Over the past few years, we have seen broad reforms of the New Zealand overseas investment regime including urgent measures introduced in response to the COVID-19 pandemic. Further reforms that have been announced continue to aim to strike a balance between encouraging productive investment for New Zealand businesses whilst managing risks and protecting the country’s national interests.
As we move out of the uncertainty of the past year, there are important changes to the overseas investment regime, with some taking effect as early as 5 July 2021 with the existing emergency call in notification coming to an end even sooner.
The aim of the changes is to:
• Remove the need for consent for lower risk transactions;
• Better manage high risk transactions and assets of significance to New Zealanders; and
• Simplify application requirements for investors.
The key changes to the legislation are summarised below.
National Security and Public Order notification regime
On 7 June 2021, the temporary Emergency Notification Requirements (ENR) created as part of the Government response to COVID-19 was replaced by the new and more targeted National Security and Public Order (NSPO) call-in power.
The NSPO allows for the call-in screening for overseas investments in strategically important businesses which normally do not require consent. This will focus on a narrower range of overseas investment transactions which pose significant national security and public order risks. These include businesses involving military or dual use technology, and high-risk critical national infrastructure such as ports, airports and businesses which provide electricity, water and telecommunications.
Overseas Investment Amendment Bill (No.3)
The Overseas Investment Amendment Bill (No.3) received Royal Assent on 24 May 2021, with the earliest changes coming into force on 5 July 2021. These changes include the following:
• Removing the need for consent for lower risk transactions: An increase in the overseas ownership interest in sensitive land or businesses which do not cross certain ownership or control limits will no longer require consent. Consent will only be required if the overseas investor will move through the 50% or 75% ownership or control threshold, or acquire a 100%
ownership or control interest in the New Zealand entity.
• No consent required for leasehold interests for less than 10 years: Leasehold interests in sensitive land will now only require consent where the interest is for a term of more than 10 years (increasing the previous threshold from 3 years). The term of interest for solely residential land will remain at 3 years.
• Repeat investors who have passed the new investor test will not have to satisfy the test each time they apply for consent: Provided there have been no substantial changes, repeat investors will have a streamlined investor test assessment. Repeat investors can simply confirm that nothing has changed since the last time the test was satisfied. Investors can now also notify and clear a proposed acquisition structure with the OIO in advance even where no specific transaction is being considered at the time.
• Requirement to provide tax information for Inland Revenue monitoring and compliance: Applicants will need to provide tax information when applying for consent to acquire significant business assets.
Further changes which will come into force within the next 6 to 12 months include the following:
• Simplified benefit to New Zealand test: The current 21 specific benefit to New Zealand factors will be simplified and reduced to 7 broad factors. These factors will be assessed against the current situation at the time of the transaction rather than against the counterfactual “with or without” analysis which is currently used which will bring more certainty for investors. It is expected that this change will come into force on 25 May 2022.
• Introduction of statutory timeframes: Consent application pathways will have prescribed timeframes for decision making.
• Increased protection for New Zealand farmland: There will be higher benefit thresholds for consent applications involving farmland. The farmland advertising rules will also be changed to require advertising before an overseas transaction is entered into and some of the advertising requirements will be amended.
• Definition of “overseas person”: There will be permanent changes to the definition of an “overseas person” by removing managed investment schemes and NZX listed entities provided they meet specified ownership and control thresholds.
These changes will be beneficial to New Zealand’s continued protection of its economic interests, cultural sites and national security. The simplification and greater certainty introduced will improve processes for overseas investors obtaining consent for their transactions.
If you would like to find out more about these changes and how they may affect you or your business, please get in touch with the Lane Neave team.
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