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New Zealand Trusts for International Wealth Structuring

Contributed by Henry Brandts-Giesen TEP, Helmores Solicitors, New Zealand
18 August, 2009

New Zealand (“NZ”) has grown in prominence as an international trust jurisdiction over recent years for a variety of reasons including its tax neutrality as regards "foreign" trusts and its economic and political stability. NZ is a respected OECD and FATF member jurisdiction with a solid commercial, professional and judicial framework.

Unlike many other trust jurisdictions offering tax neutrality to trusts established by and for non-residents the NZ foreign trusts regime is based predominantly on deliberate tax concession rather than a contrived legislative framework intended to create a new industry for the economy. The fundamentals of NZ trust law have been in place and have gradually evolved since NZ was first colonised by Great Britain in 1840. NZ has an extensive network of international tax treaties and low level information disclosure requirements.

Polynesian and European heritage

NZ is a former British colony and has a strong Polynesian, European and Anglo-Saxon heritage reflected in English and Maori being the two official languages spoken and governmental and judicial systems based on a Westminster model.

In some circumstances, having a trustee in close geographic proximity to the UK and Europe can be disadvantageous and particularly as the trend continues for courts, revenue authorities and public policy fora in these regions to extend their reach beyond traditional borders. For quite legitimate reasons, clients may desire their assets to be held further afield – even if discretionary management is carried out within the same time zone.

An Emerging Market Outlook

NZ is well situated to clients resident in the major and emerging markets of Asia and also offers many opportunities for Latin American and European clients who, in many cases, are constrained from using "offshore" financial centres due to "blacklisting" by central governments. Furthermore there is a strong Asian and Southern African cultural influence and synergy within NZ society due to high levels of foreign direct investment in and immigration to NZ in recent decades.

The Components of a Trust in NZ

A trust is a relationship under which legal ownership of assets is vested in a trustee whilst the enjoyment of the trust fund is preserved for the benefit of the beneficiaries on terms determined in the trust deed by the person who established the trust (the settlor).

A trust relationship in NZ is comprised of the same important components required under the English common law including:

(a) Settlor

(b) Trustee

(c) Beneficiaries

(d) Trust Fund

(e) Protector (not essential)

Custodian and Advisory Trustees

A unique feature of NZ trust law is that it permits family advisors, settlors and beneficiaries to influence the exercise of powers by the trustees by the use of a mechanism which separates powers between custodian trustees, managing trustees and advisory trustees.

These "remote control" provisions were embedded in NZ trust law to facilitate early settlement by British migrants and are invaluable tools for the international wealth planner to cut across time zones and appease settlors unwilling to surrender complete control to foreign trustees.

For example, a NZ resident custodian trustee could hold the assets whilst discretionary investment management could be delegated to an investment firm in Zurich. Meanwhile, a trusted family advisor resident in the jurisdiction in which the settlor resides could hold office as advisory trustee. The management and administration of the trust could be exercised by a managing trustee based in Jersey or under a delegated administration agreement. All transactions would be implemented by the NZ resident custodian trustee which would also retain the power to review directions given.

Types of trusts in NZ

Various types of trust have been developed over time and the most appropriate structure for the settlement will depend on the settlor's particular circumstances and objectives. Some of the more common types of trust are described below.

(a) Discretionary trust

(b) Fixed interest in possession trust

(c) Accumulation and maintenance trust

(d) Revocable trusts

(e) Charitable trusts

Practical uses of NZ trusts

The range of uses to which a trust may be employed is widespread and constantly evolving but flexibility and confidentiality are the principal advantages which a trust has over other legal forms designed to hold, preserve and transfer wealth. The trust concept has proved to be enormously adaptable and is widely used in wealth structuring including:

(a) Preservation of wealth

(b) Succession planning

(c) Asset protection

(d) Forced heirship avoidance

Aside from use in structuring personal and family wealth NZ trusts can also be used for a range of commercial purposes such as collective investment funds, asset and income securitisation and employee benefit arrangements.

