New Zealand is not generally regarded as being a tax haven. It is better known for sheep, the All Blacks, the flightless Kiwi bird, and as holder of the Americas Cup. However, let’s take a look at some of the taxation features that apply in New Zealand.

The tax treatment of Trusts in New Zealand is worthy of more than passing attention. This has come about as a result of the government’s desire to attract overseas investment to New Zealand. All too often governments make political statements saying that they want to attract much needed investment from overseas but then they seem to do their level best to discourage such investment through either controls (for example, Malaysia), or punitive taxes (for example, Australia). In New Zealand the government has actually put in place legislation that does attract investment from overseas. This is particularly apparent in the case of trusts.

Genuine offshore trusts with beneficiaries and settlor outside New Zealand are not liable to any form of taxation in New Zealand on income earned elsewhere.

Let me give you my simple definition of a tax haven. "If you do not live there, or do business there, then you do not pay tax there." Of course, there are many qualifications to this simple statement but the statement does generally sum up the situation.

Now, according to my definition, many countries in the world do qualify as tax havens, including New Zealand. You simply need to ensure that you are properly structured to legally take advantage of the particular situation. The following tables summarize the tax treatment of trusts in New Zealand.

OVERSEAS SETTLOR/NZ TRUSTEE (FOREIGN TRUST)

Settlor

Trustee

Income

Beneficiary

Tax Treatment

Resident

Overseas

NZ Resident

NZ Source

NZ Resident

Trustees liable to tax:

-As agent for beneficiary if income is beneficiary income.

-On any income which is trustee income

Resident

Overseas

NZ Resident

Overseas

Source

NZ
Beneficiary

-Trustees liable to tax as agent for beneficiary

if income is beneficiary income with credit

allowable for overseas tax paid limited to

NZ tax suffered on overseas income.

-No NZ tax liability if trustee income (Sec. 288 (3))

Resident Overseas

NZ Resident

NZ Source

Overseas Beneficiary

Trustees liable to tax:

-Beneficiary Income: Interest and dividends subject

to Non-Resident Withholding Tax; other income, e.g.

Rents, subject to tax at individual rates

-tax on any trustee income

Resident Overseas

NZ Resident

Overseas Source

Overseas Beneficiary

-No NZ tax liability whether income is beneficiary income or trustee income

 

OVERSEAS SETTLOR/OVERSEAS TRUSTEE

Settlor

Trustee

Income

Beneficiary

Tax Treatment

Overseas

Resident

Overseas Resident

NZ Source

NZ Resident

Trustees are liable on trustee income. The payer of interest, royalties or dividends to the trustees will be liable to deduct non-resident withholding tax.

Beneficiary income:-

The beneficiary is liable to New Zealand tax. The trustees

Are technically liable as agents for the beneficiary.

The payer of interest, royalties or dividends will deduct withholding tax on income paid to the trustee even if that income is classified as beneficiary income.

Overseas Resident

Overseas Resident

Overseas Source

NZ Resident

No New Zealand tax liability on trustee income.

Beneficiary liable to New Zealand with a credit allowed for overseas tax paid, limited to the New Zealand tax liability.

Trustee technically liable as agent for the beneficiary.

Overseas Resident

Overseas Resident

NZ Source

Overseas Resident

Payer of interest or dividend liable to deduct Non-resident withholding tax. If income other than Non-Resident Withholding Income, pay tax at individual rates

Overseas Resident

Overseas Resident

Overseas Source

Overseas Resident

No NZ tax implications whatsoever.

 

NZ SETTLOR/NZ TRUSTEE

Settlor

Trustee

Income

Beneficiary

Tax Treatment

NZ Resident

NZ Resident

NZ Source

NZ Resident

Trustees liable to tax:

  • as agent for beneficiary if income is beneficiary

income

- on any income which is trustee income

NZ Resident

NZ Resident

Overseas Source

NZ Resident

Trustees liable to tax:

  • as agent for beneficiary if income is beneficiary

income

  • on any income which is trustee income

With credit allowable for overseas tax paid limited to NZ

Tax suffered on overseas income

NZ Resident

NZ Resident

NZ Source

Overseas Resident

Trustees liable to:

  • Deduct Non-Resident withholding tax on interest,

Royalties and dividend income paid as beneficiary

income

  • Pay tax as agent for the beneficiary in respect of

Other beneficiary income

NZ Resident

NZ Resident

Overseas Source

Overseas Resident

  • No NZ tax liability if beneficiary income
  • If trustee income, trustee liable to NZ tax with

Credit allowed for overseas tax paid

 

NZ SETTLOR/OVERSEAS TRUSTEE

Settlor

Trustee

Income

Beneficiary

Tax Treatment

NZ Resident

Overseas Resident

NZ Source

NZ Resident

Trustees liable to tax:

-As agent for beneficiary:

If income is beneficiary income and in respect

Of "taxable distributions" by a non-qualifying Trust

-On any income which is trustee income

NZ resident settlor can be liable as agent for trustee

NZ Resident

Overseas Resident

Overseas Source

NZ Resident

Trustees liable to tax:

-As agent for beneficiary: If income is beneficiary

income and in respect of "taxable distribution" by a

non-qualifying trust

-On any income which is trustee income

Credit allowable for overseas tax paid limited to NZ tax

Suffered on overseas income.

NZ Resident settlor can be liable as agent for trustee

NZ Resident

Overseas Resident

NZ Source

Overseas Resident

Trustees liable to:

-Deduct Non-Resident withholding tax on interest and dividend income paid a s beneficiary income

-Tax as agent for beneficiary:

If income is beneficiary income and in respect of "taxable distributions" by a non qualifying trust"

NZ Resident Settlor can be liable as agent for trustee

NZ Resident

Overseas Resident

Overseas Source

Overseas Resident

Trustees liable to:

  • No NZ tax liability if beneficiary income
  • Tax as agent of the beneficiary on "taxable

Distributions" by a non-qualifying trust

  • If trustee income, liable to NZ tax

Credit allowable for overseas tax paid limited to NZ tax suffered on overseas income

NZ Resident Settlor can be liable as agent for trustee.

For those who are contemplating investment in New Zealand to take advantage of a strong currency, and low taxation environment, you need to be aware that the government has approved quite a number of reasonably safe investments as qualifying for a special tax rate of only 2%. This special rate is referred to as an "Approved Issuer Levy."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.