New Zealand

New Zealand Offshore Company Formation

Geography, Population, Languages

New Zealand lies in the South Pacific Ocean and consists of two main islands (called the North and South Islands) and a number of smaller islands. The land area is 268,680 km2. Additionally, New Zealand has extensive marine resources, including the Exclusive Economic Zone, covering over 4 million km2. The climate throughout the country is mild, mostly cool to warm temperate.

New Zealand is easily accessed by air travel and has the time zone advantage of same day access to Asia and parts of America. The capital of New Zealand is Wellington, and the largest city is Auckland. The population of New Zealand numbers 4.2 million. About 70% of the population is of European ancestry (mostly British, Irish and Dutch). Europeans who were born in New Zealand commonly are called Pakeha.

Official languages are English, Maori, and New Zealand Sign Language.

History, Political Structure and Law

Settlers from Polynesia arrived to New Zealand some time between the 13th and the 15th century, and founded the Maori culture. The first European led by Abel Janszoon Tasman reached New Zealand only in 1642. In 1769 Captain James Cook began extensive explorations of the islands, which lead to European whaling expeditions and eventually European colonisation.

In 1834, the British convened United Tribes of New Zealand to select a flag and declare their independence. However, increasing French interest in the region led the British to annex New Zealand by Royal Proclamation in January 1840. A month later the Treaty of Waitangi was signed; it is considered to be the founding document of New Zealand.

New Zealand became an independent dominion on 26 September 1907. Full independence was granted by the United Kingdom Parliament with the Statute of Westminster in 1931 and Statute’s adoption by the New Zealand Parliament in 1947. Since then New Zealand has been a sovereign constitutional monarchy with a parliamentary democracy. Under the New Zealand Royal Titles Act (1953), Queen Elizabeth II is Queen of New Zealand and is represented as head of state by the Governor-General.

The majority of the New Zealand Legislation is based on English common law. The highest court is the Supreme Court of New Zealand. New Zealand’s judiciary also includes the High Court and the Court of Appeal, as well as subordinate courts.

Economy and Infrastructure

New Zealand has a modern, developed economy and a high standard of living. The main export industries are agriculture, horticulture, fishing and forestry. Major export partners are Australia, US, Japan, China, and Germany.

New Zealand takes pride in well developed communication, business and commercial infrastructure and a high standard of professional services. The legal and banking professions are also of high level.

Granted autonomy in 1947 New Zealand has a progressive economy that is based largely upon banking and finance. Due to changing economic situation since 1984 a major macroeconomic restructuring was made leading the country to economic liberalisation. There have been several reforms, such as the removal of interest and exchange controls allowing the free flow of capital in and out of the country. The current New Zealand government’s economic objectives are centred on pursuing free-trade agreements and building a “knowledge economy”.

The currency is New Zealand Dollar with no exchange controls applied.

Company Incorporation

One of the major advantages of utilising New Zealand companies is that New Zealand is a full member of the Organisation for Economic Co-operation and Development (O.E.C.D) and is not considered as a harmful tax jurisdiction.

Although it is possible to register an unlimited liability company, companies are usually either limited liability companies or companies limited by guarantee. If properly structured, a New Zealand resident company can operate as a tax free offshore company. There is great flexibility in the incorporation and management of a New Zealand Company. It has no capital requirements and has a simple and fast incorporation procedure.

Every company must have a registered office in New Zealand, where statutory registers are kept, as well as an address for service, where legal documents can be delivered to the company. Both addresses must be notified to the Registrar on application for incorporation. It has to be a physical New Zealand address. Usually it is the business address of registered agent.

Currently, there are several types of companies are available in New Zealand. LTC (Look-Through Company), LLC (Limited Liability Company), FSP (Financial Services Provider) and Foreign Trust. You will find more information about them on the next pages.

