The Overseas Investment Act (OIA) requires overseas investors to obtain consent from the Overseas Investment Office (OIO) before acquiring interests in ‘significant business assets’, 'sensitive land' or fishing quota. While the OIA specifies Ministers as decision-makers on consent decisions, Ministers in prior Governments have delegated decision-making power over some consent decisions (usually ones considered to be lower risk) to the OIO. However, the National and ACT Parties have agreed in their Coalition Agreement to amend the OIA such that decision-making under the OIA’s screening regime will be delegated to the OIO, with Ministers only retaining decision-making over matters of “national security”.
The investors who will benefit most from this change are those investing in New Zealand assets that are currently perceived to be at the more “sensitive” end of the spectrum. This includes fishing quota, some types of sensitive land (generally rural land, especially where this is of higher value and land including fresh or seawater areas). These decisions have traditionally been taken directly by Ministers, which has added some time and complexity to the decision-making process. For example, the current statutory decision-making timeframe for an application involving farm land is 100 working days, which allows time for Ministerial decision-making. We would expect to see this period reduce with the legislative changes envisaged under the National/ACT agreement. While these changes could be made almost immediately by amending the Ministerial delegations currently in place, the National/ACT agreement suggests there is a desire for more permanent change by enshrining it in legislation.
The National/ACT agreement does not define what will constitute decisions involving "national security concerns" (with such decisions remaining with Ministers). Under the current rules, the "national interest test" allows the relevant Minister to review transactions for consistency with New Zealand's national interest, which includes, but is broader than "national security concerns." The national interest test applies where a transaction triggers an OIO consent requirement and:
- the target is a “strategically important business” (generally one involved in significant infrastructure, media, financial systems, military/dual-use technology or critical supply to defence/intelligence agencies);
- the acquirer is a “non-New Zealand government investor” (essentially any entity more than 25% owned or controlled by overseas governments, or their controlled entities from the same country); or
- where the Minister of Finance exercises his or her discretion to assess a transaction for national interest concerns.
The current rules relating to strategically important businesses have generally worked well since their introduction in 2021 and are in line with some comparable foreign direct investment regimes offshore. However, the definition of a non-New Zealand government investor is broadly drafted and has caught many transactions that would not ordinarily be expected to raise national interest concerns. Accordingly, the proposed amendments would be a useful opportunity to revisit these criteria.
Separately, where an overseas acquisition of certain interests in a “strategically important” New Zealand business does not trigger an OIO consent requirement, it can still trigger a voluntary or mandatory notification (depending on the type of “strategically important business”) or a call-in right by the Minister of Finance where a notification has not been made. Again, it remains to be seen whether this regime will change. However, most transactions notified under this regime are approved within an initial 15 working day period under a delegated authority by the OIO, so changes to this regime do not seem pressing.
ACT’s broader OIO proposals not adopted
The ACT Party has previously proposed much broader changes to the OIA to remove perceived barriers to investment in New Zealand. In 2021 it introduced a Members Bill to Parliament that would have exempted investors from OECD member countries from the need to obtain OIO consent for most transactions (with the exception of acquisitions of residential land and transactions raising national security concerns). While National supported this Bill when it was read in Parliament in 2022, it was soundly defeated by the then majority Labour Government.
While ACT maintained the proposed OECD exemption in its policy manifesto leading up to the 2023 election, it is not surprising that it has not been adopted by the coalition. New Zealand First, the other coalition partner alongside National and ACT, has historically advocated for strong foreign investment controls in New Zealand. New Zealand First has previously been involved in tightening restrictions in the OIA, including the 2018 introduction of residential land into the ‘sensitive land’ regime, severely restricting overseas investors’ ability to acquire residential land.
Foreign Buyers Tax
New Zealand First’s approach to the overseas investment regime has also resulted in the scrapping of a key pillar of National’s tax policy, being the foreign property buyer’s tax. Under the Coalition Agreement with New Zealand First, National agrees not to repeal the restriction on foreign buyers of residential property. The restriction prevents overseas buyers from purchasing residential property in New Zealand without first obtaining OIO consent, though there are exemptions for Australia and Singapore, as well as pathways for investors wishing to develop residential land and individuals wishing to move to New Zealand.
National’s original tax plan was to allow foreign nationals to purchase residential property worth NZ$2 million or more without OIO consent if the purchaser paid a 15% tax. However, where the property is worth less than $2 million, the overseas person would still require OIO consent. The effect of the coalition agreement is to maintain the existing scheme such that no foreign buyer tax will be introduced and OIO consent will continue to be required regardless of the value of the land. While foreign property investors may be disappointed by this, the proposed changes did risk additional complexity for corporate transactions where they happen to capture residential land (which is not uncommon).
The coalition agreements have been lauded for the relative certainty they bring to the new Government’s intentions for legislative change during its term. However, the speed at which the proposed changes will be made and the significance of those changes remains to be seen. As the compromises between the parties demonstrate, there is a tension in particular between New Zealand First’s more restrictive views on foreign investment and ACT’s more laissez-faire approach. Accordingly, actually getting the legislation passed to achieve the stated aims might not be a smooth process.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed, or your usual Bell Gully adviser.