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steve9
01-07-2020, 06:59 AM
Hi, If I invest in a US Limited Partnership, does it fall under the FIF rules like a US managed fund?

SBQ
01-07-2020, 08:39 PM
Hi, If I invest in a US Limited Partnership, does it fall under the FIF rules like a US managed fund?

Need to clarify what it is? Is it a share holding? Does it issue dividends? Are it's shares traded on a public stock exchange?

When you say "Limited Partnership", that is simply a corporation with partners. IRD has rules for NZ residents that have more than a 10% stake in an overseas corporation, for which FIF won't apply but something worse, the incomes would be taxed at NZ income tax rates ; a complex tax return having to file at both places US / NZ and Foreign Tax Credits so you're not double taxed.

steve9
03-07-2020, 02:04 PM
Need to clarify what it is? Is it a share holding? Does it issue dividends? Are it's shares traded on a public stock exchange?



It is a fund that is making investment in US shares and is structured as a LP. I would own less than 10% as there about 40 people investing. The LP will handle the US tax return obligations for each investor. I am correct in assuming my investment will fall under FIF?

SBQ
03-07-2020, 05:11 PM
It is a fund that is making investment in US shares and is structured as a LP. I would own less than 10% as there about 40 people investing. The LP will handle the US tax return obligations for each investor. I am correct in assuming my investment will fall under FIF?

FIF only applies to foreign property in the area of share holdings. If I recall correctly, the criteria is the shares must be listed on an exchange to qualify; because a 'market value' needs to be assessed. FIF does not apply if you own physical assets like real estate, collectable assets, classic cars, etc. because it's more difficult to assess fair market values on a timely basis.

Sounds to me your LP is nothing more than a business venture with it's assets held in equities. It may pay to see a tax consultant but from the looks of things, a LP or being a partner in an incorporated company, will NOT be taxed under FIF. Instead, you would be under a different tax requirement which gets the accountants and lawyers rubbing their hands. Like the US, NZ taxes residents on a 'world wide basis'. Unlike FIF, when this LP issues a dividend (or payout), you would be taxed at the IRS end first, then your accountant in NZ would file to IRD the income you earned and would claim a 'foreign tax credit' for the tax you paid to the IRS. The balance would be you pay at IRD's tax rate since NZ taxation is much higher than in the US.

Being a non-US resident means you don't get any of the IRS perks. You may lose out on the capital gains tax paid when you sell the LP shares (ie when you want out or sell a portion of share ownership in the company). Your dividend withholding in the US may be 33% instead of a registered managed fund that would only have 15% withholding for NZ residents.

Perhaps the biggest killer would be the estate / death tax. While US residents pay no estate taxes on amounts up to $11 million in assets, non-residents have no exemption. They get hit 33% of the value of the asset. So upon death, the share ownership portion will be assessed and 33% paid before the 67% goes to your estate.

Again, best to see a tax specialist to confirm a share ownership in a foreign corporation does not fall under FIF.