New Zealand Companies and Trusts

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General Introductory and Offshore Tax Information

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

New Zealand Offshore Business Entities:

  • New Zealand Limited Partnership
  • New Zealand Company
  • New Zealand Qualifying Company
  • New Zealand Loss Attributing Qualifying Company
  • New Zealand Trust

New Zealand Limited Partnership

Main Features:

  • Replaces (repeals) the Special Partnership which was constituted under the Partnership Act 1908
  • Defined and governed by the Limited Partnerships Act 2008 under which both Limited Partnerships and Overseas Partnerships are incorporated
  • Includes both general partners and limited partners; the former who is liable for all debts and obligations and latter whose liability is limited to his/her capital contribution
  • Was introduced as an appropriate structure that would enhance the development of venture capital and private equity sectors in New Zealand by removing the barriers which limited foreign capital investment
  • Separate legal entity
  • May have a definite or indefinite duration
  • Are endowed with a safe harbor mechanism so that the limited liability status of Limited Partners cannot be undermined
  • Limited Partners are unable to actively undertake managerial responsibilities (on a day to day basis); however, they are permitted to partake in safe harbor activities which primarily include being involved in making decisions. For example, making decisions regarding amendments to the Partnership Agreement; approving or vetoing proposals for investments; amending the nature of the partnership; and dissolution
  • Particulars of the New Zealand Limited Partnership filed at the Companies Registry are not made available for public scrutiny in respect to providing privacy to the partners
  • Financial statements are to be prepared by the general partners of a New Zealand Limited Partnership but only issuers are required to file financial statements (Financial Reporting Act 1993)
  • As of May 2008, applications, filing annual returns and register searches were able to done online free of charge

New Zealand Partnerships

  • Ordinary type of partnership governed by the partnership Act 1908
  • All partners are general partners and are jointly responsible for all the partnership’s debts and liabilities during their tenure as partners Overseas Limited Partnerships
  • Defined under the same legislation as the Limited Partnership
  • Is incorporated in a foreign jurisdiction but operates in New Zealand
  • Must be registered in New Zealand as an Overseas Limited Partnership in order to transact in New Zealand

New Zealand Company

Main Features

  • Independent legal entity separate from its owners
  • May be incorporated as a New Zealand company with limited liability (Limited Liability Company) or with unlimited liability; all companies are automatically incorporated with limited liability except if stipulated otherwise in the company’s constitution
  • New Zealand companies with limited liability must end their names with the word ‘Limited’ or ‘Tapui (Limited)"
  • Defined under the Companies Act 1993 No 105, Public Act
  • Any amendments to directorship regarding new appointments or termination must be reported within 20 working days
  • Company constitutions are optional
  • Shares constitute personal property and can be classed as redeemable shares, preferential shares, shares with conditional, limited or special voting rights, shares without voting rights
  • Shares must not have nominal or par value
  • Minimum of one director
  • Minimum of one shareholder whose liability may be limited or unlimited
  • Must have a name; names must be reserved if being changed and newly registered
  • Can act, undertake business and transact within and outside New Zealand
  • Directors must be over 18 years of age
  • Certificate of Incorporation issued upon registration and incorporation
  • All New Zealand companies must have a registered office in New Zealand

New Zealand Overseas Company

  • Identified as such for either using or establishing a share registration or transfer office in New Zealand or being an agent, trustee or personal representative responsible for managing property situate in New Zealand Exempt Company
  • Are defined by the Financial Reporting Act 1993 No 106
  • Does not relate to tax exemption
  • Includes any company with the exception of overseas companies and issuers
  • A company can qualify as a New Zealand exempt company if it did not own subsidiaries or was not a subsidiary at the end of the accounting period; does not have assets valued over $1million and a turnover of more than $2 million, and or does not have 5 or less employees at the end of the accounting period Existing Company
  • Simply refers to companies which were constituted under the Companies Acts passed prior to the Companies Act 1993 (Joint Stock Companies Act 1860, Companies Act 1882, Companies Act 1955, Companies Act 1908 and 1903, Companies Act 1955)

New Zealand Qualifying company

Main Features:

  • New Zealand corporate structure which for tax purposes is specially designed to treat companies and their shareholders as a single entity (similarly to partnerships)
  • Independent legal entity separate from its owners
  • Ability to distribute capital gains tax free
  • Shareholders are liable for tax on dividends only if imputation credits are attributed to those dividends
  • Foreign company dividends are tax exempt because they are liable to foreign dividends withholding payments once received
  • Qualifying company election tax allows for qualifying companies to be taxed depending on the total sum of an dividend to which imputed credits were not attributed
  • Forfeits losses suffered and or carried forward prior to being constituted as a qualifying company

New Zealand Loss Attributing Qualifying company (LAQC)

Main Features:

  • Must be a New Zealand Qualifying Company; cannot have the structure of any other ordinary New Zealand company or entity
  • An already existing qualifying company can be converted into a loss attributing qualifying company
  • Established especially to be able to pass losses to shareholders
  • Losses are passed in proportion to a shareholder’s capital contribution
  • Losses can be either carried forward or deducted as claims because they are treated as expense incurred in deriving gross income
  • Once passed on to shareholders, losses cannot be carried forward by the company
  • Losses can be passed on to non-resident shareholders but claims can only be determined by that shareholder’s country of tax residence

New Zealand Trust

Main Features:

  • Tax rules for trusts are also applicable to estates of deceased persons
  • Income of a New Zealand trust may include settlements of property on a trust
  • May be settled by companies
  • Trust property is managed, administered and held in trust on for one or more beneficiaries by the trustee
  • The trustee of a New Zealand trust can be a company

Complying Trusts:

  • Only New Zealand trusts which earn amounts deemed to be gross income in accordance with the Income Tax Act. A New Zealand trust that no longer meets this standard is considered a non complying trust Foreign trusts
  • Refer New Zealand trusts whose settlors are not and were never residents of New Zealand from the time the trust was settled or whose settlors ceased from being residents after December 17, 1987
  • Foreign trusts automatically lose non-resident status if any settlement is made by a New Zealand resident or a distribution is made after a settlor becomes a resident Non complying trusts
  • Differ from complying and foreign trusts at the moment of making a distribution
  • Established in a foreign jurisdiction, has non-resident trustees but a resident settlor
  • Since being established has not been liable for tax on income in New Zealand
  • May also refer to trusts which are tax liable but have not paid
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