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New Zealand
ASIACITI TRUST IN NEW ZEALAND
Asiaciti Trust established operations in New Zealand in early 1996 and now operates from Auckland New Zealand. The services offered by our New Zealand office principally comprise the provision of trustee services in respect of New Zealand foreign trusts for clients who are non-residents of New Zealand, and the administration of New Zealand managed trust companies for foreign institutions or professional firms. We also provide consultancy services for international tax planning, asset protection planning and international investment structures.
NEW ZEALAND
New Zealand is a high tax onshore jurisdiction with unique legislation that attracts international investors to use the country as a base from which to hold global private capital investments. The New Zealand foreign trust provides non-resident investors with a globally recognised structure for the tax effective preservation of private wealth.
THE NEW ZEALAND FOREIGN TRUST
Trusts are an integral part of the New Zealand legal system and are used extensively for domestic wealth preservation and tax planning purposes. New Zealand’s trust law is derived from its statutes and from English common law and equity. The governing statute is the Trustee Act 1956 as amended. The Act incorporates some unique features of trust law and in particular the distinction between a managing trustee and a custodian trustee. The legislation provides for an 80 year perpetuity period plus a 21 year “wait and see” rule.
The New Zealand bankruptcy law and other statutes provide protection to trustees of New Zealand trusts against actions brought by creditors of the settler or against trust beneficiaries.
With the introduction of specific tax legislation in 1988, New Zealand adopted a new and unique approach to the taxation of trusts. The legislation codified three types of trust, one of which is the “foreign” trust. A trust settled under New Zealand law by a settlor (or grantor) who is not resident in New Zealand is a “foreign” trust, even if the trustee of such trust is resident in New Zealand. Under these specific provisions of the New Zealand tax law, a foreign trust is not subject to New Zealand tax on income derived outside New Zealand. This is unique in that most other jurisdictions determine the tax residency of a trust based on the residence of the trustee or the domicile of the beneficiaries.
HOW IS THE NEW ZEALAND FOREIGN TRUST TAXED?
New Zealand foreign trusts are not specifically deemed to be non-resident in the tax legislation. The Income Tax Act 1994 ("the Act") does not define the residence of a trust. The taxation status of the New Zealand foreign trust is wholly determined by the residence of the settlor.
Consequently the New Zealand foreign trust is exempt from New Zealand income tax on income derived from sources outside New Zealand. This exemption applies to the trustee, the non-resident settlor, and the non-resident beneficiaries of the trust. Under New Zealand law the trust itself is not a taxable entity. This is the case even if the trustees are tax residents of New Zealand and some or all of the beneficiaries are resident in New Zealand.
Income with a New Zealand source will be subject to normal New Zealand income tax rules, including any income tax concessions provided under double tax treaties. New Zealand does not tax capital gains so any increase in the value of trust assets is not taxable in New Zealand.
CONFIDENTIALITY
Provided the settlor is not an Australian resident there are minimal disclosure requirements for New Zealand “foreign” trusts. The trustee is only required to advise the New Zealand tax authorities of the name of the trust (or some other identifying feature) and the details of the New Zealand trustee. No disclosure obligations arise in respect of the trust property and trust income, other than income derived from sources in New Zealand. Therefore foreign settlors and beneficiaries are assured of privacy and confidentiality.
It is also possible to use New Zealand incorporated private trust companies as trustees of New Zealand foreign trusts, thereby enhancing the confidentiality and security of the trust arrangements.
INVESTMENT HOLDING COMPANIES
We have noted, the New Zealand income tax system focuses on taxing New Zealand residents on their worldwide income and non-residents only on their New Zealand source income.
The introduction of controlled foreign company [“CFC”] legislation to prevent New Zealand residents using offshore structures to avoid or defer tax on foreign source income created an anomaly in regard to that principle. Consequently, separate “conduit” company tax legislation was enacted to ensure that foreign source income derived by New Zealand companies is not taxed in New Zealand if such New Zealand companies are controlled by non-residents.
A New Zealand company that qualifies as a conduit company does not pay income tax in New Zealand on foreign source income that qualifies for conduit company tax relief (in general terms, income derived by CFC's). The New Zealand Non-Resident withholding tax (NRWT) of 15% continues to apply on distributions made from conduit companies. There are no rules requiring mandatory distributions of income from conduit companies.
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