In New Zealand a variety of corporate structures is available for doing business. However, some structures are more appropriate than others if intended to be used offshore. Companies with limited liability for example are credible structures and because of their common use internationally are readily accepted as trading partners in any country. Partnerships may have their pros, but for offshore trade are better structured as limited partnerships, again because of credibility as limited entities especially given that partnerships are not companies but rather a relation established between individuals and as a result have their own structural and administrative peculiarities. A sole trader on the other hand is not deemed to be a company and because of its disadvantages is not recommended for international trade. The use of the sole trader would therefore be limited to domestic use in New Zealand by individuals who are into small businesses by themselves.
Company tax liability in New Zealand is assessed on the basis of residency. As such, a New Zealand company is tax resident if incorporated under the Companies Act 1993, if controlled and managed in New Zealand and if a head office has been established there. This indicates that a New Zealand company is not liable to New Zealand tax if a head office has not been setup in New Zealand and control and management takes place abroad. Such a company can be considered a New Zealand offshore company.
New Zealand therefore makes it possible for companies and other corporate structures to operate both onshore and as offshore companies; exempted from tax liability on income and profits earned or sourced outside New Zealand. Careful note must be taken of the non-resident withholding tax (NRWT) which may be misconstrued to mean a withholding tax imposed on non-residents (individuals, members of non-resident companies) but which instead is imposed on residents for dividend, interest and royalty payments made to non-residents. As it concerns Australia and New Zealand companies, Australian companies with a permanent establishment in New Zealand are tax residents of New Zealand.
With reference to New Zealand trusts, the same concept of residency applies for tax purposes. New Zealand trusts are subject to provisional tax which is calculated on the trust’s residual income tax (RIT) if at the end of the financial year the trust’s income exceeds $2,500. The RIT value is measured after having deducted all claimable tax credits. New Zealand tax is also applied on the income of the persons who make up the trust such as the trustee, beneficiary and settlor. A trustee’s income, for example, is taxed at a flat rate of 33% on income earned in New Zealand whether the trustee is a resident or not a resident of New Zealand. But income becomes taxable even though originating in a foreign jurisdiction if any of the trust’s settlors reside in New
Zealand for any financial year; and if upon the death of a settlor of a testamentary or inter vivos trust, he or she was a New Zealand resident. To avoid all forms of taxation, the trustee of a New Zealand trust must at all times be resident in a foreign jurisdiction; or should have not made any settlement on the trust at any time after December 17, 1987; or if settlements were made, should have been done by settlors who have not resided in New Zealand at any time after December 17, 1987
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