Although today there is a good choice of low-tax jurisdictions, none of them may appear to be good for you because of the “tax haven” image. New Zealand is definitely off any lists of tax havens, but its tax law and international reputation provide for enormous opportunities for your your business, including but not limiting to trading operations, investments, banking and asset protection.
New Zealand Facts and Benefits
- New Zealand is a first world highly developed country, with high living standards, low crime and stable political system.
- Its legislation is based on the Common (English) Law.
- Being a member of the O.E.C.D., it’s not part of the EU and not subject to EU Savings Tax Directive.
- New Zealand domestic law and its wide network of double tax treaties offer vast opportunities to legally reduce your business tax burden with no connotations of using tax haven instruments.
New Zealand Foreign Trust
The concept of New Zealand Foreign Trust or New Zealand Offshore Trust exists since 1988. It is not subject to official registration to be recognized and have binding effect in New Zealand. It also has a trans-national effect being recognized by the Hague Convention on the Recognition of Trusts. It is being recognized in any country having English Common Law Country and/or a double tax agreement with New Zealand.
New Zealand Foreign Trust is a scheme involving a non-resident Settlor and a local New Zealand Trustee, individual or corporate.
In practice, you can either arrange for a trust agreement with a qualified New Zealand Trustee, or register your own New Zealand Trustee company.
The New Zealand Trustee Company conducts any offshore activity, including trading and owning the property, on behalf of its own name but in favor of the beneficiary. All offshore income of the Trust is tax exempt in New Zealand. Non-resident beneficiaries of the Trust are only subject to tax with the part of income that has New Zealand sources.
We will further refer this construction as a NZ Foreign Trust or NZ Offshore Trust or Trust.
How to Benefit from using NZ Foreign Trust
NZ Foreign Trust is good to use as a stand-alone vehicle or in conjunction with New Zealand’s network of double tax treaties:
- NZ Foreign Trust can be used for international operations in any business. It is cost-effective in setup and maintenance. New Zealand has no image of blacklisted tax haven and is not oppressed by other first world countries. An important issue to have in mind, while being exempt in New Zealand, the Trust’s income still might be taxed at source or where the effective management is conducted. In this regard, all day-to-day operations of the Trust should be arranged the way for the company not to be recognized a permanent establishment in a country imposing high taxes.
- Another attractive feature is that NZ Foreign Trust may claim the benefits of 35 double tax treaties with the following countries: Australia, Austria, Belgium, Canada, China, Chile, Czech Republic, Denmark, Fiji, Finland, France, Germany, India, Indonesia, Ireland, Italy, Japan, Korea (Republic of), Malaysia, Mexico, Netherlands, Norway, Philippines, Poland, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, United Arab Emirates, United Kingdom, and United States.
To be entitled to protection of a DTT, the NZ Offshore Trust is to be recognized a New Zealand tax resident in terms of “management and control test”. Current policy of New Zealand authorities comprises that the company is resident for taxes where its effective (practical day-to-day) management is conducted, rather than where its overriding control is located.
If the Trust qualifies for these provisions, you can count on reduced withholding tax rates for dividends, interests and royalties in the DTT country and no further taxation of this income in New Zealand. Every double tax agreement needs interpretation by a local lawyer.
Other Useful Instruments offered by New Zealand
New Zealand Agency Company
A standard company incorporated in New Zealand can act as an agent for an offshore company located in a tax efficient jurisdiction, such as Dominica or Panama. The NZ Agency Company pays taxes as any other regular New Zealand’s company, from any of its worldwide income. It can receive its 5-10% commission fee under an agency agreement and pay the due taxes from this income. The balance of its earnings is tax-free as it belongs to the principal, an offshore company. This structure works similar to a UK Agency Company.
New Zealand Limited Partnership
New Zealand Limited Partnership is a more recent development introduced in 2008. A similar structure exists in many other countries. It must have at least one limited partner and one general partner. There is no requirement to have resident partners. Provided all limited partners are non-residents, and all income is generated offshore, the partnership is not subject to tax in New Zealand.
Striking a balance, New Zealand is a very attractive jurisdiction for international business, offering you an excellent international image, and providing for exclusively beneficial tax regime at the same time.