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DOING BUSINESS IN NZ: Overseas investment regime

01 June 2015

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New Zealand welcomes foreign investment but requires consent from the Overseas Investment Office (OIO) for certain transactions involving “overseas persons”.  The screening regime is contained within the Overseas Investment Act 2005 (Act).

An overseas person is defined as:
  • an individual who is neither a New Zealand citizen nor ordinarily resident in New Zealand
  • a partnership, company, body corporate or trust where an overseas person or persons have 25% or more ownership or control.
The Act applies to acquisitions by overseas persons of 25% or more direct or indirect ownership and/or control of interests in:
  • significant business assets
  • “sensitive” and “special” New Zealand land
  • farm land, and
  • fishing quota.

Business assets

An overseas person may require consent for business acquisitions (not involving sensitive land) where:
  • the total expenditure for establishing a new business exceeds NZ$100 million
  • the price paid for an existing asset or business (either by one transaction or a series of related transactions) exceeds NZ$100 million, or
  • the amount paid for the shares, or the gross value of the New Zealand assets of the target company (including its 25% or more subsidiaries), exceeds NZ$100 million.
For Australian non-government investors, the current threshold is NZ$477 million.  This amount is adjusted each year to reflect movements in GDP in each country.
There are a number of exemptions to the requirement to obtain consent that are contained in the Overseas Investment Regulations 2005 (Regulations).  These can be viewed on the OIO’s website at:

Commercial fishing

In addition to the Act and the Regulations, commercial fishing is also subject to the Fisheries Act 1996.  We recommend you check with a qualified adviser on these requirements.  Chapman Tripp will be happy to assist.

Overseas investment in sensitive land

Overseas persons wishing to buy sensitive land will require Ministerial approval.  This applies to both freehold interests in the land and to a lease for a term of three years or more (including rights of renewal).  To secure consent, the overseas investor will need to demonstrate that the purchase will bring benefits incremental to those which would result from continued New Zealand ownership or sale to a New Zealand purchaser. 
Briefly, land will be sensitive if it is, or includes:
  • non-urban land over five hectares in area
  • the foreshore or seabed
  • land on certain named islands if the land is over 0.4 hectares
  • land on any other islands (outside the North or South Island), regardless of the land area involved
  • any land which is over 0.4 hectares and:
      • is the bed of a lake
      • is held for conservation purposes under the Conservation Act 1987
      • is earmarked in a district or proposed district plan to be used as a reserve, a public park, for recreation purposes or as open space
      • is subject to a heritage order or a requirement under the Resource Management Act 1991 or the Heritage New Zealand Pouhere Taonga Act 2014, and
      • is an historic place or area or wāhi tapu (site sacred to Māori) which is registered or the subject of an application to register under the Historic Places Act 1993, and
  • any land which is over 0.2 hectares and adjoins the foreshore.

Land will also be sensitive if it is over 0.4 hectares and adjoins:

  • the bed of a lake
  • land held for conservation purposes under the Conservation Act 1987 if the conservation land is itself over 0.4 hectares
  • any scientific, scenic, historic or nature reserve under the Reserves Act 1977 that is itself over 0.4 hectares
  • any regional park
  • any land listed as a reserve or a park by the OIO
  • land over 0.4 hectares that adjoins the sea or a lake and is an esplanade reserve, a recreation reserve, a road or a Māori reservation
  • land over 0.4 hectares that is subject to a heritage order or requirement for a heritage order, and
  • land over 0.4 hectares that includes a historic place, historic area (which is itself over 0.4 hectares) or wāhi tapu.

The definition of sensitive land is very detailed so requires careful checking and analysis from qualified advisers.  In particular, it may be “sensitive” by association if it adjoins any of the types of land listed above, or is “associated” with other land already controlled by an overseas person.  Advice should also be sought on how to meet the incremental benefit test. 

Special land

Special land is defined in the Regulations as the foreshore, seabed, riverbed or lakebed.  If an investor wishes to acquire sensitive land under the Act and that sensitive land includes any special land, the special land must first be offered to the government by the owner.  The government can acquire only that part of the sensitive land that is special land and can acquire it only if the overseas person actually completes the acquisition of the sensitive land. 
The general policy approach is to acquire the land only if there is a public interest in the government owning it.  Criteria include: whether there is a “recognised attitude” among New Zealanders or a group of New Zealanders toward the land; the inter-relationship of the land with the surrounding area; whether there is a more cost-effective alternative to government ownership; whether the benefits exceed the costs; and whether government purchase will adversely affect the overseas person’s ability to carry out the investment. 

