Overseas Investment Act update – is change now the only constant?
Reflecting on events of the past year, it is quite remarkable that after years of successive governments not being willing to touch the overseas investment legislation - much to the frustration of all who had to deal with it - there is now a veritable flood of changes.
22 October 2018 saw substantial changes to the Overseas Investment Act, the most significant of which was that residential land is now is now captured by the Act as a new category of sensitive land.
The Act and its Regulations – which have always been complex - are now even more complex (and significantly lengthier). Working out whether an overseas person can purchase residential property without consent means a careful analysis of a person's citizenship or visa status, and whether they have lived in New Zealand for at least 183 days (or not). Even a New Zealander purchasing a home with their overseas person partner needs to know how to structure their purchase to ensure an exemption applies to their partner – but qualifying for the exemption has wider implications, should the couple separate.
There are also now a raft of exemptions and standing consents applying to commercial and forestry transactions which are complex and can be difficult and time-consuming to work through.
Review of the Act announced
On 16 October 2018 (and as foreshadowed in earlier articles penned by this author), Associate Minister of Finance David Parker formally announced a review of the Act and the Regulations, and published terms of reference for the review. Like every previous review of the legislation - which has resulted in no change on that score, the terms of reference note that the application process is too complex, and the levels of discretion in the Act cause unnecessary uncertainty for investors, as well as delays. In this regard, assessment times over the last 12 months have reached an all-time high (notwithstanding Ministers' claims to the contrary), with 157 working days (or nearly 32 weeks) being the average assessment time for sensitive land decisions by Ministers.
The scope of the review includes:
The definition of "overseas person" as it relates to body corporates (it is not entirely clear what the problem is here);
The factors underpinning the existing "benefit to New Zealand" test (including water extraction, Maori cultural values as they relate to sensitive land, and tax residency);
The extent that any negative benefits can be considered under the existing "benefit to New Zealand" test – and whether additional legislative guidance is required as to how "benefits" and "negative benefits" should be balanced;
Appropriateness of the current criteria applying to investors (rather than the investment);
Whether there should be a more holistic consideration of the implications of foreign direct investment on New Zealand's national interest, similar to the "national interest" test in Australia and Canada, and under consideration by the United Kingdom. This would have to be balanced with creating certainty for applicants.
The treatment of land that is sensitive because it adjoins "sensitive" land.
It's expected that consultation will commence on options to amend the Act in the first quarter of 2019, with a view to legislating reforms by the middle of 2020.
And there are more changes to the Regulations coming soon …
Also as foreshadowed in earlier articles, there will be changes made to the monetary thresholds applying to a particular category of sensitive (non-land) assets captured by the Act (significant business assets), so that alternative ($200 million) thresholds apply to non-government investors from CPTPP party countries, as well as non-government investors under a number of other international agreements (including the China-NZ Free Trade Agreement). Higher thresholds continue to apply to qualifying Australian non-government investors. The Overseas Investment (CPTPP) Amendment Regulations 2018 come into force on 30 December 2018. The changes are not straightforward and investments must be structured carefully to take advantage of the higher threshold.
Anthony Harper can provide prompt, accurate and expert advice and guidance on all overseas investment issues, including making submissions on the proposed review and amendment of the Act.
Annelies McClure, Special Counsel at Anthony Harper, is acknowledged as New Zealand foremost expert on the Act, having headed the Overseas Investment Office, which administers the Act, between 2005 and 2017.