New Zealand in International Tax Planning

October 1999

Although New Zealand does not have a large, well known offshore trust industry, it does provide international tax planners and their clients with some very attractive features.

The opportunity for using New Zealand companies for international tax planning arose after a 1988 amendment made to the taxation of trusts (since consolidated in the Income Tax Act 1994).

Trusts are, of course, not separate taxable entities: they have no residence. A resident trustee is, however, a taxable person. Liability for tax on trust income falls on the beneficiary in respect of distributions and on the true settlor in respect of accumulations. In respect of foreign-source income accumulated by the trustee, liability for tax depends primarily on the residence of the settlor. In most cases, a New Zealand trustee who accumulates foreign income pays no tax (even where the trustee is a New Zealand resident) so long as the settlor is a non-resident.

Of particular comfort going forward, is the fact that the New Zealand legislation is unlikely to be amended in the foreseeable future. This is because the exemption conferred on New Zealand trustees, where settlors and beneficiaries are non-resident, is not an accident, nor was it designed as a tax avoidance rule. But rather, it is inherent in the New Zealand income tax system.

Basic Structure

1. A New Zealand resident company is incorporated with a tax corporation number and a GST (General Sales Tax) number (equivalent to VAT).

2. The company trades as normal, as if it were trading on its own account, but in fact carries out trade activities in its capacity as the trustee of a foreign trust.

3. The company will only be taxed on New Zealand source income (if any).

Additional Advantages

 Access to international tax relief under a large array of double tax treaties involving New Zealand, with the likelihood that the trustee will be treated as "beneficially entitled" to any income for the purpose of the treaties.

 Only one company director is required, who may be non-resident

 There is no requirement to reveal the identity of the beneficial owner of the Company.

 New Zealand is not included on the Mexican blacklist.

For further information on the advantages of using New Zealand companies in international tax planning please contact us.