New Zealand taxes trusts on the basis of the tax residence of the settlor. Accordingly, there is an exemption in the Income Tax Act 2007 for foreign-sourced amounts derived by resident trustees.
In April 2016, changes were recommended following the Government’s Inquiry into Foreign Trust Disclosure Rules. These changes are important to ensure that New Zealand’s reputation as having best practice in contributing to global exchange of information is maintained.
The amendments came into effect on 21 February 2017 (“date of Royal assent”).
REGISTRATION OF NZ FOREIGN TRUST
For foreign trusts in existence as at date of Royal assent, the resident trustee needed to apply for registration of the foreign trust by 30 June 2017 with the Commissioner of Inland Revenue New Zealand. Besides registration, the trustee needed to disclose information required as part of registration, filing annual disclosure return and payment of fees.
Note: If the trustee did not provide any of the information required, it may have affected the eligibility for exemption on tax for foreign-sourced income derived by the trustee.
IMPACT ON REGISTRATION OF NZ FOREIGN TRUST
- Tax exemption on foreign sourced income derived by a NZ resident trustee remains intact. In order to be eligible for the foreign-sourced income exemption following the changes, a foreign trust must be registered with the Commissioner of Inland Revenue.
- Details submitted will NOT be public and the information will only be accessible by the Department of Internal Affairs and New Zealand Police.
- Details required are no more onerous than those retained by any prudent trustee, and soon to be required anyway under Common Reporting Standards.
New Zealand has done well in its swift response to the Panama Scandal, introducing reasonable disclosure requirements and maintaining its favourable tax treatment of foreign trusts. More importantly, these measures see New Zealand retaining its status as a trustworthy and desirable planning jurisdiction for high net worth families.
SUMMARY OF REGISTRATION REQUIREMENTS AND CONCESSIONS WHERE AT LEAST ONE TRUSTEE IS NOT A NATURAL PERSON OR IS IN THE BUSINESS OF PROVIDING TRUSTEE SERVICES
TIME LIMITS FOR APPLICATION FOR REGISTRATION
If the foreign trust existed on the date of Royal assent (and the resident foreign trustee was already appointed as a trustee), the resident trustee needed to apply to register the trust by 30 June 2017.
In cases where the foreign trust is registered after the date of Royal assent or a resident trustee is appointed after the enactment of the legislation, the resident trustee must apply to register the trust within 30 days of becoming the resident trustee.
A foreign trust that is not registered on time will lose its exemption for that year.
INFORMATION REQUIRED ON APPLICATION FOR REGISTRATION OF FOREIGN TRUST
- Copy of the trust deed.
- Particulars and contact details for settlors, protectors, non-resident trustees, beneficiaries and persons with effective control. Amongst others, details include email address, foreign residential address and tax identification number.
- Information about settlements made from date of formation until the date of application.
ANNUAL DISCLOSURE RETURN
Within six months of balance date or end of the tax year, submit with a copy of financial statements and details about settlements and distributions made during the return year.