Is New Zealand the Switzerland of the South Pacific?

[Barron]

Feb 12

LOOK THROUGH COMPANY PROVES NEW ZEALAND BEING THE SWITZERLAND OF THE SOUTH PACIFIC

The Look Through Company is New Zealand’s latest exciting contribution to the asset protection and wealth acceleration and structuring industry.

Due to the National Governments increasing awareness and commitment to the international financial industry (and NZ Prime Minister John Key’s – former Merrill Lynch senior executive – expertise in this field) New Zealand has introduced a new regime from April 2011 called the “Look Through Company regime “. The Look-Through Company joins the Foreign Trust, Limited Partnership and Financial Services Provider regime as being an elite group of sophisticated and highly flexible asset protection and wealth acceleration products that are rapidly giving New Zealand the reputation of being the Switzerland of the South Pacific.

THE LOOK THROUGH COMPANY AND NEW ZEALAND

Essentially this is a product similar in nature to the Delaware or British Virgin Islands IBC but with a number of innovations and legislative ingenuities that make it the perfect vehicle for small to medium businesses owned by one or a small number of individuals.

For the non-resident (classified simply as someone who does not reside in New Zealand for tax purposes, i.e. spends in New Zealand less than 183 days in a year, i.e a non tax resident) and provided that the company does not trade or do business in New Zealand (simply speaking does not derive its income from New Zealand sources) the Look Through company pays zero tax on its worldwide income no matter what the source.

The unique zero tax regime is coupled with the advantage of New Zealand’s Blue Chip Pedigree internationally as a generally high tax OECD country which (unlike most other such products) is not blacklisted and is not considered an offshore zone for tax treatment. New Zealand’s reputation gives it significant advantages for residents of South American countries which look unfavourably on the offshore industry, Canada and USA which have particularly complex expat legislation.

New Zealand also is member of GATT, has numerous free trade agreements and double taxation agreements with major world powers including China and Russia as well as having an extremely developed and regulated service provider industry of highly educated tax trust and corporate professionals.

New Zealand is rated as one of the easiest countries in which to do business with one of the world’s lowest corruption indexes, no foreign exchange controls, no capital gains tax, inheritance tax or death duties.

LOOK THROUGH ADVANTAGES

A “look through company” is a traditional New Zealand limited liability company established and constituted pursuant to the Companies Act 1993. Therefore the structure offers the same ease and speed of incorporation, limitation of liability and the fairly client friendly privacy provision of New Zealand corporate law.

The Look Through Company, however, is treated differently for tax purposes than the ordinary company.

The LTC is registered as an ordinary New Zealand company with the difference that the Shareholders of existing and newly established New Zealand registered companies can elect to become a “look through company”.

The company must:

* Have 5 or fewer shareholders;
* Be New Zealand resident for tax purposes;
* Issue only shares that have the same voting and participation rights; and
* Have only natural persons (individuals) or trustees as shareholders [please note the shareholder can be a corporate trustee of a New Zealand foreign trust which combines the added advantage of asset protection].
* 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 is identical in its tax treatment to the New Zealand limited partnership, except that the limited partnership can be owned by corporations as partners and requires a partnership deed and is generally more expensive.

Because the Look through structure literally “looks through” to the shareholder for purposes of taxation, the company does not pay income tax – its shareholders do. The income of the company is attributable to them and not to the company. No dividends are taxable either as income of LTC will be “looked-through” to establish owner’s income. In other words, New Zealand resident shareholders of “look through companies” will personally pay ordinary income tax on the company’s profits and use losses at their personal marginal tax rate. Shareholders can even claim LTC’s losses against their personal income and pay less taxes overall.

Thus (and here is the icing on the cake) if the shareholders are non residents of New Zealand then they pay tax wherever they do live but not in New Zealand! [The same is applicable to foreign beneficiaries of a NZ Foreign Trust if a shareholder of LTC is a trust].

This is stated in Section BD 1(5)(c) of the Income Tax Act 2007 which 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.

Even more, not only profit is passed on to shareholders. One may wish to make use of LTC as a losses generating vehicle. Shareholders can claim company’s losses against their personal income and pay less tax. However, we should note that the loss limitation rule applies; the excess deductions may be carried forward though.

USES

The look through regime lends itself to an infinite variety of structures and uses. Here are a few examples:

Example 1. John and Mary live in Canada and British Virgin Islands respectively and decide to open an Internet business. They sell online products on the net and register a Look through which owns the website. If the business earns 500,000 in profits John pays 33% on his share whereas Mary pays zero because she lives in BVI. The New Zealand company pays zero income tax simply because it does not pay this tax being an LTC.

Example 2. If John wishes to further protect the income then he holds his shareholding in a New Zealand non-resident trust of which he and his children are discretionary beneficiaries. The income then is paid to the account of the trust and is not taxed until distribution which may be deferred for a very long time. Essentially, John pays no tax as long as he does not distribute his income.

Example 3. John and Mary now wishes to get in the business of online banking, brokering , lending money or other financial services – they register their Look-through company as an FSP (finical service provider) on the registry and begin offering services such as PayPal etc. They can essentially offer virtually all the services of an online bank and even lend money (through the trust) at interest to their own businesses in their countries of domicile.

Example 4. If John and Mary wish to invest their hard earned money in various funds, shares, or property investments they will be faced with the fact that (at least for John) their investments will be taxed in their country of origin, but if they structure their LTC so that it is held by a trust they will not pay any tax on their investments. Further the trust can be instructed to lend money to John rather than distribute it if he is attacked by creditors or becomes bankrupt. Since the trustee can be “independent” of John for purposes of control, and if properly structured, then no court or creditor can order the trustee to give up the funds. Thus, using the combination of look-through company and trust and the legal ingenuity of New Zealand trusts law this hard earned money is safe from attack by anyone and yet in the effective control of John and Mary.

