February 15, 2018 Jacinda Michell

TAX REPORTING ON FOREIGN TRUSTS

BY JACINDA MITCHELL

New Zealand is an attractive destination for wealth structuring using the trust as a vehicle due to its international reputation for transparency and listed 2nd in the Corruptions Perceptions Index ranking.

New Zealand foreign trusts are now required to be registered with the New Zealand Tax Authority and pay a registration fee of NZD $270.

It is absent from any ‘blacklists’ that identify countries considered non-cooperative anti money laundering and tax jurisdictions.

New Zealand also appeals to wealth planners as it has a reasonably simple tax regime and is free of stamp duty, inheritance tax, wealth tax, and capital gains only apply in limited circumstances.

Following the 2016 Shewan Inquiry legislation was passed required additional reporting for all New Zealand foreign trusts. The Shewan Inquiry examined whether the rules sufficiently protected the reputation of New Zealand and the commitments that it has made to the OECD. In other words, did the rules keep New Zealand free from illicit activities within foreign trusts. Inquiry found that there was a chance that New Zealand would be seen as having inadequate provisions to prevent money laundering and other illicit activities through foreign trusts. Several recommendations were made to improve the rules and as a result foreign trusts, from the 30 June 2017, are now subject to increased disclosure requirements to New Zealand Tax Authority known as Inland Revenue Department “IRD.”

For example, A New Zealand resident trustee must register a foreign trust by furnishing the IRD with information about the trust, its purpose and officers and provide a copy of the trust deed. Additionally, the trustee must provide a schedule of connected persons and declare that it has informed those persons and obtained their consent as well as one indicating any further settlements or distributions made to the trust.

All information kept on the foreign trust register allows for information to be shared with the Department of Internal Affairs and the New Zealand Police. IRD is also able to share tax information internationally with its tax treaty partners under exchange of information arrangements, if the relevant parties reside in one of the jurisdictions that New Zealand has a tax treaty with.

It is important to note that the IRD is not obligated to send information about foreign trusts to these jurisdictions if it believes that there is a risk in how the information will be used or disclosed.

Exchange of information articles in tax treaties set the restrictions on what the information can be used for. For example, the IRD is not obligated to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process. IRD could also not disclose information if its disclosure would be contrary to public policy.

We also note that the register held by IRD is not public and can only be disclosed to specific persons, and can only be used by those persons for specified purposes.

The new governing rules around foreign trusts bring New Zealand in closer proximity to those jurisdictions who largely deal in the international foreign trusts industry. A New Zealand foreign trust is a useful tool that can benefit many people, including people considering migrating to New Zealand in the future, people resident in countries with an unstable political or economic environment. New Zealand and its positive reputation should definitely be as considered for your foreign trust.

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