» The Kiwi Alternative – a tax-free trust in a high tax country

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Anyone who thought that the OECD attack on “tax-havens” would make them go away was self-deluded.

The offshore financial services industry has grown to huge proportions. According to published US and UK government reports, it now tops $11.5 Trillion dollars and despite US and EU animosity it is still growing!

With this much money at stake an increasing number of high-tax countries are looking for ways to get a piece of this pie. None of them are turning into across-the-board tax havens, but various countries are selecting one or two specific vehicles to which they are granting special treatment.

New Zealand has chosen to give the world the tax-free foreign trust structure.

A New Zealand ‘Special Purpose Company structured as the trustee of a non-resident New Zealand trust is not taxable and the trust and its beneficiaries are also non-taxable, except on income sourced in New Zealand.

If the New Zealand ‘offshore’ company and trust have no connection to New Zealand whatsoever, then the entire structure is non-taxable in New Zealand; and if you consider the fact that the company owner and trust beneficiary can be the same person, you can see how this structure can prove attractive when it comes to the offshore formation of a company. One added benefit of establishing such a company structure in New Zealand is the fact that once established the company is generally free to do business, open bank accounts, or invest anywhere in the world. It becomes, in effect, a tax free offshore company but without the “tax haven” implications of the traditional offshore centers.

Depending upon the tax jurisdiction of the settlor, US persons being much more restricted than anyone else, a properly structured New Zealand Trust can provide some or all of these benefits:

+ the assets of the trust are excluded from the settlors estate and thus incur no inheritance tax or death duties:

+ the assets of the trust will be protected against personal claims against the settlor, or beneficiaries;

+ confidentiality since the trust deed is a confidential document and is NOT publicly registered;

+ avoidance of forced heirship in those countries which still have such laws; and

+ in some cases, the tax-free accumulation of income.

A New Zealand trust, which is settled by a non-resident Settlor and which has no local income, is not liable for New Zealand tax; neither is the settlor, trustee, nor non-resident beneficiaries.

The Swift Financial Group conducted an online Q&A with a leading NZ trust provider, which is reproduced here:

Q. Can a NZ Trustee Company be the Trustee for more than one trust? Or is it 1 Trustee Company per Trust?

A. With New Zealand, it is a one Trust per company situation as the Trustee Company, is not a Licensed Trustee.

Q. Can a Trust or Trustee Company have a bank account in NZ without triggering local NZ taxes?

A. No, it needs an overseas bank account.

Q. There seems to be an apparent conflict in some information regarding the ownership of the Trustee Company. Some documentation indicates that the Trustee company must have "75% of the Shareholding within New Zealand to avoid the requirement of filing audited accounts"; on other websites this comment is made, "If the New Zealand 'offshore' company and trust have no connection to New Zealand whatsoever, then the entire structure is non-taxable in New Zealand". If the 75% local holding is achieved using a nominee shareholder in NZ, does this still keep the company tax-free?

A. The statement that the "company and trust have no connection to New Zealand whatsoever" is perhaps confusing. This is of course impossible as the company will have a registered office in New Zealand. It is simply meant to make it clear that you may not use this structure to do business within New Zealand and it should not be used by residents or citizens of New Zealand.

Q. Who can be directors/officers of the Trustee Company? Only natural persons, or also legal entities? Must any officer or director be resident in NZ?

A. The Director must be a natural person. The person can be New Zealand resident or foreign.

Q. What information regarding the Trustee Company is publicly available?

A. The information includes: Incorporator, incorporation date, registered address, annual returns, directors, shareholders.

Q. Are there specifically worded Trust Deeds, or can any appropriate common law tax-free trust deed be used?

A. There are specifically worded Trust Deeds. We would use your Deed at your request but would not provide a nominee director in this case.

Q. With whom or what is the Trust Registered? What, if any information regarding the Trust is publicly available?

A. The Trust is not required to be registered and there is no information available to the public.

Click here to receive free copies of the applicable New Zealand government trust and trustee tax rules.

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