Overseas investment in farm land

Where a proposed acquisition involves farm land (being land that is used exclusively or principally for agricultural, horticultural or pastoral purposes, or for the keeping of bees, poultry or livestock), that farm land must first have been offered by the vendor on the open market to persons who are not overseas persons in accordance with the procedures set out in the Regulations.  Exemptions from this requirement can be obtained, but only in special circumstances and at the discretion of the relevant Minister. 

The consent process

All applications for consent must be tested against the prescribed investment criteria set out in the Act and Regulations.  An applicant (or if the applicant is not an individual, the persons with control of the applicant) must:
  • be of good character
  • have relevant business experience or acumen, and
  • be able to demonstrate a financial commitment to the investment.

Additonal criteria for sensitive land

Applications for overseas investment in sensitive land must also satisfy the following additional criteria.
Either:
  • the applicant, or if the applicant is not an individual, all the individuals who control the applicant, are New Zealand citizens, ordinarily resident in New Zealand, or are intending to reside in New Zealand indefinitely and have applied for a visa or permit under any of Immigration New Zealand’s residence policies (refer to the chapter on Immigration)

or:

  • the overseas investment will, or is likely to, benefit New Zealand (or any part of it or group of New Zealanders), as determined by the relevant Ministers
  • if the relevant land includes non-urban land that in area (either alone or together with any associated land) exceeds five hectares, the relevant Ministers determine that that benefit will be, or is likely to be, substantial and identifiable
  • the applicant submits a detailed business plan that addresses the “benefits to New Zealand” factors set out in the Regulations.  Such benefits can be longer term as well as immediate, and
  • the application must assess the benefits to New Zealand against those benefits which would arise, or would be likely to arise, from continued New Zealand ownership or sale to a New Zealand purchaser (a counterfactual analysis).

Processing and decision application

The OIO is responsible for overseeing the Act, and assesses consent applications.  The OIO will commonly contact the applicant or its advisers for further information during the process.  The power to make decisions on whether to approve or decline an application is vested in the relevant Minister of the Crown.  The Ministers have delegated to the OIO the power to decide all applications except those involving sensitive rural land and land adjoining waterways.
The processing of consent applications can take several months: two to three months for a business acquisition and three to six months for a sensitive land acquisition is typical.  For complex applications, a longer period is not uncommon.  We advise that potential consent requirements be assessed early when considering a foreign investment in New Zealand. 

Consent conditions

Consent is usually granted subject to various conditions with which the applicant must comply.  When imposing conditions of consent, the OIO must be satisfied that the condition is necessary and will achieve the desired result.  Conditions can be varied or revoked in appropriate circumstances.
Compliance will be monitored by the OIO until the benefits of the investment have been realised or the conditions have been revoked.  The government has instructed the OIO that in general, monitoring should not extend beyond five years unless the benefits are not expected to begin accruing until after that time.
Penalties apply in case of a breach of these provisions.2   In addition, the High Court has the power, on application from the OIO, to order disposal of any property (which includes a right or interest in any security, an interest in land, an interest in fishing quota or any other property or any rights or interests in any other property).

Footnotes

1   Some factors which may apply in considering whether an investment involving land will benefit New Zealand include:
     - economic factors
     - creation or retention of jobs in New Zealand
     - introduction of new technology or business skills
     - any increase to export receipts for New Zealand exporters
     - added market competition, greater efficiency, productivity or enhanced services in New Zealand
     - the potential for further foreign investment in New Zealand for development purposes, and 
     - whether the investment will be likely to assist New Zealand to maintain New Zealand control of strategically important
       infrastructure on sensitive land.

2   An investor who fails to apply for consent (or attempts to circumvent the Act) where consent is required is liable on conviction, in the
     case of an individual, to imprisonment for a term not exceeding 12 months or to a fine not exceeding $300,000 and in the case of a
     body corporate, to a fine not exceeding $300,000.

We make every effort to ensure the accuracy of the information provided but it should not be relied upon as a basis for making business decisions as circumstances, business conditions, government policy and interpretation of the law may change.