The levelling of the whole jurisdictional playing field commenced with the decisions made at the G20 meeting on 2 April 2009, when the traditional ‘offshore’ tax havens were severely challenged by the major nations including USA, UK, France and Germany in their drive to regain their ability to collect taxes they had seen disappearing from their grasp. OECD subsequently classified the tax efficient countries into effectively White, Grey and Black lists. Grey and Black listed ‘tax havens’ were able to improve their standings if they consented to sufficient Tax Information Exchange Agreements (TIEAs) and Double Tax Agreements (DTAs) with OECD countries to remove the secrecy previously existing. These moves together with the US attack on Swiss banks’ secrecy, provided the ‘offshore’ industry with a new appreciation that their clients could obtain equal, if not better, reduction of tax, asset security and succession plans, from utilising New Zealand which is ‘onshore’, without tax haven connotations, and often less expensive than the traditional tax havens.
Advantage New Zealand
New Zealand has never been black listed by any jurisdiction or authority in the world, nor been classified by the OECD as a harmful tax jurisdiction, and has no connotations as a tax haven. It is a member of the OECD and the World Trade Organisation and FATF. There are no capital gains taxes, inheritance taxes, forced heirship or stamp duties. New Zealand is a member of the British Commonwealth, English is the main language. It has a common law system, and the majority of legislation including trust law is founded on British law. It has the same day time zone for the Asia Pacific region and is usually 12 or 13 hours ahead of Europe. It is not a member of the EU, and therefore is not directly under the EU Savings Tax Directive, and can provide Apostilled and Notarised documentation.
In today’s unstable times New Zealand is considered a safe location and offers long term security. Its administration is stable, competent and free from corruption. New Zealand has a well developed infrastructure, including a progressive and robust economy, efficient telephone and internet services, competitive and frequent air travel, reliable internet global banking services, experienced, reliable professionals serving global clients with tax advice and tax opinions in addition to the preparation and administration of trusts, companies and limited partnerships.
New Zealand’s Double Tax Agreements and Tax Information Exchange Agreements
If dividends, interest or royalties are received from investments flowing from 37 main trading partners where there exist double tax agreements (DTAs), then the rates of withholding tax are generally reduced to between 10-15 per cent. For example US dividends usually have a 30 per cent withholding tax where a non double tax treaty country is a recipient, however, this could be reduced to 15 per cent in the New Zealand situation. This would be a final tax in situations where no New Zealand tax is paid by a tax effective structure. There are also other benefits provided by double tax agreements.
The specific 37 countries are: Australia, Austria, Belgium, Canada, Chile, China, Czech Republic, Denmark, Fiji, Finland, France, Germany, Hong Kong, India, Indonesia, Ireland, Italy, Japan, Korea (Republic of), Malaysia, Mexico, Netherlands, Norway, Philippines, Poland, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, United Arab Emirates, United Kingdom, and United States. Higher rates of Non Resident Withholding Tax may apply to other countries.
New Zealand has 18 TIEAs with Anguilla, Bahamas, Bermuda, BVI, Cayman Islands, Cook Islands, Dominica, Gibraltar, Guernsey, Isle of Man, Jersey, Marshall Islands, Netherlands Antilles, St Christopher and Nevis, St Vincent and Grenadines, Samoa, Turks and Caicos Islands, and Vanuatu.
New Zealand Commercial Law
The commercial law is current and modern for New Zealand structures. The New Zealand Foreign Trust laws were significantly updated in 2006 and the New Zealand Limited Partnership legislation was introduced in 2008. The Companies Act was totally re written in 1997 and is regularly updated (as recently as July 2010). The Look Through Company legislation became effective from 1 April 2011.
Tax advantageous Structures Provided in New Zealand
New Zealand Look Through Company (LTC) – No NZ Tax
A new type of New Zealand registered company called a “Look Through Company” (LTC) became available from 1 April 2011. This can provide a similar tax outcome to the NZ limited Partnership (see below). This will provide a transparent situation for a maximum of five counted persons. These must be individual persons (although family members up to two degrees of separation are counted as one person). In addition trustees for trusts can also be shareholders (which can potentially provide for many personal beneficiaries). Providing the shareholders meet these criteria and the directors are offshore individuals, then whatever income is sourced from offshore, will provide NZ tax free income to the personal shareholders. This new option enables us to accommodate the needs of many offshore clients in a comparatively economic structure, which should have the same or very similar tax outcome as the NZ Limited Partnership, and the NZ Foreign Trust.
