Overseas Investment Amendment Act 2005 – stage 2 reforms
On 22 August 2018, as part of its overhaul of overseas investment in New Zealand, the new Government enacted the Overseas Investment Amendment Bill. This amended the Overseas Investment Act 2005 (“Act”). On 17 April 2019 the Treasury released its consultation paper on stage 2 reforms of the Act.
Why is reform being considered?
Overseas investment contributes necessary capital into the New Zealand economy, brings technological and process innovations into New Zealand, and provides access to global markets and value chains.
The Act regulates overseas investment in New Zealand, but the Act is complex and screens a broad range of investors and investments. This stage 2 reform intends to prevent unnecessary screening of overseas investment, and balance investors’ need for certainty with the need to prevent undesirable overseas investment in New Zealand. It also aims to address concerns that often:
- the consenting process under the Act is overly expensive; and
- the timeframes for completion of the consenting process are longer than in other countries.
The current consenting process
Broadly, consent under the Act (OIA Consent) is required for investment in “sensitive assets” by citizens of foreign countries who are not New Zealand residents, or bodies corporate which have 25% or greater shareholding or control held by such persons (Overseas Investors).
“Sensitive assets” include:
- residential and lifestyle land;
- non-urban land with an area exceeding 5 hectares;
- land which exceeds a certain area threshold and contains culturally or environmentally important features (such as foreshore or lakebed);
- land which exceeds a certain area threshold and adjoins land containing culturally or environmentally important features (such as foreshore or lakebed);
- certain leases or other interests in any of the above;
- business assets exceeding $100 million in value; and
- a 25% ownership or control interest in an entity which owns any of the above.
Depending on the type of asset being acquired, different tests must be satisfied by an Overseas Investor. These tests include:
- The “investor test”: which considers whether the Overseas Investor have relevant experience and are of good character.
- The “benefit to New Zealand test”: which compares the benefits to New Zealand resulting from the proposed investment against the benefits to New Zealand if the investment did not proceed. This comparison is carried out by reference to a list of specific “benefit factors” contained the Act and associated regulations. For example, if the investment will result in new jobs, technology or skills being introduced to New Zealand.
What is being reformed?
The below is a high level summary of the possible consequences of the proposed reforms:
- Assets no longer sensitive: assets that were previously “sensitive” may no longer be sensitive, so OIA Consent may no longer be required for overseas investment in such assets. Under some variations of the proposed reform, certain business assets and land types will no longer be “sensitive”, so Overseas Investors would be able to purchase them without OIA Consent. For example, one proposal is to amend the Act so that land cannot be “sensitive” because it adjoins land with particular “sensitive” qualities. This would be a substantial change.
- Entities no longer Overseas Investors: entities that were previously Overseas Investors may no longer be Overseas Investors, so are able to invest in “sensitive assets” without obtaining OIA Consent.
- Criteria for OIA Consent changed: the tests which Overseas Investors must satisfy to obtain OIA Consent to purchase sensitive assets may become more stringent, or more permissive, depending on the type of asset. For example, investments with potentially adverse effects on national security may be subject to increased scrutiny, while other investments may be subject to less or different scrutiny than under the current regime.
- Increased discretion for decision makers: there may be increased discretion granted to the decision maker to accept or decline an application for OIA Consent.
- Statutory timeframes: a statutory timeframe during which a decision must be made may be introduced.
Do you want to know more?
If you have any questions about the proposed reforms or want to make any submissions on them, please contact our specialist overseas investment team.
A copy of the consultation document and summary documents can be found here.