Services · Trusts & private foundations

New Zealand trust

How a New Zealand foreign trust works after the 2017 reform: registration, reporting, tax and the things it does not do.

The New Zealand trust sits in an unusual spot on the map of international planning. New Zealand is an OECD member, runs on English common law, has independent courts and a reputation banks do not argue with. At the same time, domestic law lets a trust with a New Zealand trustee pay no local tax on income sourced outside the country. That combination of an onshore flag and a zero local tax bill is what created the demand.

The other side of the story starts in 2016. After the Panama Papers, the government commissioned an independent inquiry into the regime and then rewrote the rules. A New Zealand foreign trust today must register with Inland Revenue (IRD), file every year and disclose every connected person to the state. The tax exemption survives only for those who meet those requirements, and it disappears automatically for those who miss them.

Below we walk through how the trust is built, exactly what IRD asks for, how income is taxed, what third parties can see and who this structure is wrong for. The continental equivalent, built on completely different logic, is the Austrian private foundation: no trusteeship, no tax exemption, but a real legal entity inside the EU.

What a New Zealand foreign trust actually is

A trust is not a company and not a legal entity. It is a legal relationship: the settlor transfers assets to a trustee, who holds and deals with them for the beneficiaries under the terms of the trust deed. To the outside world the trustee is the owner, but the trustee may not use those assets for personal benefit.

What makes a trust a New Zealand trust is neither where the settlor lives nor where the assets sit, but the tax residence of the trustee. If at least one trustee is a New Zealand resident, the structure acquires a connection to the jurisdiction and obligations to IRD. If, on top of that, no settlor has been a New Zealand tax resident since 17 December 1987, the trust falls into the foreign exemption trust category and its foreign-sourced income is exempt from New Zealand tax.

The logic is straightforward and is not a concession. New Zealand taxes trusts by reference to the settlor's residence, not the trustee's. A foreign settlor means the trust's offshore income is simply outside the New Zealand tax base. No special offshore statute was written for this: it is the ordinary trust taxation principle.

Trust law itself was modernised recently. The Trusts Act 2019 came into force on 30 January 2021 and replaced the 1956 Act. It introduced five mandatory trustee duties that a trust deed cannot exclude, and a presumption that beneficiaries receive basic trust information, with fuller information on request. The maximum duration of a trust created on or after 30 January 2021 rose from 80 to 125 years, and the old rule against perpetuities was abolished. For succession planning that matters: the horizon is now measured in generations.

The 2017 reform and what it changed

Before 2016 a New Zealand foreign trust was almost invisible: a basic registration and a minimum of data were enough. The Panama Papers leak in April 2016 showed how heavily that was being used, and the government appointed an independent inquiry led by John Shewan. The report, delivered in June 2016, found the disclosure rules inadequate.

Almost all the recommendations were adopted. The legislation received royal assent on 21 February 2017. Existing trusts had until 30 June 2017 to register under the new rules; new ones were given 30 days from the moment a New Zealand trustee is appointed.

The statistics show the result. At the end of 2016 there were roughly 11,700 foreign trusts in the country. By the 30 June 2017 deadline fewer than 3,000 had registered. The 2024 national risk assessment counted 2,254 remaining, a fall of around 81% against 2016. The rest were wound up or moved elsewhere.

Two practical consequences follow. First, the market cleaned itself out, and the structures that survived are run by professional trustees who understand the regime and will not risk a licence over it. Second, the New Zealand trust is no longer an opacity tool. Anyone choosing it today is buying a legal system, courts and bank acceptance, not the absence of reporting. If opacity was the point, cross this country off the list immediately.

IRD registration and annual filing

Everything runs through the contact trustee, who must be a New Zealand resident. That trustee also carries the consequences of late filing and incomplete data. The core requirements are set out below.

The penalty for non-compliance is not a fine but the loss of the regime. If the trust is not registered or the annual return is not filed, the foreign-sourced income exemption does not apply for that year and the resident trustee becomes liable to New Zealand tax on the trust's worldwide income. The status can be restored, but the year is already spoiled and the New Zealand trustee tax rate is high.

Registration is a continuing process, not a one-off. A change of beneficiaries, the appointment of a protector, an amendment to the deed, a new settlement: all of it has to reach the register. Most problems in this regime appear not at set-up but in year three or four, when nobody is watching the structure any more.

Tax: where the trust pays nothing and where it pays

The exemption for foreign-sourced income sits in section HC 26 of the Income Tax Act 2007. It covers income sourced outside New Zealand: dividends from foreign companies, interest on offshore accounts, gains on the sale of foreign assets, rent from property in other countries.

New Zealand still taxes, in the ordinary way:

• New Zealand-sourced income - interest on local accounts, dividends from New Zealand companies, income from local property;
• distributions to beneficiaries who are themselves New Zealand tax residents;
• the trust's entire worldwide income where the registration and filing requirements have not been met.

