Look Through Companies for Non Residents

Posted on Tuesday, April 29 2014

Not just any NZ company can be a look-through company (LTC). And it can be rather detrimental to your tax situation if your company no longer meets the requirements as losses can be trapped within the company and a liquidation required to preserve your tax free capital gain.

This article looks at the requirement that a LTC cannot be resident of another country.

A company may only be a LTC if it has 5 or fewer owners, is resident in NZ and is not treated as a non-resident under any double tax agreement. This can cause problems for those of you living overseas.

So, if you are living overseas, to determine whether your company can be a LTC, the following 3 test should be considered:

(1) Is your company resident in NZ? As all of our clients have companies incorporated in NZ, the answer is yes.

(2) Is your company resident in the country that you live? If the answer is no, then it can be a LTC. If the answer is yes, then you need to consider test 3.

The following will help you determine whether your company might be resident in the country that you live.

A company is resident in Australia if it carries on business in Australia and has is shareholders or directors in Australia. So even if the shareholder directors live in Australia, it is doubtful that the company would be considered to be carrying on business in Australia if it only has rental properties situated in NZ.

A company is a domestic corporation in the US if it was created or organised in the US. As this will not be the case with a NZ incorporated company, your company will not be resident in the US if you live there.

Without any statutory definition of a resident company in the UK, it is considered that a company is resident in the UK if its central management and control is located in the UK which is why I recommend appointing NZ resident directors only.

A company is resident in the United Arab Emirates if the company has a permanent establishment in the UAE such as a place of management which is why I recommend appointing NZ resident directors only.

(3) If your company is resident in both NZ and the country that you live, and there is a double tax agreement between those countries, it will not be able to be a LTC if the place of effective management is situated in that overseas country.

As NZ has a double tax agreement with most major countries that you may choose to live such as Australia, the UK, the UK and UAE, it is important to ensure that NZ is the effective place of management. To help to show this, I recommend appointing only NZ resident directors for your company, as the director’s residency is a major factor in determining the effective place of management.

As always, this article is general in nature and you should seek the advice of your accountant to get an opinion specific to your particular situation.

Tony Thorne





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Expert's Bio

Tony Thorne

Thorne Accounting has been providing specialised accounting and tax services to residential and commercial property investors since 2004. Our mission is to provide the highest quality tax and accounting services to property investors. We are constantly fine tuning the way we work with property investors so we can provide this superior service at competitive prices.

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