What Is A New Zealand Registered Limited Partnership?
A Registered Limited Partnership is a rather unique structure that can have some significant tax advantages when doing business from Australia. At the time, the New Zealand government was looking at ways of encouraging foreign investment in New Zealand. They had a look at the structures currently in use throughout the world, cherry picked the advantages of each and legislated this unique structure.
It is essentially a hybrid between a company and a partnership where, when set up and administered correctly, investors get the limited liability protection provided by the traditional company structure and are able to receive their share of the profits and, more importantly, the tax credits.
Advantages Of Limited Partnerships For Australian Residents
Some overseas investors have taken a liking to it because income sourced outside of New Zealand by the Limited Partnership is exempt from income tax in New Zealand when allocated to non-residents. That means income sourced from outside of New Zealand is tax free.
This is of little consequence when doing business from Australia because of the provisions of the double tax agreement along with the constant sharing of information between Inland Revenue and the ATO.
However, when set up and administered correctly it has a key benefit for Australian investors.
With the traditional New Zealand company structure, income tax paid in New Zealand by a company is generally not available to the Australian resident shareholders as a franking credit. New Zealand imputation/franking credits are only available to New Zealand residents.
In the case of a New Zealand subsidiary owned by an Australian company, those tax credits can generally be used as an offset against any Australian tax paid (a benefit of the double tax agreement) however that tax break stops there.
Dividends paid by a New Zealand company become classified as an unfranked dividend in Australia and subject to tax a second time in the hands of the shareholders (or beneficiaries in the case of a Trust).
Therefore, when this structure is used correctly, Australian investors will have commercial protection by way of limited liability but will get a full tax credit on income tax paid in New Zealand.
When Will A New Zealand Limited Partnership Work Best For You?
A Limited Partnership can be useful in a number of different scenarios. Properly structured and administered, it should certainly be considered if the New Zealand business will be:
- owned by an Australian company or trust
- owned by Australian resident individuals but the likely profit from the New Zealand entity will exceed $100,000 per shareholder.
In a standard company structure, when the sales from your combined Australian and New Zealand operation exceed NZ$10M in a 12 month period or where the total assets exceed NZ$20M, there is a requirement to file financial statements. These financial statements will be available online to the public (and your competitors).
This Limited Partnership structure does not have this requirement, meaning sensitive information won’t be published.
Administration Of Limited Partnerships
New Zealand’s limited partnerships are covered by their own legislation, The Limited Partnerships Act 2008
Like New Zealand Trusts which are also regarded as some of the most robust in the world, this Limited Partnership structure is by no means a set and forget structure. It would be dangerous to set the structure up and then effectively ignore it.
The ATO typically look to ensure the Limited Partnership is being administered in terms of New Zealand’s Limited Partnerships Act 2008 so it is very important to ensure it is set up and administered by someone who understands the rules on both sides of the Tasman.
Unlike partnerships, there are no limits with regard to the duration of the partnership, partners can come and go (and can be subject to pre-emptive provisions) and there are no capital requirements.
Questions About Registering Your New Zealand Limited Partnership?
Our New Zealand expert, Mike Reddy, is a New Zealand accountant and NZ-registered tax agent based in Sydney. He works with small businesses throughout Australia to help you take care of your New Zealand tax questions and Returns from our Sydney-based office.
Having been preparing and filing New Zealand tax returns since 1994, Mike is the most experienced New Zealand tax agent in Australia. He is regularly engaged by Australian tax agents and accountants who have clients with New Zealand interests.
So when it comes to looking after your New Zealand affairs, Mike can definitely help you with the right advice.
Call us now on 1300 791 600. There is no charge for a quick chat so we can talk you through the issues.