Constabulary and policy

Policies and practices

What, in general terms, are your government's policies and practices regarding oversight and review of foreign investment?

The New Zealand government's policy is to welcome and encourage high-quality inbound foreign investment that volition be beneficial to New Zealand. The government's stated overall policy approach is to reach an appropriate remainder between the need for highly beneficial investment and the need for New Zealand to maintain ownership and command of sensitive New Zealand assets. At the cadre of this policy is the underlying principle that it is a privilege and not a right for overseas persons to own or control sensitive New Zealand assets. The New Zealand government as well seeks to manage risks to New Zealand's national interest and national security through a national interest test, which may exist applied to any transaction that requires consent under the foreign investment government, and a national security and public gild call-in regime that may employ to a narrow range of transactions that otherwise practise not crave consent.

Inbound foreign investment is currently regulated under the Overseas Investment Human activity 2005 (the Act) and the Overseas Investment Regulations 2005 (the Regulations). The Human activity and Regulations are administered by the Overseas Investment Office (OIO), which is a regulatory unit within Land Information New Zealand, a government ministry.

The Act requires an overseas person to obtain approval (consent) before acquiring a qualifying ownership or command interest in 'sensitive land', 'significant business organization assets' or 'fishing quota'. It states that it is a privilege for an overseas person to own or command such assets, and therefore requires these investors to be screened prior to acquiring them.

Consent decisions are fabricated by government ministers, with communication from the OIO, or by the OIO itself nether delegation from ministers.

The scope of the screening process nether the Deed is not limited by manufacture segment but by the nature of the assets acquired, and it applies to all overseas investors regardless of their nationality or nature. However, the national security and public order phone call-in regime has sure sector-specific elements.

The New Zealand government undertook a comprehensive reform of the Act aimed at encouraging overseas investment by reducing complexity and uncertainty while, at the same time, strengthening the regime to ensure it operates efficiently and finer, and appropriately protects New Zealand's national interest. These reforms resulted in the passage of multiple stages of alteration legislation and regulations between August 2018 and November 2021.

New Zealand does not practise currency controls.

Master laws

What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the footing of the national interest?

The Human activity now allows the government to assess overseas investment transactions that require consent under the Human activity on the footing of New Zealand's national interest.

The national interest examination has mandatory application to overseas investment transactions regarding which consent is already required under the Act where: a strange regime or its associates would acquire sensitive country or hold a more than than 25 per cent interest in the target New Zealand concern; or where the transaction involves certain specified categories of strategically of import business.

The national involvement test may likewise be applied at the minister'south discretion to any other transaction that requires consent if the minister determines that the proposed investment poses a risk to New Zealand'due south national interest. Potential factors (ready out in guidance) that could trigger the escalation of a transaction to the national interest test include if the proposed investment:

  • has foreign regime or associated interest that is beneath the 25 per cent threshold just grants that government (or its associates, or both) disproportionate levels of access or command to sensitive New Zealand assets;
  • would grant an investor meaning marketplace power within an industry or result in vertical integration of a supply chain; or
  • is potentially inconsistent with regime objectives, for case environmental or economic objectives.

If a transaction is determined to be contrary to the national interest, consent may be declined, conditions imposed or undertakings required to mitigate any risks. The national interest test will be used to block or restrict an overseas investment transaction rarely and 'merely where necessary to protect New Zealand's core national interests'. The rebuttable presumption is that overseas investment is in New Zealand's national involvement, and hence the new examination is similar to Australia's 'not contrary to the national interest' test under the Foreign Investment Review Lath regime.

The Act besides contains a national security and public guild phone call-in authorities, which applies to investments that do not otherwise require consent under the Deed and that involve the acquisition of interests in strategically important business concern assets and infrastructure, such as military or dual-use applied science, critical direct suppliers to an intelligence or security agency, key electricity generators, telecommunication services, ports and airports, and significant media businesses. Notification to the minister is mandatory for certain categories of strategically important concern, and discretionary for other categories.

Scope of application

Outline the telescopic of application of these laws, including what kinds of investments or transactions are caught. Are minority interests defenseless? Are there specific sectors over which the authorities have a ability to oversee and forestall foreign investment or sectors that are the discipline of special scrutiny?

The requirement to obtain consent from the OIO applies to all transactions in which an 'overseas person' directly or indirectly acquires an interest in 'sensitive state' or 'significant business organization assets'.

In addition, the national interest test can exist applied to any application for consent.

The national security and public order call-in authorities applies to overseas investments in strategically important businesses and infrastructure, such equally cardinal electricity generators, telecommunications services providers, ports, airports and media businesses, also as businesses that hold certain categories of 'sensitive information' (such every bit financial, health, genetic or biometric information) in respect of 30,000 or more than New Zealand individuals.

Sensitive land

Consent is required if an overseas person proposes to, direct or indirectly, larn an involvement in sensitive land.

Qualifying interests include (merely are non limited to) freehold title, leases with a term of x years or more (including rights of renewal) and profits à prendre.

Indirect acquisitions are defenseless where there is an acquisition of, or increase in, an ownership or command involvement in an entity that itself has a qualifying interest in 'sensitive state'.

