New Zealand "Look Through Company" Regime
Contributed by: Henry Brandts-Giesen
TEP, Helmores Wealth - International Wealth Structuring,
Email: firstname.lastname@example.org, Website: www.helmoreswealth.com
The New Zealand Government has recently
introduced a new company regime to take effect
from 1 April 2011.
Officially the new type of company is referred
in the legislation as a "look through company".
This is perhaps unfortunate as it may convey an
impression that it is a company in which the corporate
veil of limited liability is somehow compromised.
However, readers can be assured that the moniker
is simply a reference to the fiscal transparency
of the entity.
It is expected that the new regime will further
enhance New Zealand's credentials as a jurisdiction
for international wealth structuring (holding
assets which are not situated in New Zealand for
the benefit of people who do not live in New Zealand).
New Zealand is already well established in providing
tax neutral legal architecture through the use
of New Zealand "foreign" trusts and
limited partnerships. However, one of New Zealand's
points of difference is that it is an OECD member
jurisdiction and therefore distinct from "offshore"
financial centres which offer similar solutions.
New Zealand is also well positioned in time and
space to the rapidly growing Asia-Pacific region.
New Zealand company law is derived from English
common law and statute.
Historically, companies registered in New Zealand
have been taxed in New Zealand on their worldwide
income at the prevailing tax rate of the time.
The company tax rate for income in New Zealand
is currently set at 28% after being reduced from
30% by the present government in April 2010.
Basic features of the new regime
A "look through company" will be an
orthodox New Zealand limited liability company
established and constituted pursuant to the Companies
However, the new legislation allows companies
which meet certain criteria to be treated differently
for tax purposes than previously. Such companies
are available for registration and use by both
residents and non-residents of New Zealand.
Shareholders of existing and newly established
New Zealand registered companies can elect to
become a "look through company". The
1. have 5 or fewer shareholders;
2. be New Zealand resident for tax purposes;
3. issue only shares that have the same voting
and participation rights; and
4. have only natural persons or trustees as
New Zealand resident shareholders of "look
through companies" will pay tax on the company’s
profits and use losses at their marginal tax rate.
The highest marginal rate of income tax applicable
to New Zealand resident individuals was recently
reduced from 38% to 33%.
The income, expenses, tax credits, rebates, gains
and losses of a "look though company"
will be passed on to its shareholders pro rata
with their shareholdings in the company. This
creates a fiscally transparent vehicle identical
in its tax treatment to the New Zealand limited
partnership. Like a limited partnership, a "look
through company" retains its identity as
a registered entity and keeps the benefits of
limited liability and separate legal personality.
The existing corporate obligations and benefits
under New Zealand company law are preserved.
The look through treatment applies for income
tax purposes only. There is no general capital
gains tax in New Zealand nor are there any inheritance
or estate taxes or stamp duty land taxes.
In a fiscal sense, the shareholders of the "look
through company" are regarded as holding
company assets directly and carrying on the activities
of the company personally. Therefore, in the normal
course of events, a sale of shares in a "look
through company" is treated as a sale of
the underlying asset.
Uses for international wealth structuring
The new "look through company" regime
will provide significant benefits to non-residents
of New Zealand who use New Zealand vehicles for
international wealth structuring purposes.
Section BD 1(5)(c) of the Income Tax Act 2007
provides an exemption from tax in New Zealand
on income derived by a non-resident provided that
income does not have its source in New Zealand.
This means that a foreign shareholder of a "look
through company" that only receives foreign
sourced income will not be subject to tax in New
Whilst the new regime offers most of the same
tax benefits of a limited partnership it also
provides the widely recognised legal form of a
company and will complement the New Zealand limited
partnership and "foreign" trust for
international wealth structuring. In some cases
will be used in conjunction with either or both
of those vehicles rather than as an alternative.
For example, where the entire issued share capital
of a "look through company" is owned
by the trustees of a New Zealand "foreign"
trust (or a Jersey, Cayman or Singapore trust
for that matter) then the company could hold assets
or trade or otherwise earn income outside New
Zealand without any withholding for tax in New
Similarly, a New Zealand "look through company"
could be the limited partner of a New Zealand
limited partnership. Provided the limited partnership
does not derive New Zealand sourced income and
the "look through company" as limited
partner does not have any New Zealand resident
shareholders or other New Zealand sourced income
then there will be no withholding for tax in New
The "look through company" regime also
presents the international market with an OECD
alternative to the more well known but (often
unfairly) stigmatised "offshore" companies,
"international business companies" or
"IBCs" provided by Jersey, British Virgin
Islands, Cayman and so forth. In practice, a New
Zealand "look through company" is more
of a Delaware LLC style entity than an IBC but
the likely uses will be similar – trading,
investment holding, captive insurance, introducing
brokering and perhaps even closely held, closed
ended collective investment funds.
"Look though companies" (and indeed
any other types of New Zealand registered entities)
that undertake financial services (which may include
"Introducing Brokers") will be required
to register on the newly launched New Zealand
Financial Service Providers Register.
Other new developments from New Zealand
It is also expected that in, due course, all
New Zealand companies will be required to have
a New Zealand resident director or "agent".
It is not yet clear whether this will be a fully
fledged directorship requirement or a more watered
down agency or company secretary requirement –
and if the latter what will be powers and duties
of that office. This amendment to the law is long
overdue and will assist to protect the reputation
of the jurisdiction from damage by nefarious persons
In other news, the current New Zealand government
led by Prime Minister John Key (a former Merrill
Lynch senior executive) has also announced its
intentions to establish New Zealand as a centre
of excellence for international fund administration
Back and middle office fund administration is
already carried out in New Zealand. There can
be time zone advantages for hedge funds trading
Wall Street and Chicago Mercantile Exchange list
securities in having daily pricing carried out
in New Zealand. The business day in New Zealand
starts just as those exchanges are closing thereby
allowing net asset value calculations to be processed
and reported to investors before the markets reopen
Similarly the costs base in New Zealand is considerably
lower than in other jurisdictions but levels of
quality assurance are generally high (depending
on the service provider selected). Modern technology
and flexible working patterns now mean that the
tyranny of distance and time is no longer an issue.
This is even less of an issue where the funds
have an Asia-Pacific regional theme.
It is widely hoped that this nascent fund administration
industry will be enhanced by the implementation
of UCITS or a similar "gold" standard
fund regulatory passport which would allow funds
to not only be administered but also established,
domiciled and regulated in New Zealand.
IMPORTANT NOTE: The accuracy of
the information contained herein is limited to
matters of New Zealand law and Helmores Wealth
does not advise with respect to the laws of any
other jurisdiction. An arrangement of this nature
may not be appropriate in every case and must
be tailored for the specific client. As individual
circumstances vary it is imperative that independent
tax and legal advice be taken in all relevant
jurisdictions and that there is complete adherence
to all relevant laws. This publication is of a
general nature only and is not intended to be
relied upon as, nor to be a substitute for, professional
advice or in formulating any business decisions
without first seeking such advice. Accordingly,
the material included herein should be viewed
as a general guide, and professional advice should
be sought with reference to specific circumstances.
Helmore Wealth accepts no liability in this respect.
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