New Zealand is a popular jurisdiction for settlement or re-domiciliation of a Trust . This is because, a trust that is a foreign trust for New Zealand as defined in the Income Tax Act 2007 will not be subject to taxation in New Zealand.
The trustee of a foreign trust must be a New Zealand resident trustee (resident foreign trustee). The resident foreign trustee is typically, but not necessarily, a corporate trustee that is incorporated in New Zealand. Prudence dictates that the company should be demonstrably controlled and managed in New Zealand and for this reason non-resident directors are not generally recommended.
All New Zealand incorporated companies must have a director who:
Foreign-sourced income derived by the trustee of a foreign trust is exempt from income tax in New Zealand, provided the settlor is not resident in New Zealand. Note that the classification as a foreign trust can change and so must be managed.
Income derived in New Zealand by the trustee of a foreign trust will be taxable.
Qualifying Resident Foreign Trustee
When a New Zealand corporate trustee has a director who is both resident in New Zealand and is a member of an approved organisation (New Zealand Law Society, Chartered Accountants New Zealand Australia and the New Zealand Branch of the Society of Trust and Estate Practitioners (STEP)), the New Zealand corporate trustee is a “qualifying resident foreign trustee”.
It is not mandatory for a foreign trust to have a qualifying resident foreign trustee. However, again this is prudent to ensure that a foreign trust does not lose its foreign trust status if there is a failure to comply with any disclosure or record keeping obligations.
Why New Zealand?
New Zealand is a sovereign state in the South Pacific. The country is politically stable and has a developed legal system, with respect for the rule of law. There is an independent judiciary, and a substantially statutory system of law providing certainty as to outcomes, particularly in regard to the taxation of trusts
New Zealand has a sophisticated banking system and is an international financial services centre with a significant history of administering trusts. New Zealand has no public register of trusts and the Law Commission recently confirmed that it was not recommending any such register; accordingly it can offer a significant level of privacy.
New Zealand currently sits at fourth place in the Transparency International Corruption Perceptions Index, which is produced each year to highlight the global importance of transparency.
Proposed new registration obligations
During 2016, the release of a large number of documents obtained from Panamanian law firm, Mossack Fonseca, which came to be known as the “Panama papers”, led to New Zealand’s foreign trust regime coming under close political scrutiny. The Government subsequently initiated an Inquiry into Foreign Trust Disclosure Rules. This Inquiry resulted in a number of recommendations for tightening the foreign trust regime.
As a consequence, on 8 August 2016, the Government introduced the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill (149—1) to Parliament. This Bill implements many of the changes to disclosure requirements for foreign trusts recommended by the Inquiry into Foreign Trust Disclosure Rules. It requires resident trustees of a foreign trust to apply for registration of the trust (existing foreign trusts by 30 June 2017 and new foreign trusts within 30 days of existence).
Specific changes introduced in the Bill include:
have all been advised of, and have agreed to comply with the applicable requirements in the Tax Administration Act 1994, the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (and regulations), and Automatic Exchange of Information (AEOI) requirements provided for in the Bill in accordance with the G20/OECD standard)
The proposed amendments also require the trust deed of the trust to be filed with the registration form, and that discretionary trusts are required to describe in the registration any class of beneficiary not listed in the trust deed. This will enable the identity of a beneficiary to be established at the time of a distribution or when vested rights are exercised.
See Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill 2016 (149—1).
In the Bill as introduced to Parliament the changes come into effect from [1 July 2017].