'Sensitive land' includes residential land, non-urban land of more than v hectares (eg, farming or other agronomical, horticultural or similar blocks) and land adjoining a diverseness of other types of land of a sure size (eg, national parks, historic places, foreshore or land subject to heritage orders). Residential land is land that is categorised equally residential or lifestyle in the relevant district valuation roll, and residential flats.

Significant business organisation assets

Consent is required if an overseas person proposes to:

  • learn a more than 25 per cent ownership or control interest in a New Zealand entity, or increase an existing more than than 25 per cent interest through the 50 per cent or 75 per cent control thresholds, or to 100 per cent, and either:
    • the consideration provided or attributable to the New Zealand business exceeds NZ$100 meg; or
    • the gross value of the entity's assets in New Zealand exceeds NZ$100 million;
  • incur more than than NZ$100 million in capital expenditure to establish a new business in New Zealand; or
  • acquire avails in New Zealand that are used to carry on business concern in New Zealand for consideration greater than NZ$100 million.

Assets of any nature (tangible and intangible) are included.

Culling monetary thresholds employ to investments in significant business assets (non sensitive country) by not-government-related investors from certain countries with trade agreements with New Zealand. A higher threshold of NZ$552 million (applicable until 31 December 2021, indexed to the consumer price index) applied to Australian not-government investors, while the threshold is NZ$200 million for non-authorities investors from the other trade agreement countries.

Difficulties can ascend when applying the NZ$100 meg consideration test referred to in (ane) higher up in the case of international transactions occurring entirely offshore New Zealand simply where the target has a business and assets in New Zealand. In these cases, market practice is to employ the same machinery (eg, a multiple of EBITDA) used to make up one's mind the price for the global target concern to calculate the consideration attributable to the New Zealand business to decide whether the transaction is caught.

Forestry rights

Overseas investments in 'forestry rights' likewise crave consent under the Act. Overseas investment in forestry rights is encouraged past the current regime and has its own simplified consent pathways.

Angling quota

Overseas investments in fishing quota likewise require consent under the Fisheries Human action 1996.

Acquisition of minority interests

In the case of transactions involving indirect acquisitions of interests in sensitive land or significant business assets (eg, through a direct or indirect acquisition of securities), consent will exist required if a more than 25 per cent minority ownership or control interest is acquired. Acquisitions of ownership or economic interests of 25 per cent or less will even so be defenseless by the consent regime if they come with disproportionate (more than than 25 per cent) voting rights or director appointment rights. Associated interests are aggregated for the purposes of the tests.

In addition, investments at levels lower than 25 per cent may exist voluntarily or compulsorily notifiable to the OIO nether the national security and public club call-in regime where they relate to businesses that are strategically important businesses. For example, an acquisition of a ten per cent or more ownership or command interest in a listed issuer that carries out a strategically important business, or of any ownership or control interest at all in other categories of strategically important business, may be notifiable under this regime.

Sector-specific targeting

New Zealand's foreign investment government requires sure sectors to exist bailiwick to an increased level of scrutiny, in the form of the national interest and national security and public order call-in regimes.

These regimes use to investments in 'strategically important businesses', which includes:

  • New Zealand's major port and airport operators;
  • major electricity generators (with more than than 250MW capacity) and electricity lines services providers;
  • major drinking water, waste water, sewerage or storm water service providers (in each case servicing more than than five,000 people);
  • telecommunications infrastructure or services providers;
  • media entities that have an impact on New Zealand'due south media plurality;
  • entities that research, develop, produce or maintain military or dual-use technology;
  • critical direct suppliers to the New Zealand Defence Force, Government Communications Security Bureau and the New Zealand Security Intelligence Service;
  • systemically important financial institutions and market infrastructure (eg, payments systems);
  • in the instance of the national interest authorities only, major irrigation schemes (with more than 25mm3pa of water); and
  • in the case of the national security and public lodge telephone call-in regime only, entities that develop, produce, maintain or otherwise take access to sensitive data in connection with services provided to certain government agencies or in respect of 30,000 or more than New Zealand individuals.

In the case of the national interest regime, which only applies where the transaction already requires OIO consent for another reason (for instance because it activates the 'significant business concern assets' or 'sensitive land' consent pathways), if a transaction is adamant past the minister to be opposite to the national interest, consent may be declined or atmospheric condition imposed to mitigate any risks.

In the case of the national security and public order call-in regime, investments that practice non otherwise crave OIO consent simply chronicle to a strategically of import business may be mandatorily or voluntarily notifiable to the OIO, and, in rare cases where a material risk to national security or public lodge is identified, the minister may call the transaction in for review and ultimately block, impose weather condition on, or, where relevant, unwind the transaction.

In addition, farmland, forestry rights, angling quotas and water extraction are subject to targeted provisions under the sensitive state consent pathway.

Definitions

How is a strange investor or strange investment divers in the applicable law?

