Overseas Investment

06 Oct 2010

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Changes to the New Zealand Overseas Investment Regime

Changes to New Zealand's overseas investment regime were announced on 27 September 2010 by the Minister of Finance the Hon Bill English. The changes stem from the Government's recently completed review of New Zealand's overseas investment laws, and are due to come into effect in December 2010.

In this FYI, we address the following questions:

• How does the overseas investment regime work?

• Why was the overseas investment regime reviewed and changes proposed?

• What are the proposed changes to the overseas investment regime?

How does the overseas investment regime work?

The consent of the Overseas Investment Office (OIO) or Government Ministers is required before an overseas person invests in sensitive land (which includes farm land), significant business assets or fishing quota. The process of applying for consent involves submitting a detailed written application to the OIO along with an application fee of approximately $20,000. The OIO then takes approximately three months to process the application.

Thresholds

The thresholds determining when overseas investment in New Zealand requires OIO consent have not been changed.

Two of the key thresholds which determine when overseas investments require consent are where an overseas person invests:

• more than $100 million in New Zealand; and/or
• in "sensitive land" in New Zealand.

The net benefit test

The net benefit test remains unchanged. This test applies to investments by overseas persons in sensitive land and, in simple terms, requires investors to demonstrate that their investment in New Zealand will, or is likely to, result in a net benefit to New Zealand.

In order to satisfy the test, applicants must provide a lot of detailed information, including a five year business plan for the land/business they are investing in. This creates a ratchet, in that every overseas owner of an asset must do better than the previous owner.

All investors in sensitive land, whether that is someone investing in 20,000 hectares of farm land, or someone investing in a small leased industrial site adjoining a reserve, must satisfy this test.

Why was the overseas investment regime reviewed and changes proposed?

The aim of the review was to make foreign investment in New Zealand "simpler" and "more attractive". This aim had to be balanced against the New Zealand political environment and public concerns about certain types of overseas investment. Public concerns about the overseas ownership of New Zealand farm land has recently been in the media spotlight. The Government has sought to "strike an appropriate balance" in this area.

The Government's hope is that the proposed changes will "provide extra clarity and certainty for potential investors".

What are the proposed changes to the overseas investment regime?

The proposed changes introduce two new factors to be considered by Ministers when assessing applications for consent to invest in "sensitive land". The new factors will be set out in regulations under the Overseas Investment Act 2005. The Act itself will not change. The changes are:

• A new "economic interests" factor - which allows Ministers to consider whether New Zealand's economic interests are adequately safeguarded and promoted.
• A new "mitigating" factor - which enables Ministers to consider whether an overseas investment provides opportunities for New Zealand oversight or involvement - for example, by appointing New Zealand directors or establishing a New Zealand head office.

In addition to the two new factors, the responsible Ministers (the Minister of Finance and the Minister of Land Information) will provide further guidance to the OIO around investments in sensitive land in the form of a directive letter (which is yet to be released). It is intended that the directive letter "will provide advice to the OIO about which factors in the benefit test are likely to be more or less important in assessing particular types of investments".

In summary, the proposed new regime will comprise:

• the existing regime;
• the two new factors outlined above; and
• a directive letter which will help the OIO and overseas investors apply the regime to their particular circumstances.

We hope that the directive letter will provide guidance on the new factors and answer questions like the following.

• What type of investments will the new factors apply to - just farm land or all sensitive land? The Minister of Finance explained that the changes to the regime, in his announcement of the proposed changes to the OIO, require that "issues with respect to farm land ownership" were a key consideration. "Farm land" is a defined term under the Act as land used exclusively or principally for different types of farming activities. The new factors appear to apply to all "sensitive land" - which is a much wider definition and includes both farm land and non-farm land assets.
• What must an overseas investor do to demonstrate that their investment will adequately safeguard and promote New Zealand's economic interests?

Without further guidance, these factors read in isolation may add some uncertainty for investors considering investment in New Zealand land.

Authors

Shelley Cave

Partner - Corporate & Commercial

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Peter Hinton

Partner - Corporate & Commercial

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Don Holborow

Partner - Corporate & Commercial

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Michael Pollard

Partner - Corporate & Commercial

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Peter Stubbs

Partner - Corporate & Commercial

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Stephen Ward

Partner - Corporate & Commercial

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Greg Allen

Senior Associate - Property & Infrastructure

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Craig Nelson

Senior Associate - Corporate & Commercial

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