Foreign trusts are trusts that are established in New Zealand, but, no settlor (the person who settles assets on the trust) is resident in New Zealand at any time. However, a foreign trust will have one or more trustees resident in New Zealand.
Under the Provisions of the Income Tax Act 2007, tax on trusts is assessed in accordance with the tax residency of the Settlor, not the Trustees. Therefore a foreign trust can be administered in New Zealand, but will not be required to pay tax here.
For a trust to be a “Foreign trust”, the trust must derive all of its income from assets held offshore. Trust income is then usually taxed in the country of the income’s source or origin.
As a result of the 2016 Panama Papers leak, the Government commissioned an enquiry into Foreign Trust Disclosure Rules (Shewan Report). The Shewan Report identified a number of areas where reporting requirements for foreign trusts were deficient. In response, the New Zealand Government has taken steps to tighten up these shortcomings.
New Disclosure Requirements for Foreign Trusts
From 30 June 2017, in order for a Foreign Trust to obtain a tax exemption on its foreign-sourced income, the trust will be required to meet new disclosure requirements.
- Foreign Trusts with a New Zealand resident trustee will be required to register with the Inland Revenue Department (IRD). A registration fee of $270 will apply.
- The trustee responsible for registering the Trust will become known as the “Contact Trustee”.
For registration purposes, the Contact Trustee must provide the following information:
- The trust deed, together with any variations or amendments;
- Details for each connected person (including settlors, trustees and beneficiaries) to the trust, including their:
- Full names and contact information;
- Confirmation of tax residence; and
- Taxpayer Identification Numbers.
- Details of any settlement of assets on the Trust, including:
- Full names of any settlors;
- The amount(s) settled; and
- Date of settlement took place
- The Contact Trustee must also provide a declaration stating that each connected person has been informed of their obligations and that they have all agreed to provide the information necessary for compliance with those obligations under:
- The Tax Administration Act 1994; and
- The Anti-Money Laundering and Countering Financing of Terrorism Act 2009, and its regulations.
- Where a connected person cannot be located, the Contact Trustee must outline the steps they have taken to locate that connected person.
- Going forward, the Contact Trustee will also be required to:
- Complete and file an annual return for the Trust, with information in relation to any settlements and/or distributions that have taken place over the past 12 months;
- Pay the prescribed fee for an annual return for a foreign trust of $50;
- Inform the IRD of any changes to the information they have provided. This must be done within 30 days of the Contact Trustee becoming aware of the change;
- Complete any new declarations that may be required when there are new connected persons; and
- Inform the IRD if the Contact Trustee is to be changed.
For further information on Foreign Trusts and their disclosure requirements, please contact a member of the Succession and Wealth Protection Team at Norris Ward McKinnon.
Alice Nunn is an Associate in the Succession & Wealth Protection Team at Norris Ward McKinnon. Contact Alice
Jonathon Russell is a Solicitor in the Succession & Wealth Protection Team at Norris Ward McKinnon. Contact Jonathon
