New Zealand limited partnerships, in combination with Nevis limited liability companies, being peddled as 'one of the best and unique products' in the murky world of offshore finance

By Gareth Vaughan

What do New Zealand and the Caribbean island of Nevis have in common?

Like NZ, Nevis is a former British colony. And also like NZ, Nevis is an attractive jurisdiction for peddlers of offshore financial services. Roughly the same size as Waiheke Island, Nevis has a population of only about 12,000 and is part of the Federation of Saint Kitts & Nevis. 

Interest.co.nz has come across an offshore finance product that combines corporate structures from Nevis and NZ for use by those wanting to hide money and/or assets from prying eyes.

An article, originally in Russian published by Offshore Pro Group, is promoting a "reinforced concrete limited partnership [LP] in New Zealand." This is described as "one of the best and unique products in offshore, which no one else offers." The twist is Nevis limited liability companies (LLC) as a "filling" for the NZ limited partnership. The article appears to have been published as recently as May 29 this year.

The structure is available through the Offshore Pro Group for "only" US$8899, and claims to offer three offshore structures instead of one. It combines the advantages of "classic offshore" with "the reputation and tax benefits" of NZ. The Offshore Pro Group says it has worked with NTL Trust Ltd, said to be the oldest trust company in the Federation of Saint Kitts and Nevis.

"It can not but interest those who lead or are going to conduct business using offshore or onshore companies, who want to minimize their tax costs, who want to protect capital or create a completely confidential investment or business mechanism offshore. The product...will bring together the best qualities of onshore jurisdictions - New Zealand and classic offshore Nevis, and combine and enhance the advantages of New Zealand LP and Nevis LLC," the article says.

"The limited partnership of New Zealand itself is a very popular offshore and onshore structure. The partnership is actively used by businessmen all over the world as a mechanism for investment, international trade, tax optimization."

"By ordering this product...you receive a tool for effective asset protection, business and investment with closed information about participants and exemption from income taxes both in New Zealand and Nevis."

"You only need to provide a notarized copy of your passport (you can transfer the passport if the notary refuses to certify the copy), confirmation of the address and recommendations from your bank or lawyer. This is what you need to create two LLCs in Nevis."

The article also says via the Nevis companies customers can open bank accounts "in many banks of the world." Saint Kitts and Nevis was placed on a European Union list of tax havens earlier this year, but subsequently downgraded to a grey list of jurisdictions with low tax transparency standards but aiming to become less opaque.

What is a limited partnership?

According to Investopedia, a limited partnership exists when two or more partners unite to jointly conduct a business in which one or more of the partners is liable only to the extent of the amount of money that partner has invested. Limited partners do not receive dividends, but enjoy direct access to the flow of income and expenses. This term is also referred to as a "limited liability partnership." The main advantage is the owners are typically not liable for the debts of the company. 

NZ registers of limited partnerships are administered by the Ministry of Business, Innovation & Employment's Companies Office. Every limited partnership must have a partnership agreement. This is an agreement between partners that establishes a limited partnership, and governs the terms and conditions of the partnership relationship.

An MBIE spokesman says there were 2413 registered NZ limited partnerships, including 16 in liquidation, as of June 16. At the same date there were 15 overseas limited partnerships incorporated/registered in another country, but registered in NZ because they're carrying on business in NZ.

"All information about limited partners in limited partnerships is confidential. This is a requirement of section 115 of the Limited Partnerships Act 2008," the MBIE spokesman says. "[But] information about the general partner(s) of limited partnerships is publicly available on the limited partnerships register."

A general partner is responsible for the management and business of the partnership. Limited partners contribute capital to the partnership as investors but must not take part in the management of the business. While all partners’ details must be registered, only details of the general partner will be made public thereby keeping the details of the underlying investors confidential. A limited partnership must have at least one general partner that's an individual living in NZ or Australia. If in Australia, the individual must be a director of an Australian company, MBIE says.

Information about the identity and details of limited partners cannot be searched except by Companies Registrar Ross van der Schyff who must treat limited partner information as confidential. The Official Information Act 1982 does not apply to such information.

Of its NZ-Nevis structure Offshore Pro Group says one of the Nevis companies will be the limited partner and the other the general partner for the NZ limited partnership.

