FOREIGN INVESTMENT INTO NEW ZEALAND
JACINDA ARDERN’S LABOUR GOVERNMENT PASSES NEW LAWS MAY 2021
Foreign investment into New Zealand is governed by the Overseas Investment Act 2005 (Act). The Act imposed a series of consent requirements related to overseas person’s seeking to purchase or invest in different assets, including sensitive assets, within New Zealand. Up until 2018, New Zealanders probably best associated the Act with affording protections to the primary industries sector in the form of regulating foreign investors when seeking to acquire NZ’s sensitive land that now includes residential property as well as typically non-urban land of more than 5 hectares (such as land used for horticultural, farming and agricultural purposes) or land that adjoins parks, historic places, lakes, and the foreshore and also includes fishing quotas. The definition of ‘sensitive land’ has widened over the years brought about by landmark legislation explained under the heading Prior Legislative Developments.
The Overseas Investment Office (OIO) is empowered with the task of facilitating the consent process and advises the appropriate Minister(s) who in turn directly or by way of delegation, provide consent to foreign investment transactions.
Pursuant to the Act, if a foreign person wanted to invest into a significant business asset it would trigger the requirement to obtain OIO approval. As a general rule, a significant business asset is:
- The acquisition of more than 25% ownership or controlling interest in a New Zealand entity such as a company; and/or
- The value of the business investment, whether it be a start-up, new venture or existing business exceeds NZ$100 million or the purchase price exceeds NZ$100 million.
Certain countries have been permitted a higher threshold of investment into New Zealand before triggering OIO approval. For example, recently it was decided that non-government investments by Australians of NZ$553 million or below, or Australian government investments of NZ$116 million or below, will be exempt from obtaining OIO approval.
As part of the ethos surrounding New Zealand’s investment program, it is apparent New Zealand doesn’t want just investment, it actually wants the right kind of investment and people/organizations associated with such investment.
Therefore as part of the OIO consent process, foreign investors must also demonstrate they can pass the “Investor Test” whereby they are of good character (no relevant criminal convictions for example), have sufficient business acumen in the target sector/business they are investing and have the financial firepower to fulfil the investment objective and see it through.
On top of this if the investment involves ‘sensitive land’ there is a “Benefit to New Zealand Test” that must also be satisfied whereby the foreign investor needs to demonstrate how the acquisition will benefit New Zealand. Previously the benefit had to be substantial and made in an identifiable way, however as we will explain this has been amended to a certain extent.
PRIOR LEGISLATIVE DEVELOPMENTS
Overseas Investment Amendment Act 2018
In 2018, the Labour coalition Government led by Jacinda Ardern made a monumental move that brought the Act to the forefront of most Kiwi’s minds and thereby reducing the ability of foreigners to purchase residential property in New Zealand. With the introduction of the Overseas Investment Amendment Act 2018 the definition of ‘sensitive land’ was extended to include ‘forestry rights’, ‘residential’ and ‘lifestyle’ properties and, in parallel, the definition of an ‘overseas person’ was also extended.
Therefore, unless you were a NZ citizen, had permanent residence or had been residing in NZ for the past 12 months, with a few limited exceptions, you were now required to obtain OIO approval when purchasing residential/lifestyle property in New Zealand. Acknowledging New Zealand’s longstanding relationships with selected overseas nations, citizens from Singapore and Australia could continue to purchase property in NZ without OIO approval however.
Overseas Investment (Urgent Measures) Amendment Act 2020
Due to the Covid-19 stresses placed on NZ businesses, the New Zealand Government introduced a series of temporary notification measures encapsulated in the Overseas Investment (Urgent Measures) Amendment Act 2020. This enabled the Government to introduce an overarching “National Interest Test” as a backstop to potentially deny or impose conditions on any foreign investment transaction that involves a foreign government, a sector of national security or a business of strategic national importance in New Zealand. The emergency notification regime was aimed at capturing foreign investment transactions that ordinarily would not have been covered under the Act and was put in place as long as was needed to mitigate the effects of Covid-19.
2021 LEGISLATIVE DEVELOPMENT
Overseas Investment Amendment Act 2021
Due to Covid-19 now being more manageable to NZ businesses and the wider NZ economy, the Jacinda Ardern Labour led Government intimated they wanted to streamline foreign investment into New Zealand by loosening some of the red-tape in low risk transactions, while bolstering regulation in other areas of importance. As of May 2021, the New Zealand Government has introduced and began rolling out the various legislative changes brought about by the Overseas Investment Amendment Act 2021. This new addition of legislative changes to foreign investment in New Zealand has been carefully considered to provide practical amendments to the Act.
Selected amendments include:
Previously, overseas persons were required to satisfy the “Investor test” for every foreign investment application. This is no longer the case. Once vetted and screened the repeat investor can lodge a statutory declaration detailing whether any relevant changes have occurred to their character or capability and satisfy the investor test.
