Foreign Trusts

A New Zealand Foreign Trust is a Trust settled by a non-resident for tax purposes but with a New Zealand resident trustee. The resident foreign trustee is typically, but not necessarily, a company that is incorporated in New Zealand. Where possible, this company should be demonstrably controlled and managed in New Zealand.

New Zealand Foreign Trust’s are a popular entity type as a trust that is a New Zealand foreign trust as defined in the Income Tax Act 2007, will not be subject to taxation in New Zealand.

Essentially, foreign-sourced income derived by the trustee of a foreign trust is exempt from income tax in New Zealand, provided the settlor is not resident in New Zealand. Income derived in New Zealand by the trustee of a foreign trust is still taxable in New Zealand.

The classification as a foreign trust can change and so must be managed carefully.

If a company is used as the resident Trustee, there must be at least one director who:

  • lives in New Zealand or
  • lives in Australia and who is also a director of an Australian incorporated company.

Foreign Trust Compliance Requirements

To maintain a Trust’s status as an New Zealand Foreign Trust and obtain the tax benefits that flow from this, a resident foreign trustee must do the following each year:

  • Complete a Foreign Trust annual return for each return year after registration;
  • Provide Inland Revenue with a completed Foreign Trust settlements and distributions schedule detailing any distributions from the trust or settlements to the trust, including the name of the settlor or beneficiary, and the amount and date of payment;
  • Complete a Foreign trust connected person schedule including full details of any beneficiaries receiving distributions in a return year, and any new settlors making settlements on the trust during a return year (if applicable);
  • Provide Inland Revenue with full financial statements for the return year, and
  • Pay the prescribed fee of $50 for an annual return for a Foreign Trust.

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