NZ trusts with overseas settlors or trustees
In New Zealand, how a trust is taxed depends largely on where the settlor lives. The settlor is the person who has transferred money or assets into the trust.
That means if a settlor lives overseas — or later moves offshore — the trust’s New Zealand tax position can change, even if all of the trust assets stay in New Zealand.
Types of trusts for tax purposes
For tax purposes, New Zealand recognises three main types of trusts:
Complying trusts
These usually have a New Zealand tax‑resident settlor. They pay New Zealand tax on their worldwide income.
Foreign trusts
These are trusts where the settlor is not a New Zealand tax resident. Foreign trusts may be exempt from New Zealand tax on overseas income, but only if strict registration, disclosure, and record‑keeping requirements are met.
Non‑complying trusts
A trust becomes non‑complying if it does not meet the rules for either a complying or a foreign trust. Distributions from non‑complying trusts can be taxed at significantly higher rates. Importantly, a trust can become non‑complying simply because income tax is paid late.
Overseas trustees
Having a trustee who lives overseas does not automatically change how a trust is taxed in New Zealand.
However, it can create tax obligations in the country where that trustee lives. Some countries tax trusts based on the residence of the trustee, rather than the settlor. This can result in unexpected overseas tax filings or exposure if not managed carefully.
Overseas settlors
Where a trust has an overseas settlor but a New Zealand‑based trustee, the trust will generally need to be registered with Inland Revenue as a foreign trust.
This involves:
- Registration with Inland Revenue
- Annual disclosure returns
- Maintaining detailed records for at least seven years
If these requirements are not met, the trust can lose valuable tax exemptions and may face penalties.
Distributions to beneficiaries
The tax treatment of trust distributions depends on:
- The type of trust
- Whether the payment is income or capital
- Where the beneficiary lives
Beneficiaries who live overseas may also be taxed on trust distributions in their country of residence, even where no New Zealand tax applies.
Why advice matters
Trust rules can change quickly when people move countries or when trustees or beneficiaries live offshore. Even small changes can trigger unexpected tax or compliance issues.
Getting advice early helps ensure the trust remains compliant and avoids costly surprises.
If your trust has a settlor or trustee who is intending to move overseas, please get in touch. We can talk through how this may affect both the trust and the individual involved.