If you are going to invest in New Zealand from offshore you need advice on New Zealand tax and structures. No matter where you are tax resident, income produced in New Zealand creates tax obligations here. At GRA we are specialists in advising on the New Zealand tax implications of inbound investments. We are particularly strong in relation to property investment where the rules are relatively complex.
You also need to ensure you have the right structure in place. This is where GRA works in conjunction with your local tax advisor to ensure that you have the structure that seamlessly marries New Zealand and offshore requirements.
If you are new to New Zealand or looking to move here, you need to understand the implications of assuming tax residency in New Zealand. On the face of it, New Zealand has quite onerous tax rules for new migrants, particularly where offshore investments and liabilities are retained. However, there are important exemptions that can apply to new and returning migrants. It is essential that you receive advice in relation to your tax residency position and whether the exemptions apply to you.
To give an example, say an Australian resident migrates to New Zealand but retains a property which is rented in Australia. There is a mortgage over the property with a debt owed to the Bank of Queensland. The property is high yield and produces a profit over and above expenses. In the absence of an exemption, the rental profit needs to be returned in New Zealand by applying New Zealand tax rules and is taxable here. There can also be a requirement to deduct non-resident withholding tax from interest paid to the Bank of Queensland and you can be subject to tax on movements in the exchange rate. On the other hand, if you are able to claim an exemption you can avoid all three of these outcomes.
There is a myriad of issues that you need to work through if you are leaving New Zealand. Note that this is a complicated area of tax law and one that is constantly under scrutiny from the IRD. At present they have proposals to broaden their interpretation of tax residency.
New Zealand tax rules in relation to trusts are unusual in that they focus on the residency of the settlors of the trust. Most countries focus on the residence of trustees. This means it is possible to set up a trust in New Zealand with a New Zealand resident trustee but have no tax obligations here because the settlors are not resident here and the trust is not carrying on business or deriving income that is sourced in New Zealand. Many offshore investors or business people find this to be a useful structure in terms of asset protection and estate planning, and given the way New Zealand tax rules work it doesn’t create any tax disadvantages.
If you would like to know more about foreign trusts go to foreign trusts or contact GRA.
Amanda C, November 2018