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What is a Foreign Trust?
A trust settled by a non-New Zealand resident settlor with
a New Zealand resident trustee is categorised as a foreign
trust for tax purposes in New Zealand.
Taxation of Foreign Trusts
The non-New Zealand sourced income of a Foreign Trust is
exempt from New Zealand taxation, whether that income is accumulated
or is distributed to non-New Zealand resident beneficiaries.
Benefits of Establishing a Foreign Trust
The principal advantages of New Zealand Foreign Trusts are:
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Compliance and reporting requirements for Foreign Trusts
are not onerous: |
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No public disclosure of beneficial owner; |
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No audit of the Foreign Trust. |
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New Zealand is not on any country's "black list" of
tax havens requiring special reporting or taxation for
the settlor of a trust. |
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A Foreign Trust may qualify as a New Zealand resident
for preferential treatment under New Zealand's several
tax treaties. |
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The Foreign Trust is resident in a reputable OECD member
country, with a stable legal, political and economic environment. |
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The Foreign Trust has access to inexpensive professional
services of excellent reputation in New Zealand. |
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New Zealand trust law is modern and contains special
provisions facilitating the use of a Foreign Trust as
a modern international investment structure. |
Who is Appointed as Trustee of a Foreign
Trust?
NZTIC can incorporate a separate company controlled by the
client to act as trustee of the client's trust (a private
trustee company) or alternatively NZTIC can act as the professional
trustee of that trust.
A. Private Trustee Company (PTC)
NZTIC can incorporate a private trustee company (PTC) in
New Zealand on behalf of a client. The PTC is appointed as
trustee of the Foreign Trust, with the client and his/her
advisors providing shareholders and directors. Some key features
of the PTC structure are:
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The client and his/her advisors can provide the officers
of the PTC and direct the activity of the PTC (and therefore
the Foreign Trust) without outside involvement. Alternatively,
NZTIC can provide nominee shareholders and directors. |
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The business of the Foreign Trust is carried out by
the directors of the PTC. |
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A PTC can act as trustee of several Foreign Trusts. |
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The PTC should operate in the same manner as a professional
trustee company. It should administer the business affairs
of the Foreign Trust as a trustee, and will normally
charge the Foreign Trust for its services. |
NZTIC provides ongoing advice on operations and administration
to PTCs to ensure their compliance with New Zealand legal
requirements. This is done under a formal Managed PTC Contract.
B. NZTIC as Trustee
Most Foreign Trusts have a professional trustee company such
as NZTIC as their trustee. The advantages of appointing NZTIC
as a trustee are considerable and include:
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The administration of the Foreign Trust is carried out
by professionals with up to date knowledge of New Zealand
tax law as well as experience as international trustees. |
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There are no reporting or filing obligations for the
client to be concerned about. |
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There are no audit obligations. |
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There is a clear separation between the trustee and
the client/settlor. |
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Protection of trust assets from malfeasance under NZTIC
is $10m Fidelity Insurance cover. |
How Does New Zealand's Modern Trust Law
Assist?
New Zealand law provides several mechanisms that enable
a Foreign Trust to function efficiently in a modern international
environment.
A. Custodian Trustees
The New Zealand Trustee Act allows for the appointment of
a corporation as trustee (the "Custodian Trustee")
to hold title to all the trust property as if it were sole
trustee. The management of the trust property and the exercise
of all powers and discretions exercisable by the trustee under
the trust remain vested in the remaining trustee (the "Managing
Trustee").
The Managing Trustees direct the Custodian Trustee in relation
to the trust property, and the Custodian Trustee is not liable
for any act or omission performed or not performed in accordance
with those directions. Thus, the sole function of the Custodian
Trustee is to hold the trust property and to invest or distribute
it as the Managing Trustee directs.
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closely connected with the Foreign Trust property and
the beneficiaries. This is preferable to delegating powers,
and avoids sham arguments. |
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| When it becomes necessary to change the Managing Trustee,
there is no need to re-title the assets of the Foreign
Trust, these remaining at all times in the name of the
Custodian Trustee. |
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| Where it is important to maintain confidentiality, certain
information concerning the Foreign Trust and its activity
can be held exclusively by the Managing Trustee. |
B. Advisory Trustees
The New Zealand Trustee Act allows for a Foreign Trust to
appoint a third party (perhaps the settlor) as an advisor
to the trust (the "Advisory Trustee"). The Advisory
Trustee is authorised to give advice to the normal trustee
(the "Responsible Trustee") on all matters relating
to the administration of the trust. This includes investments
and distribution decisions. The Responsible Trustee is not
required to follow the advice given, but if it does so, receives
special protection against any liability. The Advisory Trustee
is specifically deemed not to be a trustee or fiduciary, and
as such has no fiduciary liability.
How Can NZTIC Assist?
NZTIC provides expert advice on structuring and operation
of Foreign Trusts and PTCs, and acts as trustee of Foreign
Trusts.
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