"We will also register for you a limited partnership in New Zealand and provide you with a complete package of constituent documents both for Nevis LLC and LP New Zealand," Offshore Pro Group says.

"Recall that if the partners of the New Zealand LP - non-New Zealand residents, and the partnership income is also received from outside New Zealand, then partners do not have a duty to pay income tax in NZ. Naturally, LLC Nevis as a partner is clearly not a resident of New Zealand."

'Income earned by foreign partners in a NZ limited partnership from foreign sources not currently subject to tax'

Law firm Duncan Cotterill notes a limited partnership has “pass-through” tax treatment in NZ, meaning the tax consequences of the partnership’s activities flow directly to the investor partners. There is no separate layer of corporate tax.

An Inland Revenue Department spokesman says IRD is aware of how NZ limited partnerships are used internationally to manage investments, especially collective investment into new markets.

"New Zealand limited partnerships are subject to registration requirements at the Companies Office and are also required to file tax returns here. Limited partnerships are a form of hybrid vehicle and as such are part of the OECD’s Base Erosion and Profit Shifting [BEPS] initiative addressing hybrid mismatches. A bill [the Taxation (Neutralising Base Erosion and Profit Shifting) Bill] to address this in New Zealand is currently before the House," the IRD spokesman said.

"Income earned by foreign partners in a NZ limited partnership, which is from foreign sources is not currently subject to tax. The bill before the house proposes to change this so that if the foreign country treats the limited partnership as a company for tax purposes, and so does not tax the foreign partner on its share of the partnership income, then we will amend our treatment and impose tax. This would ensure that the income attributable to the foreign partner doesn’t escape tax in any country," the IRD spokesman says.

Limited partnerships included in govt push for clearer beneficial ownership details

Just what sort of take up, if any, Offshore Pro Group is attracting for the "reinforced concrete LP in New Zealand" is not clear. Neither Offshore Pro Group nor NTL Trust Ltd have responded to requests for comment.

Offshore Pro Group says it offers a "professional service for international individuals and companies" that includes analysing banking needs, recommending the best international banks and card issuers, and helping complete application and account opening processes. Offshore Pro Group points out it's not a bank, financial institution or payment card issuer. It has a postal and courier address in Zurich-Muelligen, Switzerland, but says it can't receive visitors at this address. The company's website claims to have an office in Panama, and claims to also have a presence in the Seychelles, Singapore and Estonia. 

NZ limited partnerships haven't been in the news for the wrong reasons to the extent foreign trusts, shell companies and registered financial service providers have. However, Commerce & Consumer Affairs Minister Kris Faafoi this week released a MBIE consultation paper on increasing the transparency of the beneficial ownership of NZ companies and limited partnerships.

MBIE has included three options and favours one that would see beneficial ownership information included on company and limited partnership registers with public access. A beneficial owner is defined as;

"Persons who own or effectively control a corporate entity, such as a company. They may own or control the entity indirectly, such as through intermediaries, and may be different to the legal owners. For example, a person may be a beneficial owner of a company if they control at least 25% of the voting rights or if they have the power to appoint directors," MBIE says.

Faafoi says the Government wants to "strengthen our corporate governance to stop erosion of NZ as a good place for honest business." Submissions close on Friday August 3. 

In terms of dubious use of NZ limited partnerships, interest.co.nz is aware of the presence of Masterton Logistics LP in court documents involving a corruption scandal featuring Brazilian construction company, Odebrecht and the Operation Car Wash investigation into money laundering. However, we have no reason to believe Masterton Logistics LP was established by, or has any links to, Offshore Pro Group, NTL Trust Ltd or Nevis. Masterton Logistics LP was struck off in December 2016.

The tables below were provided by MBIE.

 

Pictures taken from the Offshore Pro Group's website.

Postscript: After this article was published Rada Pelesic, support manager at Offshore Pro Group, responded to interest.co.nz's earlier inquiries. Pelesic said "at this time" the firm is "not offering New Zealand" as a part of its services, "due to the fact that local providers do not work with foreigners anymore."

*This article was first published in our email for paying subscribers early on Wednesday morning. See here for more details and how to subscribe. 

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