New Zealand Foreign Trust Disclosure Rules

Background

On 11 April 2016 it was announced by New Zealand’s (NZ) Minister of Finance, Hon Bill English, and Minister of Revenue, Hon Michael Woodhouse, that an inquiry into NZ’s foreign trust disclosure regime would be undertaken by Treasury.

The inquiry came on the heels of the Panama Papers leak which had lead New Zealanders to question whether NZ foreign trusts were being used by wealthy individuals in structures that facilitated tax evasion, aggressive tax planning, money laundering and the hiding of assets offshore.

The inquiry resulted in a recommended that a significant increase in information disclosed when a foreign trust is established, combined with annual reporting and increased policing, was required.

The recommended changes have not been ratified as law, however the NZ Government intends to introduce a Tax Bill this month that will include amendments related to foreign trust registration and foreign trust disclosure rules as outlined below.

Changes recommended

Registration process and NZ Foreign Trust disclosure

  • All foreign trusts are required to register with the New Zealand Inland Revenue Department (‘IRD’) on establishment (existing foreign trusts must register by 30 June 2017).
  • The following information must be disclosed at registration:
  • the name, email address, foreign residential address, country of tax residence and Tax Identification Number of:
  • the settlor(s);
  • the protector (if any);
  • non-resident trustee(s);
  • any other natural person who has effective control of the trust (including through a chain of control or ownership);
  • beneficiaries of fixed trusts, including the underlying beneficiary where a named beneficiary is a nominee.
  • for discretionary trusts, any class of beneficiary not listed in the trust deed; and
  • the trust deed must be lodged with the registration form.
  • The settlor(s), person establishing the trust and the trustees must sign a declaration that they have been advised of, and agree to provide information to comply with:
  • the record keeping requirements in the Tax Administration Act;
  • the Anti-Money Laundering and Countering Financing of Terrorism Act and Regulations; and
  • the Automatic Exchange of Information/Common Reporting Standard requirements (once enacted).
  • A register of foreign trusts must be maintained. This will not be available to the general public; it will only be searchable by regulatory agencies.

Ongoing tax and compliance obligations

  • The exemption from NZ tax on foreign sourced income will only apply to a foreign trust that has registered and fulfilled their disclosure obligations at that time.
  • Foreign trusts will be required to file an annual return with the IRD that includes:
  • any changes to the information provided at registration;
  • the trust’s annual financial statements; and
  • the amount of any distributions paid or credits and the names, foreign address, Tax Identification Number and country of residence of the recipient beneficiaries.
  • Any existing foreign trusts must met the annual return requirement from the income year starting 1 April 2017.
  • Foreign trusts will be required to pay a registration fee of NZD $270 and an annual filing fee of NZD $50.
  • The safe-harbour for foreign trusts with a qualifying resident foreign trustee will be removed.

Link to anti-money laundering (AML) rules

  • As part of its obligations as a member of the Financial Action Task Force, NZ enacted the Anti-Money Laundering and Countering of Financing of Terrorism Act 2009 (‘AML Act’). The AML Act took effect from 20 June 2013 and contains a number of regulatory obligations that are relevant to foreign trusts.
  • Broadly, the AML rules will not affect the foreign trust itself, but rather the entity that assists in establishing the foreign trust (such as accountants and lawyers). The entity establishing the foreign trust will be required to conduct appropriate due diligence in relation to the foreign trust under the AML Act, which may include the following details about the foreign trust:
  • name, address and date of birth of the beneficial owners;
  • name and address of each beneficiary (for all trusts except discretionary trusts);
  • a description of each class of beneficiary (for discretionary trusts); and
  • the source of funds or wealth of the trust.

Conclusion

Should you wish to establish a foreign resident NZ trust, or where you have an existing foreign resident NZ trust, you will need to ensure that you comply with the above disclosure requirements once they have been ratified into law.

Where you satisfy the above requirements, the taxation of your foreign trust will not change from how it would be currently taxed.  We recommend discussing your personal circumstances with your tax professional if this affects you.

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