The past year has seen a number of changes to New Zealand’s overseas investment regime, including increases in application fees and new targeted exemptions to the investment screening regime of the Overseas Investment Act 2005 (Act).
In addition, the Overseas Investment Office (OIO) is undertaking a comprehensive and detailed review of its processes, including providing better guidance on aspects of the consent process such as drafting benefit claims, establishing the good character criteria and farm land advertising.
These changes are welcomed and are expected to (if not already) improve the application of the Act and the OIO consent process.
There is recognition from the Treasury, the OIO and the broader legal community, that the Act captures a range of investments where there is no clear ‘sensitivity’ or where the benefits of the investment to New Zealand have already been considered and proven.
The resulting ‘red tape’ is creating significant additional costs and delays, stretching the resources of the OIO unnecessarily and deterring beneficial overseas investment into New Zealand.
The Treasury and the OIO are engaging with stakeholders including by way of workshops: the last workshops were held in Auckland and Wellington at the end of last year with further workshops planned for this November. The focus is on ways in which the overseas investment regime can better focus on investments that could pose a risk to New Zealand while ensuring beneficial investment in New Zealand is not unnecessarily deterred. In this context, the emphasis of the current review and any potential reforms is not about softening the regime, but avoiding unintended outcomes that ultimately disadvantage New Zealanders.
As part of this process, Russell McVeagh (including in collaboration with other law firms) has been engaging with the Treasury and the OIO on their various work streams.
In summary, The Treasury work streams include:
- Further Exemptions: The Treasury invited submissions on further exemptions to the Act that will enable the regime to operate more efficiently and free up OIO resources so they can be targeted where most required, as well as suggesting technical amendments to improve the operation of existing exemptions.
Possible exemptions we have put forward include:
Possible technical amendments to existing exemptions we have put forward include amending:
- excluding small overseas holdings (less than 5%) in listed entities from the 25% overseas person threshold calculation;
- enabling an overseas person to take a lesser interest in land without needing consent (eg freehold to leasehold); and
- new thresholds for when changes in overseas shareholdings require consent.
- regulation 33(1)(p) to allow for proportional increases in further securities;
- regulation 33(1)(o) to allow for underwriters to underwrite the sale of existing shares (and not just issue of new shares); and
- regulation 33(1)(a)(i) to better allow for transfers where the ultimate ownership of an entity does not change.
- Review of Ministerial Directive Letter: Treasury is reviewing the current Ministerial Directive Letter and considering, among other things, whether to include clearer guidance on the weighting of factors in the benefits test.
OIO work streams being developed to further the objectives of the review are:
- Application Process: Implementing a ‘triage’ or risk assessment procedure in the early stage of an application to consider whether a more targeted approach can be utilised by the OIO. The OIO will also be developing a template to assist with the application process and will be reviewing processes for assessing the good character test.
- Section 37: The OIO is intending to look at whether a list of reserves, parks and other sensitive areas can be prepared and published under section 37 of the Act, rather than the formulaic approach currently being used and avoiding requirements for consent in urban areas where the land has no clear sensitivity.
- Enforcement policy: The OIO is developing its enforcement policies and associated processes.
The OIO is intending to discuss these work streams further at workshops being organised for late November 2016.
The current work streams are encouraging in this respect and show a welcome commitment by the Treasury and the OIO to make real improvements to the overseas investment regime.
These efforts reflect best regulatory practice, where regimes should be regularly reviewed on a business as usual basis to ensure they achieve the intended policy objectives. Poorly implemented regulatory arrangements can impose significant costs, risking the country’s economic performance and well-being.
Operating correctly, we consider that the overseas investment regime should provide the flexibility required to consider applications on a case by case basis, best ensuring a balance between attracting investment and protecting our sensitive assets.
It is therefore hoped that the end result of this process will be a more targeted and efficient overseas investment regime that makes foreign investment in New Zealand easier and more attractive, while at the same time ensuring sensitive land, assets and resources are protected.
Russell McVeagh will continue to engage closely with the Treasury and the OIO on these work streams and other matters.
We welcome any further suggestions, comments or clarification that clients may have in respect of the matters raised in this newsletter.
This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.