New Zealand Foreign Trust: IRD Rules and Brazil's Law 14,754

In New Zealand, a foreign trust is a trust whose settlor is not resident in the country, with a resident trustee who registers the trust with Inland Revenue (IRD) and meets the disclosure rules to have its foreign income exempt from tax.

For Brazilians, this does not displace Law No. 14,754/2023 (Lei 14.754/2023): the assets stay with the settlor until distribution or death.

What is a foreign trust in New Zealand?

New Zealand's tax on trusts depends on where the settlor is resident. Inland Revenue (IRD) explains that trusts are not separate entities for income tax and that there are no trust residence rules. When the settlor is a non-resident and the trustee is a resident, the IRD calls the structure a foreign exemption trust or, in the agency's acronym, NZFT.

Under the IRD's rules, a trust is a foreign exemption trust if no settlor has been resident in New Zealand since the later of December 17, 1987 and the first transfer of assets to the trust, or if the trustee uses, or has used, the foreign-sourced income exemption in section HC 26 of the Income Tax Act 2007. Section CW 54 completes the rule: to the extent that HC 26 applies, the foreign-sourced amount received by the resident trustee is exempt income.

This article covers only the New Zealand logic and how it fits with Brazilian law. For the general side of trusts, how they work, when they make sense and how they compare to holdings, see the guide to offshore trusts for Brazilians.

What conditions does New Zealand require to exempt foreign income?

The exemption only applies if the trust meets the conditions of section HC 26. Among them: no settlor being a New Zealand resident (and not a transitional resident) in the income year, there being a deed or other document that creates and governs the trust, the trust being registered, and the trustee meeting the obligations of the Tax Administration Act 1994 (sections 22, 59B, 59C and 59D).

HC 26 also excludes from the exemption, among others, superannuation funds and testamentary trusts, and trusts where the settlor died resident in New Zealand. There is also the case of electing into the complying trust regime (section HC 33), which removes the exemption.

The practical summary of the obligations, according to the IRD pages, is as follows:

How much does IRD registration cost and how long does it take?

The NZFT registration fee is $270, GST included. It is not charged when all trustees are individuals and are not professional trustees. The IRD says it processes the application in 10 business days and may ask for more information.

The annual return has a $50 fee, also GST included, when the fee is required. These are the agency's fees. Fees of the trustee, lawyer and accountant vary by contract, and there is no official table: ask for a written quote before signing.

Registration can be done at different times, according to the IRD: on the date of establishment, when it starts with a resident trustee; on the appointment of a resident trustee; or on the due date of the tax return in which the trustee begins to meet the requirements. When all trustees are individuals, not professionals, and it is their first foreign trust, the deadline may be longer.

What does the trustee need to report to the IRD?

For each person connected to the trust, the contact trustee reports name, role, address, contact details and the tax identification number of the jurisdiction of residence. The trustee also declares that these people have agreed to provide certain information. On registration, the IRD also asks for the trust's historical settlements, with date, amount, currency and type.

Each year, the return reports whether there were new settlements or distributions and includes the trust's financial statements, which must follow the IRD's minimum standards. Changes to the details of connected persons are made through myIR. For a Brazilian settlor, the point is simple: your tax number and your role in the trust appear in the New Zealand records.

How does Law 14,754/2023 treat the New Zealand trust for Brazilians?

Section V of Law 14,754/2023, in arts. 10 to 13, covers trusts abroad. The assets remain with the settlor after the trust is created and pass to the beneficiary on distribution or on the settlor's death, whichever comes first (art. 10, I and II). The law makes no distinction by the trustee's country.

The settlor or the beneficiary must request from the trustee the resources and information to pay the tax and meet the obligations in Brazil (art. 10, § 5). If the settlor irrevocably gives up the right over part of the estate, the transfer to the beneficiary may be treated as having occurred earlier (art. 10, § 1). Art. 13 extends the same logic to foreign-law contracts with characteristics similar to those of a trust.

In short, the New Zealand exemption and Brazilian taxation operate on different levels. The first defines whether the trustee pays tax in New Zealand. The second defines how a Brazilian resident declares and is taxed.

When is it worth looking at New Zealand?

It is worth it when there is a reason to have a resident trustee there and the settlor accepts the level of disclosure the IRD requires. Before deciding, check that the trustee provides the information you need for the DAA, since art. 10, § 5, places that request on the settlor or the beneficiary.

Also compare other trust jurisdictions, such as Nevis and the Cook Islands, and think about succession with the help of the succession planning service. The filing calendar becomes clearer with international compliance.