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 |
-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:
income - on any income which is trustee income |
NZ Resident |
NZ Resident |
Overseas Source |
NZ Resident |
Trustees liable to tax:
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:
Royalties and dividend income paid as beneficiary income
Other beneficiary income |
NZ Resident |
NZ Resident |
Overseas Source |
Overseas Resident |
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:
Distributions" by a non-qualifying trust
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.