Look-Through Company Residency Requirements

A company may only be a look-through company (LTC) if is 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 have living overseas, to determine whether your company can be a LTC, the following 3 tests should be considered:

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

(2) Is your company resident in the country that you live?  If the answer is no, the 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 its shareholders or directors in Australia.  So even if the shareholder/directors live in Australia, it is unlikely 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 orgainsed 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 or 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 with 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 all countries that we have clients living in such as Australia, the US, the UK and the UAE, it is important to ensure that NZ is the effective place of management.  To support that position, I recommend appointing only NZ resident directors for your LTC, as the director's residency is a major factor in determining the effective place of management.

Disclaimer: The above article is general in nature and we recommend you seek professional advice tailored to your specific personal situation.