The benefits of foreign ownership balanced with the protection of sensitive assets are managed by the New Zealand government’s Overseas Investment Office. We explain some of the mechanisms across business assets, fishing quotas and land investment.
Although foreign investment is vital to New Zealand’s economy, it was recognised in the early 1970s that regulating foreign ownership of sensitive assets is equally important. In 1973 the Overseas Investment Commission was established to provide consent for foreign investments that would control 25 per cent or more of businesses or property worth more than NZ$10 million.
These rules were changed significantly in 2005 by the Overseas Investment Act, which replaced the Commission with the Overseas Investment Office (OIO) and raised the investment threshold to $100 million. Since then, the OIO has been responsible for protecting sensitive assets in three different classes – business assets, fishing quota and land – from control by overseas persons.
An overseas person is one who is not a New Zealand citizen or ordinarily resident here. They, along with any entity that is either incorporated overseas or 25 per cent owned or controlled by overseas investors, or any New Zealand entity investing on their behalf, may require consent from the OIO when seeking to control a sensitive asset.
Such an investment could be made by variously buying the asset, investing in the asset, leasing it for more than three years, acquiring shares or securities, or initiating a takeover of the asset. Such applications are assessed by the OIO, and then either they or the controlling ministers make a decision on the application.
There are a range of criteria used when assessing applications, which are applied in accordance with the weighting and priorities set out in the ministerial directive letter. Mandatory or discretionary national interest assessment may apply depending on the nature of the transaction and interests being acquired.
Beyond this, various specific tests need to be passed, depending on the type of asset. For example, the Investor test, applied to business investments, has four core investor criteria:
- business experience and acumen;
- demonstrated financial commitment;
- good character; and
- absence of ineligible individuals.
For fishing quotas this test is supplemented by the Fisheries national interest test, which assesses whether the investment will bring benefits to New Zealand in the form of jobs, exports or increased processing capacities.
Those investing in land and property are subject to additional tests according to usage. Overseas persons are permitted to buy a home to live in, or purchase an apartment off the plans in a large apartment development, and some other classes of residential land purchases are permitted.
Other sensitive land classes include non-urban land over 5ha, which includes the majority of farmland. There is also a special test for investing in forestry assets.
The involvement of the OIO does not cease once applications are approved. Conditions of consent are imposed and continue to be monitored. Consent holders report to the OIO as per their conditions; if there are concerns, the matter is referred for investigation, and enforcement action may be taken.
The OIO has an ongoing mandate to ensure that New Zealand’s sensitive assets continue to receive the protection they require.
In 2020, responding to the COVID-19 pandemic, the government made changes to the Act to introduce a temporary notification regime for business transactions where a controlling interest is being acquired. The impact of these changes will be detailed in the next article.
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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.