Scotland Limited Partnership
Opening a Limited Partnership in Scotland
Most relevant Uses & Benefits
Scotland is a constituent part of the United Kingdom, a prominent global hub for finance and commerce and a significant jurisdiction for international tax planning. The UK, on the international stage, is known for its standard tax regime. Nevertheless, Scottish legislation offers a unique avenue for the establishment and operation of companies with a zero-tax rate via a business structure known as a Limited Partnership (LP).
The Scottish Limited Partnership (SLP) operates under the purview of the Limited Partnerships Act of 1907 and, for registration purposes, is required to have its primary place of business situated in Scotland. What sets a Scottish LP apart from LPs registered under the 1907 Act in England & Wales is its distinct legal personality, granting it the capacity to engage in contracts and hold assets under its own name.
Scotland Limited Partnership (SLP)
A Scotland Limited Partnership (SLP) is an exceptional entity with a rich history spanning over a century. In recent times, SLPs have found application in contemporary business scenarios such as private equity and property investment fund structures. This article explores the appealing attributes of SLPs that draw the attention of fund managers, promoters, and investors, both domestic and international.
The key merits of the Scottish Limited Partnership include:
Absence of UK taxes, provided that the partnership doesn’t engage in UK-based trade, and the partners aren’t UK residents. Partners are subject to taxation based on their respective locations.
No obligation to submit financial statements to the Register of Enterprises.
No requirement to file tax declarations with the Register of Enterprises.
Internationally recognized jurisdiction with an outstanding reputation.
Strong confidentiality safeguards.
The legal stipulation that limited partners cannot participate in the company’s management, making the Scottish LP an excellent choice for investment structures involving a multitude of partners, where managerial responsibilities are assigned to the general partner or a manager appointed by the general partner.
Most uses of a Scottish Limited Partnership
A Scottish LP is an optimal solution for those seeking to operate a company incorporated within the European Union while enjoying a completely tax-free environment.
- Fund structures.
- SLPs offer flexible applicability in fund structures.
- SLP as the primary fund vehicle.
- SLPs can serve as the primary funds vehicle due to their ability to hold assets in their name, accommodate multiple passive investors (limited partners), and centralize the management and business functions under a single person, as guided by the limited partnership agreement.
SLP as a Participant
Given its separate legal identity, the SLP is suitable for deployment in funds or other structures requiring ‘persons’ as members. A common use case is employing the SLP as a carried interest partner, which facilitates the distribution of a percentage of profits from the primary fund to the fund manager. This diagram illustrates such a structure.
The structure includes the primary funds vehicle, typically a limited partnership (potentially an SLP), with the SLP being one of the limited partners in the main funds’ vehicle. This arrangement is only possible because the SLP has its distinct legal personality; limited partnerships registered in other jurisdictions cannot fulfill this function. The fund manager acts as one of the limited partners of the SLP, and the profits flow from the main funds’ vehicle to the SLP, and subsequently to the fund manager (with the timing and method governed by the limited partnership agreements). As the SLP is tax-transparent, the fund manager is directly taxed on the profits received.
Scottish LP companies require a minimum of two partners, who can be natural individuals or corporate entities from any legal jurisdiction.
Register of Partners
Each Scottish LP company must file a register of its partners with the Register of Enterprises of Scotland.
The company’s capital is divided among its partners.
There is no statutory requirement for a Company Secretary to be appointed.
Authorised Share Capital
The standard authorised capital is GBP 100.
Scottish LP company names must conclude with “Limited Partnership” or the suffix “LP.” Specific restricted words in company names require appropriate national operating licenses or special permits.
Beneficial Ownership Information
Ultimate beneficial ownership details must be disclosed to the Registered Agent of the company and are held in confidence.
Filing of Annual Return
No obligation to file an Annual Return.
Filing of Financial Statements
Each Scottish LP must maintain proper accounting records and prepare annual Financial Statements. Relevant Tax Declarations must be submitted to Her Majesty Revenue & Customs annually.
LP companies that do not conduct business operations in the UK, do not generate income from UK sources, and are managed and controlled by non-UK residents are not considered residents for tax purposes in the UK, and thus cannot take advantage of the UK’s international Double Tax treaties.
Taxation of Partners in an SLP
UK tax-resident partners are liable for UK tax on their share of worldwide partnership profits. Non-UK resident partners are subject to UK tax only if the partnership engages in UK-based trade and solely on their portion of UK-generated profits.
Tax Planning and Mitigation
Due to its separate legal identity and tax transparency, the SLP is worth considering in the context of tax structuring. SLPs are commonly used in various tax mitigation schemes to reduce partners’ liability for UK and foreign taxes, income, chargeable gains, or stamp duty land tax (SDLT). These structures can be intricate to establish but, when the necessary conditions are met, they offer significant potential for tax savings.
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