Features of Look Through Companies (LTC’s)
The “look through company” regime, Income tax Act 2007 Section BD 1(5)(c) and New Zealand companies act 1993.
The new LTC regime opens up an opportunity for offshore planners looking for a suitable onshore corporate vehicle located in a favourable jurisdiction like New Zealand.
An LTC is transparent for income tax purposes.
The look through treatment applies for income tax purposes only; An LTC retains its limited liability and is still bound by the companies act.
Election to become LTC must be made before commencement of income year in which it is to
Apply. The owners are treated as holding LTC property directly in proportion to their shareholding (“look through interest”)
LTC must still file an income tax return which specifies the amount of income and expenses allocated to each owner.
Company income and expenses are passed to the owners in proportion to their shareholding.
Non resident shareholders that only receive foreign sourced income will not have any NZ tax liability.
An LTC is still recognised separately from its shareholders for good and services tax (GST)
DIRECTORS & SHAREHOLDERS
Only one (1) Director is required
It is likely in future that there will need to be at least one New Zealand resident Director.
Directors must be natural persons and said directors are responsible for managing the LTC.
Must have 5 or fewer shareholders referred to as look through counted owners?
Not Every Look-Through counted owner needs to own shares directly in the LTC, eg when the shares are owned by a trustee or another LTC.
Owners related to second degree (parents, children, grandchildren, grandparents, etc) by marriage, civil union, de facto relationship or adoption are combined as one owner.
Only a natural person, the trustee of a trust or another LTC can be owners.
An ordinary company can’t hold shares in a LTC
Trust owners are looked through to be beneficiaries for the owners test.
A company using LTC rules must only have one (1) class of shares with the same right to vote on:
The Company constitution
Capital variation and director appointments
Distribution of profits and assets
Share acquisition and cancellations.
There is no capital requirement although the shares are denominated according to a monetary value. The minimum value for a share is 1NZ$.
ANNUAL FILING / RECORDKEEPING
The LTC and the shareholder may have specific income tax filing requirements in New Zealand
The income year generally consists of the 12-month period ending on 31 March.
An LTC must complete an income tax return that includes the total amount of income or deduction for the company income year, the amount of income for each owner and a summary of deductions of each owner.
The company isn’t taxed, but each owner must make a separate income return talking into account the amounts shown on the company’s income return.
If the company is linked to a registered tax agent, it may extend the deadline for filing the company tax return to 31 march of the following year.
An LTC must file the annual return, and maintain the share register at its registered office.
An LTC must keep statutory records at its registered office.
An LTC with 25% to 50% overseas held shareholding will only have to file financial statement with the company registrar if they qualify as a “large” company.
At LTC with over 50% overseas shareholding will need to file financial statements with the companies’ registrar.
INCORPORATION AND ADMINISTRATION
From April 1st 2011, newly incorporated companies can elect to be LTC from date of incorporation.
LTC are incorporated and registered with the New Zealand Registrar of Companies.
Companies Register includes the details of the company’s registered office, its directors and
The company must be a New Zealand tax resident and not be treated as a non-resident under any double taxation agreement.
The shareholders of a company can elect for the company to be an LTC by completing a Look through company election form.
All LTC’s shareholders must sign the election form.
For an existing and already trading company, the election form must be submitted prior to the start of the financial year in which the business intends to operate as an LTC.
Companies which had previously declared themselves as non-active, may become an LTC by filing an LTC election form and a Non-active company reaction form, prior to the tax due date for their first active year.
A company Director or an agent authorized by the director completes the director’s election and confirms that all shareholders of the company have signed the election and that the company meets the eligibility criteria to be an LTC.
A company retains its LTC status for the duration of its life, unless the shareholders revoke the election to be an LTC, or the company is disqualified from being an LTC.
If an LTC breaches the eligibility criteria its LTC, status is lost from the first day of the income year in which the breach occurs:
If cannot then use the LTC rules in the year in which the breach occurs or either of the following two income years.
Changes in shareholding do not require the company to re-file its LTC election, as long as the revised shareholdings do not disqualify the company from holding the LTC status.
No minimum authorized capital requirement at the time of company registration.
REGISTERED OFFICE / CONTINUATION / LEGALIZATION
Every company must have a registered office in New Zealand.
An overseas company can be re.- domiciled ( transfer its incorporation from the country in which it is registered) and become a New Zealand registered company under the companies act 1993.
COSTS AND FEES
Reasonable formation and maintenance costs and fees.
USES OF NEW ZEALAND LTC’s
International Tax Planning
HIGHLIGHTS OF NEW ZEALAND
Exempt from all local taxes
No foreign exchange control
Political and economic stability
Excellent worldwide communication facilities
No capital gain tax
No stamp duty
Large tax double tax and information agreement network.
SOCIAL AND ECONOMIC INDICATORS
|Location||South-western Pacific Oceon, situated at 1’500.00 KM east of Australia across The Tasman Sea.|
|Area||267’710 sp km|
|Population||4’365’113 ( July 2013 est )|
|Government||Parliamentary Democracy and a Commonwealth realm|
|Banking||Worldwide banking facilities available|
|Legal tender||New Zealand (NZD)|
|Industries||Tourism, banking, Insurance, dairy and Agriculture.|