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New Zealand’s foreign direct investment regime is to be reviewed and updated to be more welcoming of inbound investment.
The New Zealand Overseas Investment Act has been subject to almost continuous review since its inception in 2005 but mostly the changes have been small – opening the door a little or closing it a little.
The current Government, however, is looking at a fundamental change in approach aimed at making New Zealand a more attractive investment destination in order to grow, deepen and diversify the New Zealand economy.
We catch you up with the latest developments.
New Zealand to put out the welcome mat
The Cabinet has agreed to a set of principles to inform a review of the Act this year with the goal of passing legislation next year.
The most important proposed change is to reverse the onus of proof so that, rather than investors needing to justify their transaction to the Government (the relevant Ministers and the Overseas Investment Office (OIO) through the delegated authority of the Ministers), the investment will be allowed to proceed unless there is an identified risk to the national interest.
The scope of what is screened (including farmland) will remain, to ensure that the Government retains the legal option of screening all investments currently within the screening regime. Earlier announcements have been clear that the treatment of residential land will continue as is.1
Other proposed changes will:
- Fast track the assessment process and replace the current three tests (investor test, benefits test and national interest test) with a single test, and
- Provide the Government with the flexibility to call in proposed transactions for detailed scrutiny on a case-by-case basis.
Consistent with the spirit of the Act rewrite, Prime Minister Christopher Luxon has confirmed that the Government is also considering introducing elements of Ireland’s Industrial Development Agency (IDA), which includes a “comprehensive ‘concierge’ service” to ease the entry of foreign companies above a certain size.
Chapman Tripp comment
The announcement is welcome, and follows recent changes at the OIO which has significantly sped up the OIO application process. Most applications are now processed within 50% of the targeted timeframes.
Once implemented, the changes will significantly improve the New Zealand investment environment for overseas investors.
It is yet to be seen whether the new test will be an amalgam of the existing tests or whether the Government will model it on other foreign direct investment regimes, in particular Australia where an investment can be prohibited if contrary to “the national interest or national security”, with flexibility to determine what is the national interest.
The decision to retain a call-in power is to be expected. Overseas investment transactions can excite strong public opposition, so politicians want the comfort of a parachute clause.
We expect the review is also an opportunity to remedy some of the unintended consequences resulting from the changes made under urgency in recent years, to better streamline and provide certainty in respect of the application process.
We understand that the Government is also considering tax concessions to attract overseas investors, although that is unlikely to be included in this round of reform.
1 - Overseas investors need government consent to buy “sensitive” land or any other property where the consideration is over $100 million. (Certain Australian and Singaporean investors have an exemption from the consent requirement in relation to residential properties).
