New Zealand is a common law country that has a long standing and mature trust and foreign trust industry. Trusts are extensively used for asset protection, tax planning and trading purposes. New Zealand Trust legislation, the Trustees Act 1956, is modelled on the United Kingdom Trust Legislation. It is possible to use a corporate trustee as the trustee of the Trust which offers greater flexibility and separates control further from the settlor.
Taxation of New Zealand Foreign Trusts (NZFT’s)
A Trust with a foreign resident settlor is not subject to New Zealand tax, except on the income derived from a New Zealand source. This would be the case even if the Trustees were resident in New Zealand. Correspondingly beneficiary income or capital distributions from NZFT to a non- New Zealand resident beneficiaries, from income or gains that do not have a New Zealand source, will not be subject to New Zealand income and capital gains tax. No gift, estate or transfer duties are imposed in New Zealand.
NZFT’s are also often set up by persons wanting to migrate to New Zealand at some stage, as they, if used correctly can facilitate asset transfer to New Zealand without a New Zealand tax impost, thus mitigating migrant tax exposure.
There is no central registry of Trusts in New Zealand, therefore these vehicles offer a degree of privacy/ secrecy. The residence of a Trust for tax purposes is determined by the residence of the Trustees, regardless of whether the income of the Trust is or is not liable to New Zealand tax due to the residence of the Settlor. This is the very reason why NZFT’s are very popular vehicles for tax planning and asset protection.
As a result a NZFT can operate as an offshore trust without the negative stigma that is often associated with Offshore Entities. A NZFT offers the advantages of an offshore entity with the convenient residency in a high tax country. The advantage is that New Zealand is not classified as an offshore jurisdiction that is blacklisted for tax purposes. It is an OECD member country with sound legal, regulatory, political and economic system, thus becoming a viable alternative to offshore jurisdictions.
Visual Representation of a NZFT
New Zealand’s Foreign Trust regime is a robust industry and is becoming more popular with foreign settlors. NZFT’s offer a flow of income through the New Zealand vehicle that is not liable to New Zealand income or withholding tax on foreign sourced income. The residency of NZFT, which is determined by reference to the Trustees, provides a residency in a high tax country and possibility of the application of double tax treaties.