One point is regularly missed: the HC 26 exemption is a domestic law rule, not a treaty benefit. A New Zealand foreign trust effectively pays no tax in the country, so as a general matter you should not count on double tax treaty protection or reduced withholding in third countries. Each case has to be checked separately, and the answer is more often negative than positive.

Most importantly, a zero New Zealand tax bill says nothing about the tax position where the settlor and the beneficiaries actually live. Most developed countries now apply controlled foreign company and look-through rules to foreign structures: trust income can be attributed to a settlor or a beneficiary even where nothing has been distributed. Planning that begins and ends with the New Zealand exemption almost always ends in an assessment at home. Start the analysis with the country of residence, not with the trust jurisdiction; general reference points are collected in the taxes section.

What third parties can see

The foreign trust register is not public. IRD holds the data, and access sits with the tax authority, the Department of Internal Affairs and the New Zealand Police. A counterparty, a journalist or a distant relative cannot open the register and read the list of beneficiaries.

That is not confidentiality in the old sense. Information leaves through several channels at once:

• automatic exchange. New Zealand participates in CRS. Depending on how it is built, the trust is treated either as a financial institution or as a passive non-financial entity, and account and controlling person data reaches the tax authorities of the countries where those people are resident. More on this in our piece on bank accounts and CRS;
• anti-money-laundering rules. Professional trustees are reporting entities under the 2009 AML/CFT Act: they must identify the settlor and beneficiaries, verify the source of funds, keep records and report suspicious activity;
• duties to beneficiaries. Under the 2019 Act there is a presumption that beneficiaries know they are beneficiaries and receive basic trust information. The scenario where an heir has no idea the structure exists no longer works by default in New Zealand;
• exchange on request. New Zealand has a wide treaty network, and a request from a foreign tax authority about a specific trust is processed as a matter of routine.

The practical conclusion: a New Zealand trust solves everyday privacy and does almost nothing for state-level opacity. That is the fair price of an onshore jurisdiction, and it is better accepted before the structure is created than discovered afterwards.

Who this trust is wrong for, and what goes wrong

The tool works, but its profile is narrow. It is clearly the wrong answer in the following situations.

• The goal is hiding assets from your own tax authority. Since 2017 that does not work: the state knows every participant and automatic exchange delivers the data to the country of residence. A structure built on concealment produces criminal exposure, not savings.
• The settlor lives in, or plans to move to, New Zealand. Settlor residence destroys the regime outright: the trust stops being foreign and worldwide income becomes taxable. Moving to New Zealand and holding a New Zealand foreign trust are incompatible.
• The settlor will not give up control. A trust where the settlor keeps dealing with the assets and the trustee signs on instruction is fragile: a court can find it a sham and treat the assets as still owned by the settlor, with all the tax and creditor consequences. A letter of wishes has no legal force and does not displace the trustee's duties.
• An active business is planned inside. A trust holds and passes on capital; it is not a trading vehicle. Trading, employment and licensed activity need a company.
• The amount is small. A professional trustee, accounting, annual filing and compliance cost money every year regardless of returns. Below a certain asset level the running costs eat the point of the structure.
• You need a bank account quickly. Banks open trust accounts slowly and reluctantly, and some simply will not take New Zealand foreign trusts because of the jurisdiction's history. Budget months, not weeks.

What actually breaks in practice:

• a missed IR900 deadline, and the exemption for that year is gone, with restoration requiring correspondence with IRD;
• creditor protection turns out not to be absolute: a transfer into trust made while debts existed or were foreseeable can be attacked as a transaction defrauding creditors, and the clock runs from the transfer, not from the claim, so the structure has to be built early and in calm weather;
• forced heirship. Civil law countries frequently refuse to recognise the trust and treat the assets as part of the estate; a trust by itself does not extinguish the rights of forced heirs;
• change of trustee. If a trustee exits the business or resigns from the structure, finding a replacement and transferring records and accounts takes months;
• family conflict. The expanded information rights under the 2019 Act give an unhappy beneficiary real leverage over the trustee and the rest of the family.

New Zealand against other jurisdictions

Choosing a jurisdiction means trading off reputation, cost and reporting load. Below is a simplified comparison with the options New Zealand is usually weighed against.

There is no universal answer. New Zealand wins where you need to explain the structure to a bank or a counterparty in one sentence, and loses where the priority is minimal reporting. A full overview sits in the trusts and private foundations section, and other programmes are on the New Zealand country page.

Fees

Prices are indicative and cover our work on a standard case. We confirm the exact quote in writing after a short consultation, so you know the final figure before the work starts. Government fees and bank charges are calculated separately unless expressly included.

The cost depends on the asset mix, the number of beneficiaries and jurisdictions involved, whether a licensed professional trustee has to be appointed, and how much tax analysis is needed in the countries where the settlor and beneficiaries live. Annual administration is quoted separately: preparing the IR900, the financial statements and keeping the register current.

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