Incremental ownership in significant business assets
The acquisition of securities (for example, ordinary shares) in an entity/company that results in the overseas person having more than 25 per cent ownership or control would normally trigger the requirement to obtain OIO approval. If the overseas investor then sought to increase its shareholding, a separate OIO application would need to be made which created burdensome regulatory costs and delays with investment plans. Now, additional increments can be acquired of shares/securities without the requirement to obtain OIO approval as contained below:
- If the existing ownership/control interest is 25% or less, OIO approval is only required if the acquisition means you will own/control more than 25%;
- If the existing ownership/control interest is more than 25% but less than 50%, OIO approval is only required if the acquisition means you will own/control 50% or more;
- If the existing ownership/control interest is more than 50% but less than 75%, OIO approval is only required if the acquisition means you will own/control 75% or more; and
- If the existing ownership/control interest is more than 75% but less than 100%, OIO approval is only required if the acquisition means you will own/control 100%.
Benefit to New Zealand test
- The Benefit to NZ Test has been modified to move away from a theoretical approach to a more practical method that is aimed at providing greater certainty and requiring only 7 broad test factors to be considered instead of the 21 previously contemplated. Under the Act concerning investments into sensitive land, consideration should be given to:
- The likely result of the overseas investment against the existing state of affairs;
- Whether the benefit to NZ is proportionate to the sensitivity of the land including the use of the land, the size and value of the land and the level of public interest that the people of New Zealand have in the land;
- The interest being acquired (i.e. temporary or permanent) as well as the degree of overseas ownership or control over the land.
- Concerning farmland or non-urban land greater than 5 hectares – to satisfy the Benefit to NZ test, high priority will be given to whether the overseas investment will result in:
- The creation and retention of jobs;
- An increase in technology or business skills;
- An increase of exported NZ goods;
- An increase in the processing of primary NZ products;
- Are there other consequential benefits to New Zealand; and
- Enhanced protection of historic heritage and/or support sites of cultural importance to Maori.
- Other considerations concerning farmland or non-urban land greater than 5 hectares can include:
- Whether the current farmland is productive or has any productive capacity;
- Whether it could be promptly used for commercial or industrial use such as a supermarket; or
- Whether it could be used for construction of 20 or more new residential dwellings.
Enhanced tax disclosures
Motivated by concerns that overseas persons, acquiring sensitive New Zealand assets, are paying a low level of income tax in New Zealand, OIO applicants will now be required to provide tax information when applying for consent to acquire significant business assets in New Zealand.
Farmland and rules for advertising
Not only is the benefit to New Zealand test now set higher in terms of the acquisition of farmland, the new laws now require farmland to be advertised in the appropriate prescribed manner before an agreement to sell to an overseas person can be entered into. There are exceptions available to the overseas investor regarding this pre-advertised requirement however. The new advertising requirements will come into effect approximately November 2021.
National security and public order
A more permanent option has been implemented in respect to transactions that are entered into on or after 7 June 2021, that specifically relate to ‘strategically important businesses’, as they will now need to be notified to the OIO. The purpose of this is to recognise that although certain investments may not have been previously covered by the Act, now due to the nature of the business, mandatory reporting will be required if the acquisition target is a business that:
- Researches, develops, produces, or maintains military or dual-use technology; or
- Is a critical direct supplier (published or unpublished) to the New Zealand Defence Force, the Government Communications Security Bureau, or the New Zealand Security Intelligence Services. For purposes of context, Air New Zealand, Air Doctor New Zealand Limited and Compass Group New Zealand Limited are all deemed critical direct suppliers.
Where mandatory reporting is required, OIO must be notified and the applicant must wait for a Direction Order from the OIO before any transaction can be given legal effect to. There is a period of up to 70 days to allow for the processing time.
Not all transactions involving strategically important businesses require mandatory reporting. Voluntary notification may be an option if the acquisition target is a business or entity that is involved in:
- Airports, ports, electricity generation, distribution, metering, or aggregation, drinking water, wastewater, or stormwater infrastructure, telecommunications infrastructure or services, a financial institution or is involved in financial market infrastructure, a media business with significant impact or develops, produces, maintains, or otherwise has access to sensitive information.
Voluntary notification can be done to the OIO either before or up to 6 months after the transaction is given effect to.
It needs to be mentioned that whenever a transaction is assessed to be a significant risk to New Zealand’s national security and public order, the Government can block the transaction, impose conditions, or order the disposal of assets. However, this level of assessment is intended to be used rarely and could be considered more of a tool for the New Zealand Government to trigger, if particular circumstances arise, providing it with the necessary flexibility and discretion to activate.
Other noteworthy amendments
- Leases of ‘sensitive land’ are now increased from 3 years to 10 years, meaning OIO approval is only required if 10 years or more. This new flexibility does not apply to residential land however.
- A foreign government may own up to 25% of an investor that is acquiring assets before triggering a national interest assessment. Previously the requirement was 10%.
- Statutory timelines for OIO approvals have been more accurately defined providing applicants with greater certainty surrounding their planning and investment decisions.
New Zealand has introduced new foreign investment laws that will streamline regulatory procedures, safeguard sensitive land pertaining to New Zealand’s cultural and historical importance while providing a national security and public order framework surrounding strategically important businesses. Nothing is ever perfect, however New Zealand is seeking to find balance between inviting foreign investment to spur economic growth and accelerate opportunities while having appropriate checks and balances in place to enable sustainable development.
ANDERSON CREAGH LAI LIMITED
Article written by Adam Jackson
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