New Zealand Limited Partnership: A full Tax-Exempt option for International Trade
Contributed by Wellington Advisors
09 December, 2019
Why Choose New Zealand?
New Zealand is well known to most readers and requires little introduction. It is a safe, stable and secure country which offers considerable benefits to those involved in international tax planning.
New Zealand lies in the South Pacific Ocean and consists of two large islands and a number of smaller islands. Granted autonomy in 1947, New Zealand has a progressive economy that is based largely upon banking and finance. It has undergone substantial structural reform since 1984 and as a result has experienced economic liberalisation. There have been several reforms, such as the removal of interest and exchange controls allowing the free flow of capital in and out of the country. The government has implemented various changes to encourage greater investment in New Zealand. With the overall tax incentives highlighting the positive attitude of the government to place New Zealand amongst the best international financial centres.
With the increased use of New Zealand as a trust domicile there has been a corresponding rise in interest in New Zealand companies. These Key Facts provide an overview of the New Zealand corporate regime, the tax treatment of New Zealand companies with non-resident Shareholders earning non-New Zealand source income, and our fees for providing a range of corporate services.
Advantages for Using New Zealand
- Able to provide an offshore type trust structure onshore
- It is an English-speaking country
- It enjoys political and economic stability
- It is an independent British Commonwealth country
- The legal system is based on English common law
- Its Trust Law is similar to that of other common law jurisdictions
- The legal and banking profession is of a high standard
- It has well developed communication, commercial and business infrastructure
- New Zealand is a full member of the Organisation for Economic Co-operation and Development (O.E.C.D)
- New Zealand is not perceived as a harmful tax jurisdiction by the O.E.C.D whilst providing many of the advantages of an offshore tax jurisdiction
- New Zealand represents a fresh approach to offshore asset protection
- New Zealand is a signatory to the 1922 Hague Convention and can thus provide documents under apostil seal
Preferential NZ Tax regimes: New Zealand Limited Partnerships
A New Zealand Limited Partnership (NZLP) is a partnership registered in New Zealand under the Limited Partnerships Act 2008. Details of the NZLP is entered in the register of Partnerships, which is maintained by the Companies Office.
New Zealand's relatively new limited partnership regime aims to provide a convenient, flexible and internationally recognised structure encompassing some of the best features of both companies and partnerships. Therefore, it may offer a viable alternative to those traditional structures for a wide range of businesses. This note outlines some of the key features.
A limited partnership is a corporate structure with separate legal personality (similar to a company) which offers limited liability to investor partners. A limited partnership has full capacity to carry on or undertake any business or activity, do any act, or enter into any transaction, both within and outside New Zealand.
On the other hand a limited partnership has "pass-through" tax treatment in New Zealand, which means the tax consequences of the partnership's activities flow directly to the investor partners. There is no separate layer of corporate tax.
Partners in a Limited Partnership
Any person (legal or natural) may be a partner of a limited partnership. A partnership under the Partnership Act 1908 or an overseas limited partnership registered under the Act may also be a partner.
A NZLP must have at least one general and one limited partner who cannot be the same person. The general partner has an active management role and is responsible for day to day management of the partnership business. General partners are not required to contribute capital. Limited partner is generally a passive investor and cannot take part in an active management of the partnership's business. At least one of the General Partners must be a natural person who lives in New Zealand.
As opposed to an ordinary partnership, the liability of a limited partner is limited to the value of the limited partner's capital contributions. Liability of the general partners is much wider however this is often limited by the corporate personality of the general partner with limited assets and share capital. Furthermore, the limited partnership enjoys a separate legal personality. Any company or an individual can be a partner. The legislation does not impose restrictions on what activities a NZLP can do.
While all partners' details must be registered, only details of the general partner will be made public thereby keeping the details of the underlying investors confidential.
General Partner Requirements
All limited partnerships are now required to have one or more of the following:
- A general partner who lives in New Zealand; or
- A general partner who lives in and is a director of a company (other than an overseas company) registered in an enforcement country (limited at this stage to the Commonwealth of Australia); or
- A general partner that is a limited partnership and that has at least one general partner who lives in New Zealand, or who lives in and is a director of a company (other than an overseas company) registered in Australia; or
- A general partner that is a partnership governed by the Partnerships Act 1908 and that has at least one general partner who lives in New Zealand, or who lives in and is a director of a company (other than an overseas company) registered in Australia; or
- A general partner that is an NZ company; or
- A general partner that is an overseas company registered under the Companies Act 1993 and that has at least one director who lives in New Zealand, or who lives in and is a director of a company (other than an overseas company) registered in Australia.
Liability of General Partners
A general partner is jointly liable with the limited partnership and other general partners for the unpaid debts and liabilities incurred while that person is a general partner. However, as noted above, a limited liability company may be a general partner. Also, a general partner is only liable to the extent that the limited partnership cannot pay those debts or liabilities.
Liability of Limited Partners
A limited partner usually has no liability beyond the capital contributed. However, they can be liable if they take part in the management of the limited partnership and third parties are misled into thinking that they are a general partner. A schedule to the Act sets out "safe harbours" which do not constitute taking part in the management of the business of the limited partnership.
Taxation of the NZ Limited Partnership
One of the key attractions of the LP regime is its compatibility with international tax treatment of LPs. Like LP regimes in many other countries, the New Zealand Income Tax Act 2007 allows for the "flow through" of income and expenses based on the LP Agreement. So losses and gains are attributed to the Limited Partners directly, in the manner agreed in the partnership agreement (although the maximum loss claimable in New Zealand for taxation purposes is the total capital contributed plus any guarantees given in favour of the LP).
Income from New Zealand partnerships as detailed on the New Zealand Inland Revenue Departments web site at http://www.ird.govt.nz/technical-tax/legislation/2008/2008-2/ .
Limited partnerships are fiscally transparent for New Zealand tax purposes. This means that the limited partnership itself is not taxed. Instead, the income and expenditure of the limited partnership flow through to each partner, in proportion to that partner's partnership share in the limited partnership.
Flow-through tax treatment ensures that each partner pays tax in relation to their share of the limited partnership's income, in accordance with that partner's tax attributes under New Zealand law. This allows for different limited partners to be taxed differently with respect to their limited partnership investment.
In the event that the limited partnership makes tax losses, as is common in start-up businesses, those losses will also flow through to each partner and may be offset against their income from other sources, subject to rules that prevent losses flowing through in some circumstances.
Where the partners of NZLP are, tax resident outside New Zealand, and the NZLP derives non-NZ sourced income, then the Partners will not be liable to New Zealand income tax on their portion of foreign sourced partnership income. Any New Zealand sourced income derived by foreign resident partners of a NZLP, or any foreign sourced income derived by New Zealand resident partners of the partnership will be subject to New Zealand Tax.
The NZLP provides a flexible business structure that offers limited liability protection to its partners and a flow through tax treatment. NZLP's have become popular amongst foreign investors due to their flexibility and discretionary tax treatment of foreign sourced income in the hands of the non-resident investors.
Why Work with Wellington Advisors
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