A “Look Through Company” LTC is an entity which is not taxed at company level; shareholders pay taxes after profit allocation. In order to register the LTC the following requirements must be met: company founders (5 or less) must be non residents in New Zealand, income must be derived not from New Zealand, and the company must be registered with the New Zealand tax office (Inland Revenue) and is obliged to provide annual financial statements. It is also mandatory to have a director resident in NZ. This type of company is usually used for merchant activities.

A Foreign Trust is established to act as a trustee company for LTC to which the beneficiaries (natural persons) transfer income received by the LTC. In this case, when LTC’s asset is managed by Trust, it is exempt from taxation. Trust can invest in shares, securities, other assets, or lend such income.

Minimum number of shareholders is one and corporate shareholders are allowed. Minimum number of Directors is one; corporate directors are not allowed. If a company has only one director, he cannot also be the secretary. Shareholders may be of any nationality but all New Zealand companies must have a NZ Resident Director. If more than 25% of the shares or a majority of Directors reside outside New Zealand the company has to file annual financial accounts. A private company cannot have unissued shares. Bearer shares are not allowed.

Every company should hold an annual meeting of shareholders once every calendar year. Annual meetings may be held anywhere. A Company can obviate holding an annual general meeting, if all matters specified in the Companies Act 1993 are done by way of a resolution in writing.

Changes under the Companies Amendment Act

Resident Director Requirements

From 1 May 2015, every New Zealand incorporated company will need to have at least one director who is either a New Zealand resident or lives in an enforcement country and is a director of a company registered in that enforcement country (i.e. Australia).

Though the resident director requirement will come into effect on 1 May 2015, New Zealand incorporated companies registered prior to 1 May 2015 will have a further 180 days to comply. New Zealand incorporated companies registered on or after 1 May 2015 will need to comply from 1 May 2015.

The following name restrictions apply:

  • Names having royal, national, international, and commercial or other significance are prohibited (Flags, Emblems and Name Protection Act 1981 or by any other enactment);
  • Names that are misleading or deceptive are prohibited (The Fair Trading Act);
  • Identical or almost identical names are prohibited;
  • Offensive names are prohibited; the question of whether a name is offensive is entirely within the Registrar’s discretion;
  • An only suffix “Limited” is allowed. After incorporation, the suffix “Ltd” can be used everywhere;
  • The following abbreviations whenever they appear in a name are allowed: “&” for “and”; “no” for “number”; “co” or “coy” for “company”; “N.Z.” or “NZ” for “New Zealand”; “Bros” for “Brothers”.

Annual Taxation and Fees

A company pays tax at 33% on any profit. If the company tax paid profit is later distributed to shareholders as dividends, the individual shareholders receive a credit in their tax returns for the tax the company has already paid. Thus there is no double taxation.

A company not resident in New Zealand is liable only in respect of income derived from New Zealand.

A New Zealand company is taxable on its worldwide income.

A New Zealand Company, which is structured as the Trustee of a non-resident New Zealand Trust is not taxable. If the settlor of the Trust does not reside in New Zealand during the income year, the Trust is not taxed.

New Zealand has double tax treaties with 30 countries, therefore New Zealand companies may take advantage of the low rates of non resident withholding taxes deducted by the source country on interest, royalties and dividends ranging generally from 10-15%. However, a New Zealand Trust with a trustee resident in New Zealand should qualify as a resident of New Zealand for the purposes of a double taxation treaty. The Annual return of NZ$30 must be paid.

 New Zealand LLC

An LLC exists as a formal and legal entity in its own right. It is separate from the shareholders or beneficial owners. Its members are not personally liable for the entity’s debts and liabilities which make it different to a Partnership. Liability for the debts of the company does not fall onto the Shareholders (subject to any personal guarantees given) – the debts of the company are only liable to the liquidator, for any unpaid money owing on their shares.

For non New Zealand residents carrying out international business activities, this company is limited in use to corporate trustee services or the holding of assets like intellectual property and so. This is because a New Zealand company is usually taxed on its worldwide income. So if the company received income from anywhere in the world, then tax registration is required and filings of tax need to be done.

