Overseas investor quesiton.

[Viridistori]

Hello everyone.

I'm new here and like it (first post). I get to know this site from reading some hubpage articles about investing in NZ, and for many reasons I want to invest in new zealand life-time and retire there.

Pardom me if I'm not experienced at all, but I've got few questions regarding foreign investment in NZ.

Can overseas buy a property under LAQC or Trust? If so, is it a better choice for them to go under either of those? I plan to buy a property "cash" and avoid any borrowing. Will it be a bad idea in any way to have it under own name?

All I know is LAQC is good for taxes and Trust for asset protection. But what about under own name?

Sorry if this was posted elsewhere, the website has many threads as I try to read when I can.

Any piece of information would be appreciated. Thanks

[Rosco]

Overseas investors are slightly different.

1) Can't be LAQC and no point. If you don't have any NZ income, then no point offsetting losses to it.

2) 2 main types of Trusts for Taxation - Qualifying and non qualifying (foreign). Normal Qualifying Trust taxed at 33% and must have NZ settlor (easy) and be controlled in NZ (not so easy for you most likely). A non qualifying or foreign Trust is taxed at 45%, so normally try to avoid this.

If you have family or very good associates in NZ, they could be the settlor and trustees, therefore keeping the Trust qualifying. Be very careful of you choose as trustees as this is a major decision.

A Trust will give you asset protection. So if you go bankrupt overseas, get sued or something happens personally, the Trust should remain separate and keep your investment safe.

A Trust also gives you options to distribute income to beneficiaries on lower income. Such as your spouse and children.

3) Sole Trader - First $40,000 in NZ will be taxed at 19.5% which isn't too bad. But the profit from the rental, will also have to be returned in your home country. If your home country has a double tax agreement with NZ, then you should receive the NZ tax paid as a credit against your home country tax.

So tax wise, sole trader could be OK, but depends on you personal tax rate in your home country. If only 25% then probably not too bad, but if 50% then you would be paying additional tax.

I would personally always go for the Trust if no mortgage.

Ross

[CJ]

I think we need more background.

Why are you investing in NZ.
Do you intend to live in NZ in the future.
What is your exit stategy.

You could get different results if you plan on retiring in NZ vs never live in NZ.

[Viridistori]

No DTA

Hi Ross, Thanks a lot for the valuable information!

I think I would go under own name at first, but can I switch it to Trust in the future?

Also, there's another thing I kind of don't understand. I checked wikipedia and I doubt there's DTA between NZ and Kuwait, and it's totally tax-free in here. Would that put me under NZ taxes only?

Appreciate your reply.

[Viridistori]

I think we need more background.

Why are you investing in NZ.
Do you intend to live in NZ in the future.
What is your exit stategy.

You could get different results if you plan on retiring in NZ vs never live in NZ.

I did lots of research before deciding. And to be short is it because NZ considered a nice tax haven, clean, low crime and small. Plus I would like to feel being far away from the rest of the world because of it's location.

Yes I intend to stay the rest of my life in there either after retiring from my job in my country or before that, if I get the chance.

[k1w1]

I'd be interested in the tax situation too.

The DTA is there so you don't pay tax twice, effectively, but that's moot if it's nil in Kuwait.

So that leaves the question - do you pay it in NZ? I'd suspect you probably should (when there's a DTA you usually end up paying the difference to the higher tax rate of the two countries), but in this instance, if you are non-res and not a citizen and don't have an NZ IRD number, and you make sure the money is paid into an NZ$ account preferably off-shore (HSBC might be able to arrange that), then I fail to see how you'd even make their radar, to be honest. I say NZ$ a/c because the agent or tenant is highly unlikely to pay the fees or the hassle of sending money to a different currency a/c, especially if it's offshore. I might be wrong.

From a bigger picture (tax & social responsibility etc), I think it's prefectly reasonable that you do not need to pay tax in NZ, though. Once you hit NZ's shores it's a different story, and you'd of course be liable from that point on. You should seek professional advice on the other stuff, especially to make sure they couldn't get you for arrears (if they found out) when you get here.

I am not an advisor on tax issues, so take above with a grain of salt, or sand, if that makes you more comfortable.

[Rosco]

Legal way to minimise tax.

Technically any NZ income must be returned for income tax in NZ. So this would result in you paying 19.5% approx on the profit of the rental if held in your personal name.

k1w1 - You might be very surprised at what information IRD can find. I would personally always return this income, and just try to legally minise it as much as possible.

A great legal way to minimise the tax would be for you, or a Kuwait entity, to loan the money to the NZ investor, then charge interest. Under NZ tax rules, the NZ entity will have to pay withholding tax on the interest, and I don't know the figure for Kuwait, but normally 10 to 15% withholding tax on interest. You can also apply for an approved Issuer status and reduce withholding tax to 2% (i think) but I don't think this would be approved for a tax free country.

Given your extra information, I would still go for a qualifying Trust (if possible) for long term asset protection and flexibility in distributing income. ie once you get to NZ, could spread income to yourself, husband or wife, kids etc. While you are still overseas, all income could be allocated to yourself.


Ross

[fudosan]

1) Can't be LAQC and no point. If you don't have any NZ income, then no point offsetting losses to it.

How about a normal limited liability company instead of LAQC, and pay 30% tax?

[Rosco]

Main reason would be 30% tax in company, vs 19.5% most likely if personal income. If you are just going to allocate shareholder salary to individual, then just create ACC bill, and no real advantage. Could have Trust as shareholder to protect asset, but then why not just own in Trust.

Investment properties don't really have risk, so limited liability doesn't mean much.

Ross

[Viridistori]

Thanks!

Hello Ross,

You have my gratitude for the details and enocuragement. I will just wait years and save cash to avoid mortgage interest and unmanageability.

I definitely would choose to be under qualifying Trust but I don't know anyone close yet, to be settlor or trustee at the moment. So I would go under own name for now and change to Trust (if possible) in the future.