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Offshore Trusts Report: New Zealand

Legal Framework and Formation Rules and Fees

New Zealand is not offshore, and it is not even considered a ‘low-tax’ country. Nonetheless, New Zealand is one of the world’s major trust jurisdictions, and estimates for the number of trusts formed in the country, which stand anywhere between 250,000 and 400,000, bear testament to this.

It is probably because of, rather than in spite of, its membership of the OECD and its status as a ‘reputable’ and ‘tax cooperative’ jurisdiction that this growth has taken place in the trust sector, with many governments now discouraging taxpayers from setting up offshore investment structures in one form or another. The country’s proximity to a growing reservoir of personal wealth in the Asia-Pacific region has also fuelled demand for New Zealand trusts, while its common law legal framework also appeals to investors in the UK and North America.

Despite the fact that New Zealand does not have the strong banking secrecy or financial privacy laws that are in place in some offshore jurisdictions and banking centres, confidentiality is reasonably secure as regards trusts. New Zealand has a network of almost 40 bilateral double tax treaties with information sharing provisions, but the Inland Revenue Department tends only to accept specific foreign requests for information from trustees and does not permit ‘fishing expeditions’ from overseas tax authorities. Legislation which went into effect on October 1, 2006 now requires foreign trusts to maintain records in New Zealand to make such requests easier to comply with. However, trusts may be permitted to maintain records with a foreign party provided that they can show the IRD that arrangements are in place to allow the information to be easily accessed by the tax department.

Given its historic links to the UK, trust law in New Zealand is based heavily on English trust law and the main statute governing trusts, the Trustee Act 1956, is similar to the UK Trustee Act 1925. New Zealand has not yet enacted domestic legislation to give recognition to the Hague Convention on the Law Applicable to Trusts and on their Recognition.

The trust sector is a largely self-regulating industry and trustees are given fairly wide latitude in the investments they can make. However, the law was tightened up by the Trustee Amendment Act 1988 which bestows on the trustee the duty to invest “prudently”. Under this provision, a trustee exercising any power of investment shall exercise the care, diligence, and skill that a prudent person of business would exercise in managing the affairs of others. The threshold of this duty increases if the trustee’s profession is that of investing money on behalf of others.

The matters to which trustees may have regard in exercising their powers of investment under the Trustees Act 1956 include (but are not limited to) the following:

  • the desirability of diversifying trust investments;

  • the nature of existing trust investments and other trust property;

  • the need to maintain the real value of the capital or income of the trust;

  • the risk of capital loss or depreciation;

  • the potential for capital appreciation;

  • the likely income return;

  • the length of the term of the proposed investment;

  • the probable duration of the trust;

  • the marketability of the proposed investment during, and on the determination of, the term of the proposed investment;

  • the aggregate value of the trust estate;

  • the effect of the proposed investment in relation to the tax liability of the trust; and

  • the likelihood of inflation affecting the value of the proposed investment or other trust property.

  • Trustees have a statutory right of indemnity under the Trustee Act 1956.

    A New Zealand trust is created by the execution of a formal written deed. Trusts created in writing may be either by a settlement of trust signed by both the settlor and the trustee, or by a declaration of trust signed by the trustee alone. No particular form of words is required and sealing or delivery of deeds is not required.

    If a trust does not have an express power of variation contained in the deed, the trust deed may not be amended or modified without making a successful application to the High Court to vary the deed.

    The most popular form of trust is the discretionary trust. Estate tax was abolished in the 1990s and gift duty was repealed in 2011, so this type of trust is typically used by families in New Zealand as an asset protection vehicle. Fixed interest trusts are also used but are less common. Charitable trusts are also available, but non-charitable purpose trusts are not permitted.

    Under the Perpetuities Act 1964, the perpetuity period applicable to a disposition under the rule against perpetuities is 80 years. The Perpetuities Act 1964 sets out that the rule against accumulations may apply to directions to accumulate but not to powers to accumulate if the latter are specifically given to trustees.

    Any trustee corporation may be appointed and may lawfully act as the sole trustee in respect of any trust.

    The instrument creating the trust may provide for or direct the appointment of 2 or more trustees. Advisory trustees may also be appointed to assist the trustee and any corporation may be appointed to be custodian trustee of any trust in any case where it could be appointed to be trustee.

    The Court has powers to make an order appointing a new trustee or new trustees, either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.

    The Court may take into account investment strategy in an action for breach of trust. In considering any action for breach of trust arising in respect of or in relation to any investment by a trustee as a result of which any loss or losses have been, or are expected to be, sustained by the trust, the Court may set off, as it thinks just, all or any part of the loss or losses resulting from that investment against all or any part of the gain or gains resulting from any other investment, whether in breach of trust or not.

    The Report

    Offshore Trusts Guide: Introduction

    Offshore Trusts Guide: Jurisdictions

    Bahamas Barbados Bermuda British Virgin Islands Cayman Islands Cook Islands Cyprus Gibraltar Guernsey Isle of Man Jersey Liechtenstein Madeira Malta Mauritius Monaco Nevis New Zealand Panama Seychelles Turks & Caicos Vanuatu

    New Zealand News

    NZ Foreign Trust Numbers Expected To Fall
    Tuesday 27/6/2017
    Fewer than 70 out of 11,645 New Zealand foreign trusts have reregistered following the introduction of tougher disclosure and eligibility requirements, with only three weeks left to go before the final deadline.

    New Zealand Explains Foreign Trust Disclosure Changes
    Monday 27/3/2017
    New Zealand has published guidance on the increased disclosure requirements for foreign trusts with New Zealand-resident trustees.

    New Zealand Tax Changes Enter Into Force
    Tuesday 28/2/2017
    A Bill including provisions to simplify New Zealand's tax processes, reduce compliance costs for smaller businesses, and tighten foreign trust disclosure rules received Royal Assent on February 21.

    NZ Introduces Bill To Simplify Business Taxes
    Monday 8/8/2016
    A bill containing proposals to simplify New Zealand's tax processes, reduce compliance costs for smaller businesses, and tighten foreign trust disclosure rules was introduced in Parliament on August 8, 2016.

    New Zealand To Set Up Register Of Foreign Trusts
    Wednesday 13/7/2016
    The New Zealand Government announced on July 13 that it would create a register of foreign trusts, searchable only by regulatory agencies.

    NZ Publishes Findings On Foreign Trusts
    Tuesday 28/6/2016
    The New Zealand Government on June 27, 2016, released tax expert John Shewan's independent Inquiry into Foreign Trust Disclosure Rules, and the steps it is taking to strengthen tax rules as part of its work with the OECD to clamp down on base erosion and profit shifting.

    NZ Inquiry Launched On Foreign Trust Disclosure Rules
    Tuesday 3/5/2016
    New Zealand's Minister of Finance, Simon English, and the Minister of Revenue, Michael Woodhouse, has established a government inquiry into Foreign Trust Disclosure Rules.

    New Zealand To Review Foreign Trusts' Transparency
    Tuesday 12/4/2016
    The New Zealand Government has appointed tax expert John Shewan to conduct an independent review of disclosure rules covering foreign trusts registered in the country.

    NZ Revenue Minister Says Tax Regime Robust
    Wednesday 6/4/2016
    New Zealand's Revenue Minister, Michael Woodhouse, has defended the country's tax system in response to calls from opposition parties to tighten the tax rules following the so-called "Panama Papers" leak.

    NZ Introduces Property Tax Reform Bill
    Tuesday 17/11/2015
    New Zealand introduced a tax bill on November 16, 2015, for a new withholding tax on sales of residential property by people who live overseas and go on to sell the property within two years of purchase.