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New Foreign Trust Disclosure Regime
New Foreign Trust Disclosure Regime – Are You Ready?
The passing of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 in February 2017, saw the introduction of new disclosure rules for foreign trusts. A reaction to the so-called Panama papers published in early 2016, which suggested NZ might be considered a tax haven due to its taxation rules with respect to foreign trusts.
Under NZ tax rules, a foreign trust is defined as one where no settlor of the trust has been resident in NZ, between the date the trust was settled and the date of the distribution in question. If the trust satisfies the foreign trust definition, then only NZ sourced income is subject to NZ taxation.
The foreign trust regime was attractive to foreign investors, because unlike most overseas taxing jurisdictions which tax trusts on the basis of the residence of the trustees. NZ’s settlor based regime meant that a non-resident could effectively settle a trust in their home jurisdiction, appoint NZ resident trustees to manage the investments of the trust (which were all located outside of NZ), and potentially have no taxes imposed on the trust income by either jurisdiction, having no trustees of the trust in their home jurisdiction and no income of the trust being derived from NZ sources.
The new rules do not attempt to alter the way foreign trusts are subject to taxation in NZ (settlor residence remains the defining characteristic), instead they introduce a new registration regime, where failure to comply with various disclosure obligations will result in the loss of the foreign sourced income, tax exemption. In other words, not register and/or provide the required details, and the NZ based trustees will become liable to taxation on the trusts worldwide income.
So, who is caught under the new rules:
- Foreign trusts in existence prior to the legislation’s enactment (21st February 2017), have until 30th June 2017 to register. For those settled post the date of enactment, registration is required within 30 days
- There is a four year and thirty-day concession period however, where all the trustees of the trust are natural persons, no trustee is a professional trustee (one in business of providing trustee services), and no trustee has held the trustee role for more than four years and thirty days before enactment of the legislation
And what are the disclosure/registration requirements:
- Each foreign trust must have a resident contact trustee, responsible for any communication with Inland Revenue
- An annual return must be filed within 6 months of the foreign trusts balance date (30 September if no balance date), and include a copy of the financial statements and details of any settlements or distributions made during the past year
- Payment of a registration fee of $270 and annual filing fees of $50 (all fees waived for foreign trusts where solely natural person, non-professional trustees)
- Upon registration,
- a copy of the trust deed;
- identifying particulars and contact details for settlors, trustees and beneficiaries; and,
- information about settlements made from date of formation until the date of application (although reduced disclosures where all natural person, non-professional trustees).
If you are a NZ resident trustee of a foreign trust, and you have not attended to the trust’s registration obligations as yet, time is running out, unless you consider the natural person concession may apply to you.
Should you require any assistance with your registration or simply would like confirmation of exactly what your obligations are, please do not hesitate to contact us.