There has been discussion that this new LTC may likely replace the traditional the US LLC, and possibly also BVI structures, as blacklisting forces more clients to move from the offshore tax havens to the true onshore jurisdictions. For example the Italian Government has blacklisted a great many US States’ LLC’s (even though the OECD is unlikely to do the same). Current prediction are that NZ LTCs will likely be the International Business Company of choice as the clamp down on tax havens gathers pace.
New Zealand Limited Partnership (LP) – No NZ Tax
This structure is similar to Limited Partnerships found in many other countries. A NZ registered LP with an offshore general partner (manager) and either limited partners from Territorial Tax countries such as Hong Kong, Singapore, Seychelles Panama etc, or alternatively NZ tax free partners, such as Look Through Companies, NZ Foreign Trusts or other NZ Limited Partnerships. This is a fiscally transparent entity and is not taxed in New Zealand. The source of income rules are important, and therefore in many cases it is appropriate to use a non-New Zealand company as the general partner to ensure the income is not sourced in NZ. Limited Partners cannot be involved in any management issues, but safe harbour activities it can engage in include constitutional matters.
The Limited Partnerships regime recognises that limited partners may not wish to publicly disclose their interest in a Limited Partnership. As a result, the Registrar must treat limited partner information as confidential and only details relating to general partners are available for viewing by the public.
No audit of the Limited Partnership is presently required.
New Zealand Agency Company
This is an independent New Zealand Agency Company, which is formed to act for one or more principal businesses based in an offshore tax free jurisdiction. This jurisdiction could be for example Cayman Islands, Seychelles, Panama etc. However as a result of being classed and tainted as tax havens their attractiveness as jurisdictions standing alone has waned considerably. The New Zealand Agency Company, provides an ideal structure and “clean” face to represent non associated principals. There is a written Agency agreement between the agency and principal, which for example could provide for commissions of say five per cent to 10 per cent of the total invoices raised/profits generated and the remaining 90-95 per cent then being available to be transferred to the account of the principal company free of any further taxation. The New Zealand Agency Company must be non-associated with the principal, and the Agency Company’s remuneration would need to be based on ‘fair market value’, otherwise the transfer pricing regime could be triggered which would disadvantage the taxation outcomes. Most often the Agency Company will have very little NZ tax to pay.
New Zealand Companies, or Trading Trusts
New Zealand Companies, or Trading Trusts are required to operate businesses within New Zealand. These companies will be taxable in New Zealand on world-wide income. However, there will likely be superior tax outcomes if a look through company, or a trading trust, rather than a ‘standard’ company can be utilised. The reason is, even between Double Tax Treaty countries, there are no tax credits for corporation tax paid, in another treaty country. Only credits for withholding taxes (deducted in the country where the income is sourced) are available for companies.
Re-domiciliation of offshore companies and trusts into New Zealand
The New Zealand Companies Act allows existing companies, presently registered in other offshore jurisdictions, to be re-domiciled into New Zealand, providing the company legislation of the country from which the company is exiting permits this. The registration of the same company ceases in the foreign country, simultaneously with the registration in New Zealand. The same plan can operate in reverse, providing the overseas jurisdictions company office accepts New Zealand companies.
Similarly trusts, resident in foreign jurisdictions, can also be re-domiciled into New Zealand. These measures can resolve problems where the existing jurisdiction is, for example, facing black listing issues.
International Funds Management Opportunities in New Zealand
The New Zealand Government has recently formed an Action Task Force to review the local commercial environment, and to endeavour to make this attractive to large offshore funds management, to locate or re-locate funds management and/or back office services to New Zealand. The country can presently offer modern and effective Limited Partnerships, Foreign Trusts, and Look Through Companies, which can both be utilised for offshore funds to provide tax free outcomes.
New Zealand Service Providers
New Zealand Service Providers are competent and have high standards, can provide tax and compliance advice, accounting, legal opinions and are internationally competitive from a cost perspective.
Please contact the personnel at NZ Securities Trusts for additional explanations or information. www.nzsecurities.com