New Zealand Trusts

Nancy Beilin & Herman Krul

A FINANCIAL CENTRE FOR THE 21ST CENTURY:
New Zealand offers an enviable mix of modern financial infrastructure, legal and political maturity and a facilitative tax environment for persons wishing to do international business. New Zealand has:

THE NEW ZEALAND FOREIGN TRUST:
The New Zealand trust law is based on British trust precedents and provides for a great deal of flexibility in establishing trusts. The NZ Trust will be exempt from NZ tax if it is classified as a “foreign trust”. A NZ Trust is considered a foreign trust if the Settlor was not resident from the date of the creation of the trust until the date of any distribution and the trust has no NZ sourced income. This means that passive investment accounts held, either directly or indirectly, by the NZ trust in a bank account outside of NZ, will not be considered NZ sourced income. Similarly, ownership by the NZ trust in an active trade or business, or in real estate, will not subject the trust to tax in NZ provided the active business is conducted, or the real estate is located, outside of NZ. Provided that the recipient beneficiary is not resident for tax purposes in NZ, there will be no NZ tax assessable on any distribution from the trust.

THE BENEFITS OF A NEW ZEALAND TRUST:

• New Zealand foreign trusts and non-resident beneficiaries of such trusts are not subject to tax in New Zealand on foreign source income or distributions of foreign source income.
• New Zealand is an OECD member country that has never been on any taxation or money laundering black list.
• New Zealand has a modern trust law with statutory facilities for both Advisory and Custodian trustees. These facilities enable trusts to be structured with a greater degree of input from parties associated with the trust while reducing the risk of a sham attack on the trust.
• There is no annual audit or annual tax filing requirement for a trust.
• New Zealand privacy laws provide significant protection for client and trust information
• Ability to form New Zealand Private Trust companies that do not require licensing or administration in New Zealand.
  

The NZ trust is particularly favoured by investors residing in countries which have enacted legislation requiring the reporting and taxation of investments held, directly or indirectly, through entities established in jurisdictions which those countries consider to be “tax havens”. For example, by legislation or regulation, most Latin American countries produce “blacklists” of tax havens.

A typical structuring opportunity would be that afforded to a High Net Worth Individual who has an investment account in his/her own name with a U.S. or non-U.S. financial institution. The account will probably hold U. S. stocks, bonds and mutual funds along with other non U.S. assets. The direct ownership of the U.S. investments exposes the individual to substantial U.S. estate tax upon his or her death. In addition, such direct ownership does not provide for any estate planning. Indirect ownership of the account through a corporation established outside of the United States avoids the U.S. estate tax. Beneficial ownership, control and inheritance of this non-U.S. corporation was typically provided by transferring the shares of the corporation to a non-U.S. trust. Traditionally, such non-U.S. entities were organised in jurisdictions now on a tax haven blacklist. The structure described below, utilising the NZ trust, is designed to provide equivalent benefits through the use of trusts and entities established in non-blacklist jurisdictions.

Below are two examples of the types of structures which utilise the New Zealand trust, one with a Dutch CV and one with a Singapore Company. A variety of management options are available, and other underlying entities can be used depending on specific client circumstances or wishes.