EDGE Magazine | Q3 2011
Basic features of the new regime
New Zealand company law is derived from English common law and statute.
A "look through company" will be an orthodox New Zealand limited liability company established and constituted pursuant to the Companies Act 1993.
However, the new legislation allows companies which meet certain criteria to be treated differently for tax purposes than previously. Such companies are available for registration and use by both residents and non-residents of New Zealand.
Shareholders of existing and newly established New Zealand registered companies can elect to become a "look through company". The company must:
1. have 5 or fewer shareholders; 2. be New Zealand resident for tax purposes; 3. issue only shares that have the same voting and participation rights; and 4. have only natural persons or trustees as shareholders.
The income, expenses, tax credits, rebates, gains and losses of a "look though company" will be passed on to its shareholders pro rata with their shareholdings in the company. This creates a fiscally transparent vehicle
Henry Brandts-Giesen TEP Director
henry@helmores.co.nz
Helmores Wealth Limited New Zealand
www.helmoreswealth.com
18
identical in its tax treatment to the New Zealand limited partnership. Like a limited partnership, a "look through company" retains its identity as a registered entity and keeps the benefits of limited liability and separate legal personality. The existing corporate obligations and benefits under New Zealand company law are preserved.
The look through treatment applies for income tax purposes only. In any event there is no general capital gains tax in New Zealand nor are there any inheritance or estate taxes or stamp duty land taxes.
In a fiscal sense, the shareholders of the "look through company" are regarded as holding company assets directly and carrying on the activities of the company personally. Therefore, in the normal course of events, a sale of shares in a "look through company" is treated as a sale of the underlying asset.
Uses for international wealth structuring
The new "look through company" regime will provide significant benefits to non-residents of New Zealand who use New Zealand vehicles for international wealth structuring purposes.
Section BD 1(5)(c) of the Income Tax Act 2007 provides an exemption from tax in New Zealand on income derived by a non-resident provided
that income does not have its source in New Zealand. This means that a foreign shareholder of a "look through company" that only receives foreign sourced income will not be subject to tax in New Zealand.
Whilst the new regime offers most of the same tax benefits of a limited partnership it also provides the widely recognised legal form of a company and will complement the New Zealand limited partnership and "foreign" trust for international wealth structuring. In some cases will be used in conjunction with either or both of those vehicles rather than as an alternative.
For example, where the entire issued share capital of a "look through company" is owned by the trustees of a New Zealand "foreign" trust (or a Belize, Jersey, Cayman or Singapore trust for that matter) then the company could hold assets or trade or otherwise earn income outside New Zealand without any withholding for tax in New Zealand.
Similarly, a New Zealand "look through company" could be the limited partner of a New Zealand limited partnership. Provided the limited partnership does not derive New Zealand sourced income and the "look through company" as limited partner does not have any New Zealand resident shareholders or other New Zealand sourced income then there will be no withholding for tax in New Zealand.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38