New Zealand is a prosperous and stable country with a strong economy. It is a member of the British Commonwealth and the OECD.
New Zealand has secure and very flexible company and trust laws, allowing for the speedy formation of appropriate mechanisms for wealth protection, inheritance and tax planning, including Foreign Trusts, Limited Partnerships (LPs) and most recently, Look Through Companies (LTCs).
Foreign trusts, as the name implies, require the settlor to be a New Zealand nonresident and the trustee to be a New Zealand resident. In addition, assets to be transferred must not be subject to local taxes in New Zealand. Once these requirements are fulfilled, the trust will not be subject to any New Zealand tax which means that assets can be transferred by the trustee to the nonresident beneficiaries without any withholding measure or tax on inheritance. For these reasons, this is a better option than a will for inheritance planning purposes.
Other advantages of Foreign Trusts:
Asset protection: Assets are transferred to the trustee in order for him/her to administer them on behalf of the beneficiaries, separating them from the settlor’s estate. Therefore they cannot be seized or sequestrated by the settlor’s personal creditors.
Protection against compulsory heirs: Assets are administered by the trustee and as a result they are no longer part of the estate of the settlor. Legislation is flexible and allows for the appointment of beneficiaries who are not the legal heirs of the settlor.
Confidentiality: Only the name of the trust and the name and address of the resident trustee are reported to the authorities, thus information related to the transferred assets, the name of the settlor (unless same is Australian) and the name of the beneficiaries are not public or of government knowledge. The trustee must keep this information confidential.
In addition, assets can be transferred without a court ruling. The trustee has the power to transfer assets to the beneficiaries designated in the trust instrument without a court order, saving time and money.
Another advantage is that New Zealand Foreign Trusts are approved by the Organization for Economic Cooperation and Development (OECD).
An excellent vehicle for asset protection and tax planning is a Limited Partnership (LP). Legislation creating LPs is fairly new, and goes back to 2008, therefore this is a modern law channeled to the current needs of investors. If a Limited Partnership is properly structured, its main attraction is the nonpayment of taxes if its revenues are produced outside New Zealand and if its partners are nonresidents. Basically, Limited Partnerships can carry out any kind of activity but they are excellent as holding companies, as vehicles of commercial or trading intermediation and as owners of immovable property or real estate.
Structurally speaking, Limited Partnerships must have at least one General Partner or a Limited Partner. The General Partner is the administrator partner and has unlimited responsibility regarding matters of the LP. The Limited Partner has a limited role as he/she cannot get involved in the entity’s administration except for certain exceptions. The Limited Partner is only liable concerning his/her investment in the LP. This partner is usually an investor.
From a tax point of view, LPs do not pay taxes or yearly tributes of any kind if their revenues are not from a New Zealand source. In case the payment of taxes applies, it will be at the partners’ level since the LP is regarded as tax transparent.
Finally, in 2011, New Zealand passed a law allowing a common limited company to transform itself into an excellent vehicle for tax and inheritance planning. Before this law, the only tax system applicable to New Zealand companies was the worldwide taxation system. Therefore, any company in New Zealand had to pay taxes on income in New Zealand whether or not that income was produced locally. With this new law, if the company is structured properly it can apply for the status of a Look Through Company (LTC) and as a result it will only have to pay taxes if revenues are produced in New Zealand. To qualify as a LTC, the company must have at least one shareholder and a maximum of five shareholders who can be non-resident natural persons, another LTC or a trust. If a Foreign Trust is placed as a shareholder, the client can have access to a proper vehicle to carry out commercial activities and at the same time an inheritance planning structure.
To conclude, New Zealand offers the same or better vehicles than any other jurisdiction but it has the advantages of being an OECD member country, having a modern, flexible and secure legislative system and having signed numerous agreements to avoid double taxation with countries such as Mexico, Spain, United States, Great Britain, China, France and the Netherlands.