New Zealand Limited Partnership (LP)
A corporate entity with a zero-tax rate
New Zealand stands as one of the most developed countries in the Pacific region. It currently operates as a parliamentary republic. Although New Zealand was a UK dependency until 1947, a Governor-General appointed by the British Queen still holds office.
New Zealand is recognized for its standard taxation system and maintains a positive reputation without being included in any “blacklist.”
The legislation in New Zealand allows for the establishment and operation of corporate entities with a zero-tax rate, specifically the Limited Partnership (L.P). In New Zealand, if a foreign member is involved in a Limited Partnership (L.P) that does not engage in business activities within New Zealand and generates no income within its territory, it is not subject to taxation in the country.
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.
According to New Zealand’s tax laws, a New Zealand Limited Partnership is not regarded as a separate taxable entity within the country. Instead, the taxes related to the profits earned by the NZ L.P. should be paid by the Founders or Partners in their respective places of residence, in proportion to their ownership shares in the L.P.
For non-European Union (EU) residents, a New Zealand Limited Partnership serves as a suitable tool for purchasing goods in EU countries and exporting them to destinations outside the EU. If a New Zealand company is used, the export from the EU is straightforward. However, if a company registered in any EU country is used, there may be ambiguity regarding whether the transaction qualifies as an EU export or not.
NZ Limited Partnership Structure
A NZ Limited Partnership can exist indefinitely. Limited Partnerships consist of both General Partners and Limited Partners, and both types of partners can contribute to the Limited Partnership. While contributions can take various forms, excluding loans, partners who make capital contributions are entitled to receive distributions. Typically, only Limited Partners make capital contributions and are entitled to receive distributions proportional to their contributions.
NZ Limited Partnerships offer considerable flexibility and can serve various purposes, such as business operations and asset holdings, without limitations on the type of business activities or the location of assets worldwide. However, one notable limitation for collective investment purposes is the inability to unitize individual interests in the fund; instead, individual interests are calculated as a percentage of the total assets’ net value.
Requirements for General Partners in a Limited Partnership
For a limited partnership to be valid, it must include at least one general partner who falls into one of the following categories:
- An individual residing in New Zealand or Australia, with the condition that if located in Australia, they must also serve as a director of an Australian company.
- A limited partnership with at least one general partner who resides in New Zealand, or if residing in Australia, they must be a director of a company incorporated in Australia.
- A partnership operating under the Partnerships Act of 1908, with at least one general partner living in New Zealand, or if residing in Australia, they must be a director of a company incorporated in Australia.
- A New Zealand company that is registered under the Companies Act of 1993.
- An overseas company registered under the Companies Act of 1993, provided that it has at least one director living in New Zealand, or if residing in Australia, they must be a director of a company incorporated in Australia.
It’s important to note that all individuals acting as general partners or holding positions as directors, partners, or general partners of a general partner must meet specific eligibility criteria.
Key Benefits of a New Zealand LP
- Limited liability
- Separate legal personality
- Fiscal transparency
No elaborate record-keeping is necessary to initiate a partnership. Provides an efficient means to distribute shared operational expenses (e.g., when multiple professionals operate from a common office space).
- Partners may share liability for one another’s debts
- Risk of personal assets exposure for General Partners
- Potential for partnership conflicts
- Complexities arising from partner departures or deaths
Characteristics of a New Zealand LP
All New Zealand Limited Partnerships must be registered under the Limited Partners Register. Additionally, they must maintain a registered New Zealand office address, an address for service, a postal address, and an email address, all of which must be physical locations in New Zealand (not virtual offices or similar arrangements).
The name of a Limited Partnership should contain the words “Limited Partnership” or the abbreviation “LP” or “L.P.” at the end.
A Limited Partnership is legally separate from its partners and consists of at least one General Partner (GP) and one or more Limited Partners (LPs). Partners can be individuals or companies, and there are no restrictions on the number of partners. Typically, each partnership has one GP, and every party contributing to the Limited Partnership’s working capital becomes an LP. At least one partner must be a New Zealand resident.
The GP bears responsibility for managing and administering the Limited Partnership and shares joint and several liability with the Limited Partnership for all its debts and liabilities. Generally, the GP is a limited liability company with limited capital, not obligated to make a capital contribution to the Limited Partnership.
Each Limited Partnership must maintain a written partnership agreement, akin to a contract between the GP and each LP. This agreement is not publicly registered, but the applicant must verify its compliance with the Limited Partnerships Act 2008 when registering the Limited Partnership with the Registrar.
The Limited Partnership itself does not incur income tax; instead, it distributes the partnership income to the partners. Subsequently, the partners are individually responsible for the tax on their respective shares of income. Income, tax credits, rebates, gains, expenses, and losses are typically allocated to partners in accordance with their shares of interest as specified in the partnership agreement.
As part of the Look-Through Company regime, all profits generated by the Limited Partnership pass through to the Limited Partners, who are then taxed based on their unique tax obligations. This structure allows income to be divided among several Limited Partners within the same family, reducing the overall tax liability.
New Zealand Resident Limited Partners are subject to New Zealand tax at the applicable marginal rate. Non-resident Limited Partners, however, are not subject to New Zealand tax on their share of income generated by the Limited Partnership, provided the income has no source within New Zealand.
A Limited Partnership does not incur taxation on its profits in New Zealand. All profits are distributed within the structure and are subject to taxation in the partners’ respective jurisdictions.
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