In our previous article, we looked at how the Overseas Investment Office (OIO) administers the Overseas Investment Act to ensure the protection of New Zealand’s sensitive business, land and fishery assets. In this article, we look at recent changes to the Act, and how these will affect investors.
Direct overseas investment accounts for almost $113 billion or 40 per cent of the New Zealand economy. In response to the extraordinary effects of COVID-19, New Zealand has taken steps to provide continued access for overseas investment capital, while protecting assets that are important to our national security, economy, and communities.
The government enacted the Overseas Investment (Urgent Measures) Amendment Act 2020 to attract and encourage responsible overseas investment that benefits New Zealanders. This Act amends the Overseas Investment Act 2005, seeking to support the important role overseas investment will play in supporting New Zealand’s economic growth and recovery, while ensuring national interests are protected.
Five main changes have been introduced. They will be welcomed by current investors and their advisors, as well as businesses that need capital quickly so they can continue to grow and provide jobs for New Zealanders. Changes include:
- A temporary emergency notification requirement.
- A new national interest assessment for some transactions.
- Simplifying the regime for low-risk transactions.
- A new investor test.
- Stronger enforcement powers.
Temporary emergency notification
Firstly, a temporary notification scheme has been established for business investments that are not ordinarily screened. The temporary scheme will be reviewed every 90 days, and will remain in place as long as the COVID-19 pandemic and the economic aftermath continues to have a significant impact.
Overseas investors must now notify the OIO of any investment that would result in them owning more than 25 per cent of a New Zealand business or its assets. The Office must also be notified of any increase to any existing holding beyond 50 or 75 per cent or up to 100 per cent. This must occur before the transaction takes legal effect. If the transaction is not in the national interest, it may be blocked, or have conditions imposed on it to make sure it is in the national interest.
National interest assessment
A test has been put in place to ensure the national interest has been considered for certain types of transaction that would ordinarily be screened under the Act. This test is in addition to current tests and ensures that overseas investments in strategically important assets are in line with New Zealand’s national interests.
Simplifying low-risk transactions
Processes have been streamlined to make it easier for New Zealand businesses to access equity and debt. For example, the requirement to screen low-risk transactions, such as small changes to existing shareholdings, has been removed, and investors will need to provide less information with their applications.
A new investor test
The new investor test for consent applications comes into force on 22 March 2021. The test features 12 character and capability factors, which include convictions resulting in imprisonment, penalties for tax evasion, corporate fines, and civil pecuniary penalties.
It applies to ‘relevant overseas persons’ and ‘individuals with control’, including any corporate investors. The test is met when none of these factors are established or, if a factor is established, the Office is satisfied that this does not make an investor unsuitable to own or control a sensitive New Zealand asset.
There will be a transition period for the test to come into effect. It will apply to any investors who have applied for consent before 22 March 2021 but have not entered into a transaction, and to all applications after this date.
Stronger enforcement powers
Finally, the OIO has been given stronger enforcement powers to take action against investors who do not comply with the Act. It is important that overseas investors follow through on their promises to deliver benefits to New Zealand, and the new powers provide additional tools to ensure that they do.
The economic aftermath of COVID-19 will continue to have a significant impact on New Zealand for some time. These changes to the Overseas Investment Act allow New Zealand to be open for business for productive overseas investment while protecting national taonga / treasures for future generations.
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This article provides general information on potential investment opportunities in Auckland and is not intended to be used as a substitute for financial advice. The views and opinions expressed are those of the relevant author, and do not necessarily reflect the views of Auckland Unlimited. Auckland Unlimited disclaims all liability in connection with any action that may be taken in reliance on this article, and for any error, deficiency, flaw or omission contained in it.