Government to introduce a “National Interest Test" to the overseas investment regime
Earlier today Associate Minister of Finance David Parker announced that the Government will introduce legislation that will give the Overseas Investment Office (OIO)
“new powers, consistent with global best practice, to protect New Zealanders' best interests…" This most notably includes the introduction of a National Interest Test.
Based on the Hon. David Parker's press release, the National Interest Test will be used to control “investments that pose a significant risk to our national security or public order" by screening assets such as ports, airports, telecommunications infrastructure, electricity and other critical infrastructure that may not currently be screened by the Overseas Investment Act 2005 (the
OIA). While this is a more targeted list of assets than was initially consulted on, the relevant ministers will have a discretionary power to apply the National Interest Test to transactions that "pose material risks". In addition there will be a new "call-in" power to review transactions that do not meet OIO thresholds, but which may affect national security and public order.
Other foreshadowed changes to the OIA include:
Enshrining the current rural land ministerial directive into legislation. This directive imposes a higher “benefit to New Zealand" threshold for transactions involving farm land.
Increasing the OIO's enforcement powers by increasing the maximum penalty for a breach of the OIA from $300,000 to $10 million for corporates. This change will bring the OIA enforcement regime more closely in line with other regulatory regimes such as the Commerce Act.
Requiring the OIO to consider a transaction's impact on water quality and the sustainability of the water bottle industry when assessing sensitive land applications.
Cutting red tape, exempting low risk transactions (such as leases under 10 years and land that is sensitive only because it adjoins certain types of sensitive land) and providing applicants greater certainty on timing. Furthermore, listed entities that are majority owned and wholly controlled by New Zealanders will be exempt (along with other fundamentally New Zealand entities). Bell Gully welcomes the move to reduce red tape and provide more timing certainty.
The Government expects to introduce a bill implementing these changes in early 2020.
Increased overseas investment threshold for Australian investments in significant business assets
Australian investors currently have the benefit of an exemption from the requirement for OIO consent if they are investing in significant business assets in New Zealand, and the value of the transaction is below certain thresholds. These thresholds may be adjusted each year according to formulae set out in the Overseas Investment Regulations 2005 (the
Regulations). From 1 January to 31 December 2020, Australian investors will benefit from increased thresholds under the Regulations.
The OIO has notified that, from 1 January to 31 December 2020, the thresholds will increase to:
NZ$537 million, if the investor is an Australian non-government investor, and
NZ$113 million, if the investor is an Australian government investor.
The threshold for Australian non-government investors is higher than the NZ$200 million threshold that applies to certain investors from the ten other Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) member nations and from certain other nations with which New Zealand has "most favoured nation" obligations under existing trade agreements, such as the People's Republic of China and Hong Kong.
The higher threshold for Australian non-government investors is likely to provide them with a competitive advantage in sale situations where the Australian investor can put in a bid that is not conditional on OIO consent.
The definition of non-government investor is complex, and some transaction structures can render the investor ineligible for the higher threshold. Overseas investment in sensitive land still requires OIO consent, regardless of the value of the transaction, unless the investor can rely on an exemption.
If you have any questions about the increased thresholds, or any of the matters in this article, please get in touch with the contacts listed or your usual
Bell Gully advisor.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.