Venture Capital Limited Partnerships (VCLP)
- Applications are open on an ongoing basis
- Register the partnership for tax benefits, benefiting both fund managers and eligible foreign investors.
The Venture Capital Limited Partnership program provides tax incentives to fund managers and qualified foreign investors, aimed at promoting venture capital investments. These incentives encompass an exemption for eligible foreign investors, relieving them from capital gains tax on their portion of a fund's returns arising from qualified venture capital investments.
The program facilitates fund managers in attracting pooled capital, enabling them to raise venture capital funds exceeding $10 million for investment in innovative Australian enterprises. It provides tax advantages to fund managers and eligible foreign investors while fostering connections between investors and innovative Australian businesses. Ultimately, it nurtures the growth of Australian businesses through financial support.
A VCLP must be a newly established partnership, rather than a restructured existing one.
To gain registration under the Venture Capital Act 2002 (VCA), applicants must submit their applications to Innovation and Science Australia. The authority has delegated its decision-making powers for VCLPs to authorised delegates.
Registration as a VCLP by a delegate is contingent upon meeting specific eligibility criteria.
Upon registration, a VCLP gains the ability to make venture capital investments in companies or unit trusts with total assets not exceeding $250 million.
These investments must adhere to additional criteria and must be held for a minimum of 12 months.
For continued registration, a VCLP must fulfil ongoing requirements outlined in the VCA.
Once registered, both eligible foreign investors and fund managers become eligible to claim distinct tax benefits under the VCLP program. These tax benefits vary for eligible foreign investors and fund managers.
Who is this for and what you get?
Tax benefits for investors:
Investors gain an advantage from a VCLP’s flow-through tax status, as the partnership itself remains untaxed, allowing income and gains to pass through to investors. This arrangement effectively eliminates the issue of double taxation.
Eligible foreign investors, in particular, enjoy an exemption from income tax on their portion of profits, whether they are of a capital or revenue nature, generated by the partnership.
On the other hand, returns received by domestic investors are subject to taxation; however, it’s worth noting that any incurred losses may be eligible for deduction.
Tax benefits for fund managers:
General partners, who frequently serve as fund managers, can claim their carried interest within the VCLP under the capital account, as opposed to the revenue account.
What companies are eligible?
You are eligible to apply for registration if your entity falls into one of the following categories:
- a newly established venture capital fund
- a limited partnership or an incorporated limited partnership
- an entity established in Australia or a nation that holds a double tax agreement with Australia
Certain prerequisites must be met, including:
- having a general partner, who often also serves as the fund manager, residing in either Australia or a country with a double tax agreement with Australia
- possessing a minimum of $10 million in committed capital (although partnerships falling short of this requirement may still be considered for conditional registration)
Furthermore, a qualifying partnership agreement is essential, which should encompass the following provisions:
- ensuring the partnership’s longevity for a period ranging from 5 to 15 years
- mandating partners to contribute capital as necessary
- prohibiting the addition of new partners unless stipulated in the agreement
- restricting any increment in committed capital except as provided in the agreement
- granting the general partner the authority to require partners to allocate their committed capital to the partnership
- including a comprehensive plan outlining the intended investment activities of the partnership
How can I get help?
Avant Group offers a no-obligation assessment of your eligibility.