As signalled in its most recent Ministerial Directive Letter, the Coalition Government has announced a plan to reform the Overseas Investment Act 2005 (Act) as part of its policy objective to encourage overseas investment in New Zealand. Recognising that New Zealand's policy settings are some of the most restrictive in the OECD, Cabinet has agreed to the principles for reforming the current Act, including reversing the presumption that investing in New Zealand is a privilege and that investors must justify their transaction to the Government.
The principles that Cabinet has agreed to include:
- Retaining the scope of what is currently screened (including farmland), so that the Government retains the legal option of screening all investments that are currently subject to screening;
- Fast-tracking the assessment process, with the starting assumption that investment can proceed unless there are risk factors identified, by consolidating the Act’s core tests (investor test, benefit test, and national interest test); and
- Providing the Government with flexibility to call-in these investments for detailed scrutiny on a case-by-case basis, and impose conditions or block the investment where there are risks to New Zealand’s national interest.
These principles will guide and define the scope of the options that the Government will explore, with a target of passing a legislative amendment by the end of 2025. Treasury will be working with Ministers to develop these proposals, with further announcements to come next year.
Earlier this year, the Government issued a new Ministerial Directive Letter, setting out the Government's general policy on, and approach to, overseas investment under the Act. A summary of the letter can be found here. We have already seen improvements in processing timeframes for Overseas Investment Office consents and exemption applications since the letter was published (consistent with the Coalition Government's general approach to encouraging investment in the country), but this announcement signals the next step in the Government's plans to better enable overseas investment and reduce some of the constraints within the current Act.
These signals by the Government are encouraging and present a rare opportunity to address some of the issues with the current Act and the key foreign direct investment concerns facing both our New Zealand and international based clients. Russell McVeagh will be following developments closely and will continue working with officials and experts as they develop and implement the consultation process and prepare the amending legislation. The current legislative framework has morphed over time, such that it is now an overly complex regime which (in our view, but supported by feedback from both clients and offshore law firms) is not conducive to, and actively operates to discourage, critical foreign investment in New Zealand.
The ministerial press release can be found here.