NZ Foreign trusts seem to be the only thing the media is talking about this week. This structure that has basically always existed is being used to fuel a political debate which in my opinion is absolutely ridiculous. I am going to explain some of the hidden facts and secrets of NZ Foreign Trusts and why I believe they are a very important pat of NZ and its economy. I will do this in several blogs because there is so much information I want to share with you about this topic. I want to explain how NZFTs (New Zealand Foreign Trusts) are helping our local economy, how NZFTs are not tarnishing our image and how they are not really that tax efficient unless they are used with other more tax efficient structures.
Disclaimer – I am not an accountant or lawyer and do not want to be one either. This piece is not to replace any legal and/or accounting advice. This information is just based on personal experience and observations.
Today I want to focus on what i believe to be the most important fact and secret of NZFTs to Kiwis, how NZFTs are helping our economy. A NZ Foreign Trust is a structure for non-residents to own their overseas assets in. The main reason for them is asset protection which NZ does offer. The other major benefit of a NZ Foreign Trust is that in NZ our Capital Gains Tax is 0%. This means that in the sale of an asset, any profits made as a result of capital growth of that asset would be taxed at 0%. We are one of the very few countries that offer this 0% capital gains tax. Obviously this is extremely attractive to foreign investors but the real issue for them is repatriation of their money. Once that they bring it back to their country to be used they will very likely liable for tax on money earned therefore making the 0% tax rate not that useful. This is where it gets interesting. A foreigner could then apply to become a NZ resident and move to NZ to use this capital gain without being liable for tax. He/she could after a few years of living in NZ and using this tax free money go back to their original country and become a tax resident again over there. Let me give you a real example of how this strategy works. A friend of mine sold a very large business overseas (I will not mention names or jurisdictions to safeguard privacy) and made a profit in excess of NZ$25million. He did this in his country of birth. He would have been liable to pay almost 30% of that profit in capital gains tax in his jurisdiction so that would equate to roughly $7.5 million in tax. My friend owned this business under a NZ Foreign Trust and after the sale became a NZ tax resident and moved here with his family. At this stage he stopped being a tax resident for his country of birth which imposed several requirements for this to take place. He could only visit his country of birth for a few days every year being the biggest imposition for the change of tax residency. He also would not be able to become a tax resident of his birth country for three years or he would be liable to pay capital gains tax. This meant that he moved to NZ for three years in which he built a stunning home in Central Otago spending over $4 million and built a large business in NZ which at its peak employed over 30 kiwis.
You see, NZFTs provide average kiwis with opportunities and boost our local economy with cash and jobs that make our country wealthier. This is just one real case scenario that I know of and I honestly do not have a clue of how much money and jobs NZFTs are providing in NZ but I can guess that the consequences of changing our NZFT or capital gains tax regime would be devastating to our economy. Looking forward to sharing more interesting facts and secrets of NZFTs in the next few days…
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