Example 5. John and Mary have numerous children and wish to provide for them but are afraid that the children are too immature to handle the family’s money – simply John and Mary can direct the trustee to provide an income or loan monies or buy assets still held in trust that way if the children ever get divorced or are attacked, their assets are owned by the trust and are untouchable. Further if John and Mary die the trust acts as living will, identifying the manner on which the funds are to be distributed thus avoiding complex inheritance proceedings and taxes. This is one of the secrets of many of the world’s wealthiest families such as the Rothschilds.

A typical structure is set out below but can be modified to suit the nature and occasion of the investment – it should be noted that the proper combination of Look-through Company and New Zealand Foreign Trust structures effectively avoids death duties, inheritance taxes, creditors, spousal and relationship property claims.

[TheOffshoreAdvisor]

Example 3. John and Mary now wishes to get in the business of online banking, brokering , lending money or other financial services ***8211; they register their Look-through company as an FSP (finical service provider) on the registry and begin offering services such as PayPal etc. They can essentially offer virtually all the services of an online bank and even lend money

Cheap way to start a "bank" so to speak. I have always wondered about the practical nature of this as the company would be providing "para banking" services through another bank. I wonder if banks really allow this? Does anyone know if this type of license is respected internationally? I know CC uses it but other than that....

[Libertarian]

I'd like something like this to be able to offer a pp like service with a card attached to the account. But isn't the problem finding a bank that will allow mass sub accounts to your FSP account?

[xxchange]

FSP sound very good, i heard about that before, how much approx. is it to set up such copmany formation ?

* Be New Zealand resident for tax purposes (it means shareholder have to be NZ resident, can it be made by "nominee" ?)

[TheOffshoreAdvisor]

Originally Posted by Libertarian

I'd like something like this to be able to offer a pp like service with a card attached to the account. But isn't the problem finding a bank that will allow mass sub accounts to your FSP account?

Yes, that is exactly the problem, banking that allows a New Zealand FSP to handle 3rd party client/funds. There is a site, banking4bankers, that sells these structure for $65,000 (about $60,000 more than the actual cost) and it does NOT include a bank account for the FSP of course. They will allow you to use their own internal payment system, Banclear but it is very expensive, something like $50 to receive a wire and $75 - $100 to send a wire or transfer. Plus setup fees and annual fees of thousands per currency.

Others who sell the FSP's can open a corporate bank account for a New Zealand Ltd but not to handle the FSP business and client funds. I think you need a special relationship with a bank for them to even consider it.

[Libertarian]

banking4bankings cost includes their software to manage the accounts, I have seen the software in use, it's ok. But what's the point of having the software if it says $0.00 because you can't find a bank to host your business? So now I need my own bank so I can have my own fsp!

[TheOffshoreAdvisor]

Yes, it does include the "banking" software and your own bank identifier code (BIC) for cosmetic purposes only as you cannot send/receive SWIFT messages without a SWIFT connection. But no banking...

Unfortunately, this the way much of the offshore industry works, selling you only part of what you need, or in this case they leave out the most important part of the solution.

[rosechas]

There is a site, banking4bankers, that sells these structure for $65,000 (about $60,000 more than the actual cost)
any bony know also more cheaper than?

[TheOffshoreAdvisor]

You can register a basic New Zealand LTD, apply to a dispute resolutions scheme if you anticipate handling retail clients and then register online as a FSP and have the criminal background checks mades. It will cost you perhaps $2500 plus cost of local office and agent as this is required or your FSP could be delisted.

The problems as noted above is finding a bank account. Banking4bankers like most sellers do NOT provide bank accounts for the FSPs and that will be your biggest problem. I guess you could use Technocash though.

[NewZealandFSP]

You are absolutely correct that banking can be a challenge for a New Zealand FSP, or Financial Service Providers, if you do not reside in New Zealand, however there are options.

We are a provider of New Zealand Financial Service Provider registration with SWIFT already allocated to the company name which we have reserved. We can also provide banking access in Cyprus for the Financial Service Providers we register due to a special relationship we have with the banks. No personal visit is required.

While our services are not cheap by any means we are less than half of the cost charged by banking4bankers.com at 17,950 Euro but we offer a corporate bank account for the New Zealand LTD, Financial Service Providers registration, registered office, resident agent services, Apostilled set of corporation documents and per-registered SWIFT code for our reserved shelf corporations only.

We further offer our clients the ability to pay only half of the cost in advance (SWIFT code confirmation available first) and the remaining half after the Financial Service Providers registration is confirmed via the New Zealand Govt site.

Unlike most Financial Service providers though we fully recommend any registered service provider contract a shared or serviced office space and part time employee as a New Zealand Financial Service Providers using only a virtual address is subject to de-listing as was mentioned above. A few months ago the FSPR de-listed a handful of companies for lack of a phyiscal office. The FSP Registry will search your stated "business" address to see how many companies are associated with the address. If there are a number the Registry , or the address is associated with a virtual office provider they will ask you to confirm your business has a physical presence in New Zealand which is an absolute requirement to be licensed as a Financial Service Providers. A served office in New Zealand to meet the requirements ranges from 800-1500 NZD per month plus the cost of a part time employee.

Imagine paying $50,000 to banking4bankers.com and getting an FSP *without a bank account* to only have it de-listed a few months later as their price does not include a serviced business office. They may tell you it is not require but I suggest you contact the New Zealand govt and ask them first.

Contact us via PM for more details if you have an interest in purchasing a licensed New Zealand Financial Services Provider with SWIFT code.