Limited Partnerships (LP)
General information about
New Zealand Limited Partnership
New Zealand is one of the most developed countries in the Pacific region. Currently, it is a parliamentary republic. However, New Zealand was a dependency of the UK until 1947, and even to this day it has a Governor-General appointed by the British Queen.
New Zealand is known as a jurisdiction with standard taxation level. The country has a good reputation and is not included in any “black lists”.
New Zealand legislation provides the opportunity of incorporating and operating corporate bodies with a zero rate of tax, namely the Limited Partnership (L.P). A New Zealand L.P. with foreign members, which does not carry on a business in New Zealand and derives no income on New Zealand territory, is not liable to tax in New Zealand. According to the tax laws of New Zealand, a L.P. is not considered in this country as the separate subject of taxation. It is the Founders (“Partners”) who should pay taxes from the profit received by the L.P. in their place of residence in the proportion according to the shares of interest belonging to them in the L.P.
As a non-resident of the EU, a New Zealand L.P. company is an appropriate instrument for the purchase of goods in the EU countries and their further export to countries outside of the EU. In the event that a New Zealand company is used, export from the EU becomes obvious, whereas if a company registered in any EU country is used for this purpose, the seller of the goods may not be sure whether the relevant operation is treated as an export from the EU or not.
Unlike a trust a Limited Partnership may exist in perpetuity. Limited Partnerships are a form of partnership involving General Partners and Limited Partners. Both types of partners can contribute to the Limited Partnership. Capital contributions can take any form (including services) but loans are excluded as capital contributions.
Partners who have made capital contributions are entitled to receive distributions. It is usual for only the LPs to make capital contributions and to be entitled to receive distributions pro rata to their capital contribution.
Limited Partnerships can be used for asset planning in a number of different ways. The legislation does not restrict the types of uses for limited partnerships. They can carry out business and hold assets of any nature in any part of the world. The most significant drawback of a Limited Partnership for collective investment purposes seems to be the inability to unitise individual interests in the fund. Individual interests are instead calculated as a percentage of the net asset value of the total assets.
Main benefits of a New Zealand LLP
Separate legal personality; and
Advantages of a Limited Partnership
No registration is required to start a partnership
Can be an effective way to share business operation costs (for example, several professional people operate out of a joint office).
Disadvantages of a Limited Partnership
Partners may be liable for debts incurred by other partners
Putting personal assets at risk (for General Partner)
Possible partnership conflicts
Possible complications if a partner dies, or wishes to leave the partnership.
All New Zealand Limited Partnerships must be registered under the Limited Partners Register.
A Limited Partnership must have:
A registered New Zealand office address
A New Zealand address for service
A postal address; and
An email address
The registered office address and address for service must be physical addresses in New Zealand ie cannot be a Private Bag, DX or a ‘virtual office’ (that is a mail/message collection point).
The name of the Limited Partnership must include the words ‘Limited Partnership’ or the abbreviation ‘LP’ or ‘L.P.’ at the end of the name.
A Limited Partnership is separate from its partners and must have:
A general partner (“GP”)
At least one limited partner (“LP”)
Any person or company can be a partner, and there is no limit on the number of partners. Usually there will be one GP and each party who contributes to the working capital of the Limited Partnership will be a LP. At least one partner needs to be a New Zealand resident.
The GP is responsible for the management and administration of the Limited Partnership and is jointly and severally liable with the Limited Partnership for all the debts and liabilities of the Limited Partnership. A GP is normally a limited liability company with no significant capital of its own and is not required to make a capital contribution to the Limited Partnership.
The Limited Partner’s liability is similar to that of a company shareholder in that it is limited to its capital contribution.
Limited Partnerships must have a written partnership agreement which is similar to a contract made between the GP and each LP. The partnership agreement is not publicly registered. At the time of registration the applicant must certify to the Registrar of Limited Partnerships that the limited partnership agreement complies with the Limited Partnerships Act 2008.
The partnership itself does not pay income tax. Instead it distributes the partnership income to the partners. The partners then pay tax on their own share. Income, tax credits, rebates, gains, expenditure or losses allocated to a partner in an income year will generally be allocated in proportion to each partner’s share in the partnership’s income under the partnership agreement.
Similar to Look-Through Company regime, all profits generated by the Limited Partnership will flow through the structure to the limited partners who will each be taxed as appropriate to them. If there are a number of limited partners within the same family then income can be split between them thereby reducing the overall tax liability.
New Zealand Resident Limited Partner will be subject to tax in NZ at the marginal rate is applicable to them.
Non-resident LP will not be subject to tax in New Zealand on their share of the income generated by the Limited Partnership – provided that the income does not have a New Zealand source.
A limited partnership will not be subject to tax on its profits in New Zealand. All profits flow through the structure and are taxed in the investors’ own jurisdictions.
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