Once registered in New Zealand Tax Department, an LLC can also be used as an agent, so it can enter into an agency agreement where it becomes an agent to an offshore entity in other jurisdiction and the company earns minimal commission or flat fee on which it pays a standard rate of corporate tax.

Structure Requirements

New Zealand LLCs must have at least one director (one who must be resident) and at least one shareholder. The director must be an individual and not a corporate body. The company is required to have its Registered Office in New Zealand (registered office is a physical New Zealand address, not a postal box or document exchange).

Share capital is required at the moment of incorporation. Adoption of a Constitution is not compulsory. Registration fee is applicable. If the company will not commence trading, tax registration is not compulsory. Annual maintenance of the Company includes filing annual returns annually and financial reporting for some types of companies. May be subject to compulsory audit, and may pay taxes on worldwide income.

LLC Advantages

Easier to attract funds and investment as the investors can become shareholders, and it is also easier to sell the business or pass it on to others as it is a separate entity.

The shareholders’ liability for losses is limited to their share of ownership of the company (except when personal guarantees for company debts have been given to the directors or where a company has been trading while insolvent).

New Zealand LTC

A Look-Through Company (LTC) is a entity that is “looked-through” for income tax purposes. An LTC passes income, expenses, gains and losses to its shareholders; an LTC is not taxed at company level. It means the non-resident shareholders of a LTC can pay no tax in New Zealand as long as the income of the company is derived from offshore.

The business that an LTC can carry out is not restricted. It is treated much the same as an LLC (Limited Liability Company) in the sense that it can trade, open a bank account anywhere in the world including New Zealand, hold assets, become a corporate shareholder of another company etc. An LTC must be tax resident in New Zealand. This allow it to reap the benefits of Double Taxation Treaties signed by New Zealand and so there no limits on the amount of foreign income that may be derived! So with a trading company for example, all profits are deemed to be passed to the shareholders who file an annual tax return declaring that no income is derived from New Zealand sources*.

Both income and expenditure and losses are also distributed to the LTCs owners The shareholders are entitled to claim these losses against their personal income and reduce the taxed amount, although claimed losses are limited to shareholders’ investment into the LTC. An LTC must file an annual tax return with New Zealand Inland Revenue and submit its financial statements before the 7th June.

It is mandatory to use a New Zealand resident director in a LTC. A director resident in a country that has a Double Tax Treaty with New Zealand could be treated as changing the domicile, and it may risk losing its Look-Through.

Structure Requirements

A Look Through Company is a normal New Zealand LLC where the shareholders have elected to enter the Look-Through regime for tax purposes. Basically, LTC is a type of tax treatment then a type of New Zealand company

In order to be entitled for election to look-through tax treatment, a company must satisfy the following criteria:

  1. Must not have more than five shareholders. Related owners are treated as one.
  2. Shareholders must be are non-resident physical persons, trustees or another LTCs;
  3. It should be registered with the New Zealand Inland Revenue as a Look through structure.

In order to not being taxed in New Zealand, a LTC should have the following requirements:

  1. The shareholders are non-resident physical persons or trustees;
  2. The profit and loss of the shareholders should derive from non New Zealand sources.

As a regular New Zealand Limited Liability Company, LTC’s offer the same benefits for legal purposes which includes limitation of liability and ability to change the owners of the company by a transfer of shares.

Regulation and Taxation

LTC is regulated by the companies Act 1993 and must comply with the same requirements of the Companies Law of New Zealand.

LTCs must file annual tax return. Returns indicate the total amount of income and deductions for the company for the year, as well as the income and deductions for each owner. LTCs must also submit financial statements after the end of each financial year (but before 7th June). As the LTC is not taxed at company level, the shareholders must indicate their LTC incomes and losses on their own individual tax returns. Any profit is taxed at the owners’ tax rate. Regarding international tax implication if the LTC’s income derived from outside New Zealand, non-resident owners of an NZ LTC are not liable for paying income tax. Each shareholder will declare LTC’s income in his own income tax return or declaration in his country of residence and each shareholder will be liable to pay their marginal or flat tax rate to their national tax authority.

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