The New Zealand “foreign” trust is a normal trust with beneficiaries who may be non-residents or residents of New Zealand, but with a settlor who is non-resident in New Zealand.
Trusts are an integral part of the legal system of New Zealand, just as it is in most countries with common law and equity legal systems. New Zealand has developed its own approach to the taxation of trusts, based on the source of the trust funds. The residences of the trustees or the beneficiaries don’t play a part; essentially, taxation is based on the residence of the settlor (or grantor).
The 1988 taxation regime for trusts, particularly trusts with non-resident trustees, codified the New Zealand “foreign” trust. The tax code considers a trust “foreign” when the trust is settled by a settlor (grantor) who is a non-resident of New Zealand.