The Government has produced a consultation document on 16 April 2019 proposing some options for reform to the Overseas Investment Act 2005 (Act). This is the second phase of reforms to the Act.
The first phase of changes to the Act was in 2018 when the Government simplified the process for obtaining consent for certain investments in forestry, while at the same time restricting foreign investment in residential property.
The purpose of the second phase reform is to reduce the complexity of the Act, and to better support high-quality overseas investment in productive assets, while at the same time ensuring that the investments are in New Zealand’s national interest by giving the Government the ability to consider the broader impact on New Zealand of potential investments.
The second phase looks at and seeks public feedback on potential reforms that could better identify the sensitive assets and types of investor that need approval under the Act, and improve the way that investments are assessed to decide if they get approval.
Three areas of reform:
The reforms look at and seek public feedback on three areas - issues relating to the types of assets that are screened, who is screened, and how the screening process is conducted.
1. What – this section looks at what assets overseas persons need consent for in order to own or control. Suggested areas for consideration include whether freehold and leasehold interests be treated the same, and considering whether the classification of land as sensitive because of adjoining land is sensible.
2. Who - this section looks at how the rules define who needs to seek consent to acquire sensitive New Zealand assets, and in particular whether NZ-incorporated companies with relatively low levels of ownership by overseas persons should still be treated as an overseas person, and whether minor changes in shareholdings by overseas persons should require consent;
3. How - this section looks at the process for deciding whether an overseas person can buy a sensitive assets. One of the issues being considered is the issue with the “benefit to New Zealand” test. The consultation document sets out some suggested changes to this test for public feedback, including a proposed “national interest test” and holistic approach, which would give the Government more discretion on making decisions and as to the range of factors that can be considered (including aspects of the good character and investor tests).
This consultation could lead to greater clarity for applicants, and potentially mean that some relatively minor transactions no longer need consent. Reform in these areas would be particularly welcome and minimise some of the unnecessary compliance costs on applicants.
Submissions on the consultation document close on 24 May 2019. Feedback on the proposed reforms can also be provided at public meetings which will be held in Auckland, Wellington and Christchurch.
Our team of experts would be happy to discuss these issues further with you, or to assist in making a submission as part of the consultation. If you would like our assistance with the submissions for the second phase of reforms to the Act, please contact us to start a conversation about how we could assist you.
Thanks to Ekta Raniga, Associate, in our Property team for preparing this newsflash.