Taxation of trusts in NZ

Where the settlor of the trust is resident outside NZ the trust will be exempt from assessment in respect of NZ tax on income and capital gains arising outside of NZ. Accordingly, the trustee may make distributions out of a trust fund established in NZ without any withholding or deduction for NZ income or capital gains tax. There are no inheritance, wealth or capital gains taxes levied in NZ nor is there any gift duty, stamp duty, value added tax or equivalent forms of indirect taxation charged on the creation or transfer of assets to a trust by a non-resident of NZ.

Successive NZ governments have reviewed and endorsed this long-standing tax treatment of foreign trusts and have emphasised that there is no intention to restrict what is fundamentally a rational and fair regime, which is commercially attractive to international wealth planners.

There are minimal reporting requirements to the Inland Revenue (but important record keeping requirements incumbent on the trustees). The government has stated that the Inland Revenue will not entertain general "fishing expeditions" from tax treaty partners for information on foreign trusts. Any information so provided is subject to existing tax confidentiality laws.

NZ has an extensive network of double taxation agreements in force with its main trading and investment partners. However, since tax legislation in different countries varies considerably it is, of course, imperative that settlors and beneficiaries take independent tax advice prior to establishing an NZ trust.

Creation of a trust in NZ

It is usual for a trust to be created by the execution of a formal written deed. Following execution of the trust deed a trust will come into existence upon settlement of the initial property.

Helmores is able to assist with preparation of all of the appropriate documentation and provide the following services:

(a) initial advice and liaison with professional advisers;

(b) drafting the trust deed and letters of wishes (or deed of retirement and appointment of trustees, as the case may be);

(c) formation of underlying companies to hold trust assets;

(d) preparing and reviewing documentation relating to commercial transactions; and

(e) selecting an appropriate trustee to administer the trust.

Regulatory safeguards in NZ

Generally speaking, NZ government policy encourages industry self regulation and the NZ foreign trusts regime is on all fours with this historical approach to business efficacy. Rather than being an area of weakness, this policy ensures that the highest professional standards are maintained – particularly where the trust corporation is a "qualifying resident foreign trustee" and directors and employees are members of, and therefore regulated by, the New Zealand Law Society or the Institute of Chartered Accountants. NZ trust law requires trustees to observe high standards of conduct.

NZ has been a member of the Financial Action Task Force since 1991 and operates under a responsible anti-money laundering legislative framework. In 1996 the Financial Transactions Reporting Act became law and constitutes NZ’s primary anti-money laundering legislation. The law imposes significant obligations on financial institutions with severe penal and financial consequences for breaches of the legislation. NZ’s anti-money laundering regulatory regime is currently undergoing further review and enhancement.

An OECD alternative

Today traditional "offshore" financial centres face increasing challenges and unprecedented levels of scrutiny. An OECD and FATF member trust jurisdiction such as NZ can offer broadly the same tax, succession planning and asset protection benefits for the discerning client searching for a cross-border wealth management solution.

IMPORTANT NOTE: The accuracy of the information contained herein is limited to matters of NZ law and Helmore Ayers 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.

Henry Brandts-Giesen TEP
New Zealand
Copyright 2009

Summary of Key Features of the NZ Foreign Trusts Regime

· Tax neutrality as regards “foreign” trusts
· Non-blacklisted, OECD and FATF member jurisdiction
· High-quality judiciary and legal profession well versed in trust law 
· Ability to ameliorate time zone difficulties by using NZ entity as custodian trustee with a managing co-trustee or investment manager resident in a more convenient time zone
· Access to a clear and extensive body of substantive law based on an English model
· A tax regime that can be regarded as both rational and fair in determining the extent of tax liability incurred by non-residents associated with trust structures
· A relatively low level of reporting requirements
· Proximity in distance and time to Asia-Pacific region
· Responsible anti-money laundering legislative and regulatory regime 
· Requirement for trustee or director of a trustee to be a member of NZ Law Society, STEP or a Chartered Accountant
· Neutral, non-interventionist government foreign policy


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