Legislation and Tax Implication
Acts under which body corporates are incorporated or registered
- Building Societies Act 1965
- Charitable Trusts Act 1957
- Companies Act 1993
- Co-operative Companies Act 1996 (registration)
- Incorporated Societies Act 1908
Legislation regulating financial reporting, prospectuses, superannuation and takeovers
- Financial Reporting Act 1993
- Securities Act 1978 (part)
- Superannuation Schemes Act 1989 (part)
- Takeovers Act 1993 (part)
Some other Acts that affect companies
- Corporations (Investigations and Management) Act 1989
- Insurance Companies (Ratings and Inspections) Act 1994
for companies in New Zealand LLC, LTC, Trustee company, company with FSP license
We are often asked if companies in New Zealand file and register any financial statements (reports) with the NZ Companies Register. In order to enlighten you on this issue, we will briefly outline the main requirements.
Type of companies which do need to register their financial reports with the Registrar each year are the companies who:
- Has issued securities to the public (which includes raising money from the public, seeking public investment or seeking public participation in a project, all through a registered prospectus)
- Is an overseas company that is incorporated outside New Zealand and carries on business in New Zealand
- Is a subsidiary of a company or body corporate incorporated outside New Zealand
- Is a large company that has between 25% and 50% of its shares (that is, below the level qualifying the company as a subsidiary under 3 above) held or controlled by:
(a) company or body corporate incorporated outside New Zealand or a subsidiary of such company or body corporate; or
(b) an non-NZ resident individual (individuals).
A large company is defined as having at least two of the following three characteristics:
- It, and any subsidiaries, have assets at balance date stated in the (consolidated) statement of financial position exceeding NZ$10M;
- It, and any subsidiaries, in the relevant accounting period had a total turnover exceeding NZ$20M; or
- It, and any subsidiaries, had at balance date fifty or more full time employees. Companies and other entities that fall into any of these categories must meet more stringent accounting standards and must register certain documents with the Companies Office.
NOTE: A company that does not need to file financial statements with the Companies Office still has to prepare these for New Zealand Tax Department.
Here is a list of financial documents needed:
- A Balance Sheet (now called a Statement of Financial Position)
- A Profit and Loss Statement (now called a Statement of Financial Performance) or,
- An Income and Expenditure statement, if you are not trading for profit.
- An Asset Register (or a Depreciation Schedule) that sets out a list of what the company owns (such as vehicles, computers, other office equipment, etc.), what the company originally paid for the item and the current depreciated value of the item.
Execution of financial statements
- All the accounts must comply with the form of and directions as to the preparation of financial statements prescribed in the Financial Reporting Order 1994, and
- Be signed and dated by two directors (or, if the company has only one director, by that director).
Tax department requirements
At the end of each financial year each company registered with Inland Revenue in New Zealand has to produce financial documents for tax department. These should be filed within five months of your balance date (or, if all the shareholders of the company agree, within nine months of the balance date).
Foreign sourced trustee income
According to the section HC 26 of the Income Tax Act 2007 a foreign-sourced amount that a New Zealand resident trustee derives in an income year is exempt income if no settlor of the trust is at any time in the income year a New Zealand resident and the trust is not a superannuation fund or a testamentary trust or an inter vivos trust. This tax exemption rule does not apply if a resident foreign trustee breaches the trustee disclosure and bookkeeping rules and the trustee may be taxed in New Zealand on the foreign trust's worldwide income. Subject to sections 22 (2) (fb) and (m) of the Tax Administration Act 1994 every person who is a resident foreign trustee of a foreign trust in any income year, shall keep in New Zealand sufficient records related to a trust and the financial position of the foreign trust, and shall retain in New Zealand all such records for a period of at least 7 years after the end of the income year. This rule applies unless the trustee is a qualifying resident trustee. A trust will cease to be a foreign trust if it makes any distribution after a settlor becomes a New Zealand resident, or if a New Zealand resident makes a settlement on the trust. New Zealand sourced income of a foreign trust is taxed in New Zealand on 33% rate.
What is a foreign source?
Foreign sourced income is defined by section YD 4 of the Income Tax Act 2007. In other words, to be treated as a foreign sourced income it must not being:
- derived from a business wholly or partly carried on in New Zealand,
- derived from a contract made in New Zealand, or made outside New Zealand but wholly or partly performed here,
- derived from land owned in New Zealand, or from shares in New Zealand-resident company.