An 'overseas person' is broadly divers in the Act and includes all natural and unnatural persons, body corporates, unincorporated bodies of persons, trusts, units trusts, partnerships, limited partnerships, funds and managed investment schemes, amongst others, that are either non-New Zealand citizens or are incorporated, registered or established exterior of New Zealand and/or are more 25 per cent owned or controlled past overseas persons (or in the example of a managed investment scheme, where the manager is an overseas person). The test looks at both economic interests (eg, via equity ownership) and decision-making powers (eg, via the membership of, or command of the membership of, a governing trunk, such equally a board of directors). An entity will exist an 'overseas person' if the more than than 25 per cent threshold is met under either test.

Different tests apply to New Zealand-listed issuers and sure managed investment schemes.

A New Zealand-listed issuer, being a company incorporated in New Zealand and listed on New Zealand'south Substitution (NZX), will only exist an 'overseas person' if:

  • it is more than 50 per cent owned by overseas persons; or
  • one or more overseas persons who each own ten per cent or more of its securities together control the composition of more than fifty per cent of its lath (or equivalent governing body) or exercise or command the exercise of more than 25 per cent of the voting power at its shareholder meetings (or equivalent ownership torso).

A New Zealand-managed investment scheme will non be an 'overseas person' if:

  • it is established under New Zealand law and listed on the NZX;
  • 50 per cent or less of the value of its managed investment products is invested on behalf of overseas persons; and
  • no more than 25 per cent of the products in the scheme that entitle holders to vote are beneficially owned by or on behalf of overseas persons who own 10 per cent or more of those products (lonely or together with their associates).

Interests of 'associates' are aggregated under the Deed for the purposes of determining both whether an entity is an overseas person and whether an overseas person has acquired a qualifying interest in the relevant avails. The definition of 'associate' is intentionally broad so every bit to act as an effective anti-avoidance mechanism, and, besides every bit usual control, influence and direction tests, any kind of directly or indirect organisation or understanding to human activity in concert in relation to the entity or the investment will be caught.

Special rules for SOEs and SWFs

Are at that place special rules for investments fabricated by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

New Zealand'due south national interest exam mandatorily applies to all transactions that require consent under the Human activity and where, as a result of the transaction, a 'not-New Zealand government investor' would hold a more than 25 per cent or greater direct or indirect interest in the relevant asset. Foreign government or associated involvement that was beneath the 25 per cent threshold, but grants that government (or its associates, or both) asymmetric levels of access or control to sensitive New Zealand assets (such as access to not-public data, membership or observer rights on the board, the ability to control board composition and any involvement other than through the exercise of ordinary voting rights in the target entity'south controlling) may also be considered by the minister under the national interest test.

Guidance issued past the authorities states that transactions involving foreign government investors and their associates may be subject to more rigorous scrutiny because these investors may be pursuing broader policy or strategic (every bit opposed to purely commercial) objectives through their investments, and those objectives may not align with New Zealand'southward national interest. There is precedent in the New Zealand market for the government blocking transactions in sensitive sectors, proposed to be undertaken by entities that have bulk upstream ownership by a unmarried strange authorities that the New Zealand government views unfavourably.

A 'non-New Zealand government investor' is defined broadly and includes whatsoever foreign government (including regional or local regime), also as 'relevant government enterprises'. An entity will be a 'relevant government enterprise' if ane or more government-related investors from a unmarried country (either alone, or together with their associates) have, directly and indirectly, in aggregate, a more than than 25 per cent ownership or control interest in the investor. This assessment requires an aggregation of all holdings of government-related investors from a single land, regardless of the size of the holding. An investor will exist considered to exist government related if it is, acts on behalf of or is related to any national, land or municipal government, and includes whatever national, state or municipal pension funds, state-endemic enterprises, sovereign wealth funds and any like government-related or controlled (or both) entities.

Relevant authorities

Which officials or bodies are the competent regime to review mergers or acquisitions on national interest grounds?

The Minister of Finance has formal controlling responsibility nether the national interest exam and national security and public order call-in government; however, the OIO is responsible for administering the authorities and making recommendations to the minister, on which the minister relies heavily. The investor's date is with the OIO.

All the same the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national involvement grounds?

The term 'national interest', and what would be reverse to information technology, is not defined; instead, the government is granted broad discretion to make up one's mind on a case-by-case basis whether a prospective investment would be contrary to New Zealand's national interest.

The regime has specifically stated that the examination is intended to operate as a 'backstop tool' that should exist practical rarely and only where necessary to protect New Zealand's core national interests – the starting point is that investment is in New Zealand'southward national interest. However, as at Dec 2021 this remains a new surface area for the OIO and in which it is still finding its feet, and so it tends to behave conservatively when because whether to recommend to the minister whether to practise his or her discretion to review a transaction for national interest considerations in cases where the national interest test does not mandatorily apply.

The regime also has a degree of discretion when exercising the national security and public guild call-in ability. Once again, it has been stated that this power will rarely be used and merely where in that location is an identified risk to national security or public gild. This is informed by advice from the New Zealand Security Intelligence Service, Regime Communications Security Bureau, with public guild advice coming from a range of agencies where relevant. Advice on international relations is provided by the Ministry of Foreign Affairs and Trade.