In this blog, we'll go through how foreign trusts are formed in New Zealand, as well as how they operate and what disclosure standards they must meet.
What is a Trust?
A trust is a legal agreement in which one person (the settlor) entrusts their assets to another (the trustee) to administer and maintain for the benefit of another (the beneficiary).
If you put something in a trust, it no longer belongs to you if specific conditions are met. This implies that when you die, their value isn't usually taken into account when calculating your Inheritance Tax bill. Instead, the trust owns the money, investments, and property.
In other words, when the property is held in trust, it is not included in anyone's estate for the purposes of Inheritance Tax.
Additionally, it's a useful method for people to manage their assets (money, investments, land, and buildings).
What is a New Zealand Foreign Trust?
A New Zealand Foreign Trust (NZFT) is a trust established for tax purposes by a non-resident but managed by a New Zealand resident trustee.
In essence, foreign-sourced income earned by the trustee of a foreign trust is tax-free in New Zealand if the settlor is not a New Zealand resident.
How do Foreign Trusts in New Zealand function?
Trustees must adhere to the updated disclosure criteria to qualify for a tax exemption on income for your NZFT.
Trustees must register the trust with Inland Revenue and provide the appropriate paperwork within 30 days after establishing a foreign trust or appointing an NZ resident trustee.
What are the main benefits of Trust?
There are a variety of advantages to forming a Trust. Specifically:
- Creditor safety net
- Flexibility and control
- Taxation
What are the disclosure requirements?
You must give certain documentation about your foreign trust when you register your NZFT with Inland Revenue. These are some of them:
- a copy of the deed of trust;
- all settlors, trustees, and beneficiaries' identifying information and contact information, as well as any additional people crucial to the trust (such as appointers);
- information on all trust settlements that have occurred between the time the trust was established and your registration application;
- a written statement that all trust parties are aware of New Zealand's tax and anti-money laundering legislation.
In New Zealand, how are foreign trusts taxed?
For New Zealand residents, foreign income is usually taxed. However, if you earn money from an offshore trust, your NZFT may be eligible for a tax exemption on beneficiary income. However, it must comply with current disclosure laws.
The amount of tax that the trust income is liable to be determined by the settlor's home country's tax regulations.
A settlor, for example, could establish trust in their home nation of Australia to own rental properties in the United States.
They could choose a New Zealand resident trustee to look after the trust's assets. The trust's taxes would be governed by Australian law, and trustees would not be required to pay New Zealand taxes.
The New Zealand Foreign Trust is a useful estate planning instrument since it allows for ownership continuity beyond the settlor's death.
The New Zealand Foreign Trust is an appealing holding structure for many global clients due to the asset protection benefits of trust ownership and the flexibility to distribute income and capital to those beneficiaries who require the funds, including the settlor, as well as the tax exemption on foreign-sourced income.
At Persona Finance, we assist our clients in developing trust with the finest precision and efficiency. Please contact us now for further information on how we can assist you in getting started at [enquiries@personafinance.co.uk].
