A New Zealand Limited Partnership (NZLP) is a partnership registered in New Zealand under the Limited Partnerships Act 2008. A limited partnership is a corporate structure with separate legal personality (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. Therefore, it may offer a viable alternative to those traditional structures for a wide range of businesses.
Partners in a Limited Partnership
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 harbors” which do not constitute taking part in the management of the business of the limited partnership.
Taxation of a 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).
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.
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.