New Zealand welcomes foreign investment as a way to develop the economy and boost the capability of New Zealand companies. However, if the investment involves sensitive New Zealand assets, the Overseas Investment Office (OIO), requires overseas investors to go through a mandatory application process. So, before an overseas investor makes a purchase in New Zealand it is important to be aware of what’s involved in order to stay safe and avoid fines or adverse publicity. Our summary is set out below and we are happy to discuss your situation with you. Also checkout our Doing Business in New Zealand guide.
Who is an overseas person?
An “overseas person” is defined as a someone who is not a New Zealand citizen or a person ordinarily resident in New Zealand, or an entity (partnership, trust, company) incorporated overseas or where an overseas person has more than 25% ownership or control.
Even if the person making the purchase is not an “overseas person” they may be an “associate” of an overseas person, meaning that someone overseas is controlling their actions. The term “control” is given a very wide meaning and can be specific or general, indirect or direct. It recognises that where control exists, the purchaser is really the overseas person, and therefore approval is still needed.
Buying sensitive land
Consent is needed for five hectares or more of non-urban land (this covers most farms), or land which is defined to be sensitive:
- foreshore, seabed or one of certain named islands;
- greater than 4,000 square metres and contains (or adjoins) a reserve, lake or foreshore;
- land of historical or conservation significance.
Farm land is a particularly sensitive potential acquisition. Farm land being sold must first be offered on the open market in New Zealand so that New Zealanders have the chance to buy it before an overseas person. Find out more about how it must be advertised.
Significant Business Assets
Consent is also required if an overseas person plans to:
- establish a new business at a cost of more than $100 million;
- acquire a business if the value of the business exceeds $100 million; or
- acquire 25% or more of a company where the value of the consideration or the assets of the target company and its subsidiaries exceeds $100 million.
These monetary thresholds may be impacted by agreements with other countries. For example, the figure in 2023 is $618 million for Australian non-government investors. For those countries which have signed up to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership the figure will be $200 million.
If one of the above actions is proposed, then an investment proposal application may be needed.
What do investment proposals include?
An overseas person wishing to invest will need to provide comprehensive information about themselves and the proposed investment. To succeed they will need to satisfy both the ‘Investor Test’ and the ‘Benefit to New Zealand Test’.
- The Investor Test requires applicants to show they are of good character, that they have business experience, and are financially committed to that investment.
- The Benefit to New Zealand Test has 21 criteria. These include the chance to highlight benefits, such as whether the investment will create new jobs, what access the public will have to the land, new technology that may be brought in, and how historic heritage or conservation areas will be protected.
When making its decision on the proposal the OIO will also consider what would happen if the applicant did not make the investment. For example, they will be interested in likelihood of someone else buying the property or business and whether that person would invest (or not invest) further money in it.
It is important to note that if a consent is granted it will typically contain conditions that must be followed and also contain some requirements to report back to the OIO. If a consent is not granted and the investment goes ahead, penalties such as divestment of the acquisition as well as fines and even imprisonment may apply. This article describes what can happen if investors fail to get consent and go ahead anyway.
How long does the process take?
The OIO will provide an estimate of how long it will take to make its decision. It aims to respond within 40 working days for Significant Business Assets applications and within 65 working days for Sensitive Land applications. However, it may take more or less time, depending on the situation and the number of applications it is dealing with.
Approximately 25% of applications are immediately rejected as they lack information or are of poor quality, likely because the applicant did not get advice first. The OIO may also ask for more information from the applicant, which can delay the process.
We recommend seeking expert advice to help ensure the application is as correct as possible to avoid issues arising. We have experience with assisting applicants through this process and would be pleased to assist you.
Be sure to check out our free guides such as ‘Doing Business in New Zealand’ and the ‘Start Ups Legal Toolkit’.
If you have any further queries please do not hesitate to contact one of our experts at Parry Field Lawyers- stevenmoe@parryfield.com, yangsu@parryfield.com, michaelbelay@parryfield.com or annemariemora@parryfield.com
This article is general in nature and is not a substitute for legal advice. You should talk to a lawyer about your specific situation. Reproduction is permitted with prior approval and credit being given back to the source.
