agent for the beneficiary in respect of
Other beneficiary income
NZ
Resident
NZ
Resident
Overseas
Source
Overseas
Resident
- No NZ tax liability if beneficiary income
- If trustee income, trustee liable to NZ tax with
Credit allowed for overseas tax paid

 

NZ SETTLOR/OVERSEAS TRUSTEE
SETTLOR
TRUSTEE
INCOME
BENEFICIARY
TAX TREATMENT
NZ Resident
Overseas
Resident
NZ Source
NZ Resident
Trustees liable to tax:
-As agent for beneficiary:
If income is beneficiary income and in respect
Of “taxable distributions” by a non-qualifying Trust
-On any income which is trustee income
NZ resident settlor can be liable as agent for trustee
NZ Resident
Overseas
Resident
Overseas
Source
NZ Resident
Trustees liable to tax:
-As agent for beneficiary: If income is beneficiary
income and in respect of “taxable distribution” by a
non-qualifying trust
-On any income which is trustee income
Credit allowable for overseas tax paid limited to NZ tax
Suffered on overseas income.
NZ Resident settlor can be liable as agent for trustee
NZ Resident
Overseas
Resident
NZ Source
Overseas
Resident
Trustees liable to:
-Deduct Non-Resident withholding tax on interest and
dividend income paid a s beneficiary income
-Tax as agent for beneficiary:
If income is beneficiary income and in respect of
“taxable distributions” by a non qualifying trust”
NZ Resident Settlor can be liable as agent for trustee
NZ
Resident
Overseas
Resident
Overseas
Source
Overseas
Resident
Trustees liable to:
- No NZ tax liability if beneficiary
income
- Tax as agent of the beneficiary on “taxable
Distributions” by a non-qualifying trust
- If trustee income, liable to NZ tax
Credit allowable for overseas tax paid limited to NZ tax
suffered on overseas income
NZ Resident Settlor can be liable as agent for trustee.

For those who are contemplating investment in New Zealand to take advantage of a strong currency, and low taxation environment, you need to be aware that the government has approved quite a number of reasonably safe investments as qualifying for a special tax rate of only 2%. This special rate is referred to as an “Approved Issuer Levy.”

NEW LEGISLATION
APPLICABLE TO NEW ZEALAND FOREIGN TRUSTS
FROM 1 OCTOBER 2006

The new legislation recently passed, requires from 1st October 2006, either a New Zealand resident unqualified director, or a professional "qualifying" (chartered accountant or lawyer), as either a manager, or a director of a trustee company, for a New Zealand Foreign Trust. If the former (unqualified director) is utilized, then should there be any omissions including any non compliance with the new legislation by the corporate trustee, then, until the omission is rectified, the trust could be taxable on its world wide income. If this liability arises, and if subsequently a trustee does provide the outstanding records, the liability for tax on worldwide income will cease retrospectively. The fee for us providing a NZ resident unqualified director providing these outcomes will be a minimum of USD1,000 per annum.

The other option is to select as the N.Z. resident manager, or as a director, "a qualifying N.Z. resident trustee" being a professional (chartered accountant or lawyer), being the "safe harbour", which will result in the trust NOT being at risk of taxation on its World wide income in the event of any omissions or non compliance. Instead the matter would be dealt with by the disciplinary committee of the professional's Accountants or Law Society, and punishment for this "qualifying" person will be a fine and or imprisonment. Our fee for this level of role, will be a minimum of USD 2,000 per annum, and will depend on the level of responsibility and time commitment. Our company can provide the necessary individuals. However with the qualifying trustee option, our nominated person will only consider the “manager” role which should reduce his potential risk exposure, compared with acting as a disclosed director. This “manager” role facilitates all legislative requirements. For corporate trustees operating for more than one N.Z. Foreign Trust, we negotiate a fee per additional trust.

In addition to the New Zealand director (or manager) requirement, we advise clients to maintain the majority of directors offshore in a non taxed jurisdiction, such as Seychelles or Mauritius, to ensure the majority of “mind and management” is offshore, with the result the trust cannot come within the New Zealand tax net.

Under the new legislation, it will be necessary for our firm to advise our Revenue of the existence of a New Zealand Foreign Trust, the name or other identifying particulars of the trust, names and other contact details of N.Z. trustees, names of any N.Z. trustees who are members of an approved organization. No other information is required (except in the situation where the Settlor is an Australian resident, where that fact has to be disclosed). There will be additional minimum records to be held in N.Z. by the N.Z. manager or director, such as a copy of the trust deed, details of settlements made to and distributions made by the trust including names and addresses of the Settlors and beneficiaries, a record of the assets and liabilities and all sums of money received and spent by the trust, and if the trust carries on business, the charts and codes of accounts, the accounting instruction manuals and the system and program documentation describing the accounting system. This information is not provided to our Revenue, but would have to be disclosed only following a specific request from an offshore Government with whom New Zealand has a double tax treaty, under the sharing of information agreements by these treaty countries. These provisions result from the Australian Tax Office requests to the N.Z. Government and are to primarily target Australian resident Settlors. For practical purposes there is little expectation of active information exchange in respect of individuals resident in jurisdictions other than Australia. Specific legislation can be searched via the internet (www.legislation.co.nz)

Conclusion – these changes have been received positively, as the level of compliance or disclosure is not onerous, but the recognition, confirmation, and support by our Government of the New Zealand Foreign Trust industry is most encouraging. We welcome inquiries and will be happy to provide more in depth information, including legislation references.

 

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