Law 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 will be beneficial to New Zealand. The government’s stated overall policy approach is to achieve an appropriate balance between the need for highly beneficial investment and the need for New Zealand to maintain ownership and control of sensitive New Zealand assets. At the core 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 also seeks to manage risks to New Zealand's national interest and national security through a national interest test, which may be applied to any transaction that requires consent under the foreign investment regime, and a national security and public order call-in regime that may apply to a narrow range of transactions that otherwise do not require consent.

Inbound foreign investment is currently regulated under the Overseas Investment Act 2005 (the Act) and the Overseas Investment Regulations 2005 (the Regulations). The Act 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 control interest in ‘sensitive land’, ‘significant business assets’ or ‘fishing quota’. It states that it is a privilege for an overseas person to own or control such assets, and therefore requires these investors to be screened prior to acquiring them.

Consent decisions are made by government ministers, with advice from the OIO, or by the OIO itself under delegation from ministers.

The scope of the screening process under the Act is not limited by industry 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 call-in regime has certain 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 effectively, and appropriately protects New Zealand’s national interest. These reforms resulted in the passage of multiple stages of amending legislation and regulations between August 2018 and November 2021.

New Zealand does not exercise currency controls.

Main laws

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

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

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

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

  • has foreign government or associated involvement that is below the 25 per cent threshold but grants that government (or its associates, or both) disproportionate levels of access or control to sensitive New Zealand assets;
  • would grant an investor significant market power within an industry or result in vertical integration of a supply chain; or
  • is potentially inconsistent with government objectives, for example 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 'only where necessary to protect New Zealand’s core national interests'. The rebuttable presumption is that overseas investment is in New Zealand’s national interest, and hence the new test is similar to Australia's 'not contrary to the national interest' test under the Foreign Investment Review Board regime.

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

Scope of application

Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject 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 land’ or ‘significant business assets’.

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

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

 

Sensitive land

Consent is required if an overseas person proposes to, directly or indirectly, acquire an interest in sensitive land.

Qualifying interests include (but are not limited to) freehold title, leases with a term of ten years or more (including rights of renewal) and profits à prendre.

Indirect acquisitions are caught where there is an acquisition of, or increase in, an ownership or control interest in an entity that itself has a qualifying interest in ‘sensitive land’.

‘Sensitive land’ includes residential land, non-urban land of more than five hectares (eg, farming or other agricultural, horticultural or similar blocks) and land adjoining a variety of other types of land of a certain size (eg, national parks, historic places, foreshore or land subject to heritage orders). Residential land is land that is categorised as residential or lifestyle in the relevant district valuation roll, and residential flats.

 

Significant business assets

Consent is required if an overseas person proposes to:

  • acquire a more than 25 per cent ownership or control interest in a New Zealand entity, or increase an existing more 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 million; or
    • the gross value of the entity’s assets in New Zealand exceeds NZ$100 million;
  • incur more than NZ$100 million in capital expenditure to establish a new business in New Zealand; or
  • acquire assets in New Zealand that are used to carry on business in New Zealand for consideration greater than NZ$100 million.

 

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

Alternative monetary thresholds apply to investments in significant business assets (not sensitive land) by non-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 non-government investors, while the threshold is NZ$200 million for non-government investors from the other trade agreement countries.

Difficulties can arise when applying the NZ$100 million consideration test referred to in (1) above in the case of international transactions occurring entirely offshore New Zealand but where the target has a business and assets in New Zealand. In these cases, market practice is to apply the same mechanism (eg, a multiple of EBITDA) used to determine the price for the global target business to calculate the consideration attributable to the New Zealand business to determine whether the transaction is caught.

 

Forestry rights

Overseas investments in ‘forestry rights’ also require consent under the Act. Overseas investment in forestry rights is encouraged by the current government and has its own simplified consent pathways.

 

Fishing quota

Overseas investments in fishing quota also require consent under the Fisheries Act 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 be 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 still be caught by the consent regime if they come with disproportionate (more 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 be voluntarily or compulsorily notifiable to the OIO under the national security and public order call-in regime where they relate to businesses that are strategically important businesses. For example, an acquisition of a 10 per cent or more ownership or control 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 regime requires certain sectors to be subject to an increased level of scrutiny, in the form of the national interest and national security and public order call-in regimes.

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

  • New Zealand's major port and airport operators;
  • major electricity generators (with more 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 5,000 people);
  • telecommunications infrastructure or services providers;
  • media entities that have an impact on New Zealand’s 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 case of the national interest regime only, major irrigation schemes (with more than 25mm3pa of water); and
  • in the case of the national security and public order call-in regime only, entities that develop, produce, maintain or otherwise have access to sensitive information in connection with services provided to certain government agencies or in respect of 30,000 or more 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 example because it activates the 'significant business assets' or 'sensitive land' consent pathways), if a transaction is determined by the minister to be contrary to the national interest, consent may be declined or conditions imposed to mitigate any risks.

In the case of the national security and public order call-in regime, investments that do not otherwise require OIO consent but relate to a strategically important business may be mandatorily or voluntarily notifiable to the OIO, and, in rare cases where a material risk to national security or public order is identified, the minister may call the transaction in for review and ultimately block, impose conditions on, or, where relevant, unwind the transaction.

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

Definitions

How is a foreign investor or foreign investment defined in the applicable law?

An ‘overseas person’ is broadly defined 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, among others, that are either non-New Zealand citizens or are incorporated, registered or established outside of New Zealand and/or are more than 25 per cent owned or controlled by overseas persons (or in the case 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 control of the membership of, a governing body, such as a board of directors). An entity will be an ‘overseas person’ if the more than 25 per cent threshold is met under either test.

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

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

  • it is more than 50 per cent owned by overseas persons; or
  • one or more overseas persons who each own 10 per cent or more of its securities together control the composition of more than 50 per cent of its board (or equivalent governing body) or exercise or control the exercise of more than 25 per cent of the voting power at its shareholder meetings (or equivalent ownership body).

 

A New Zealand-managed investment scheme will not 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 (alone or together with their associates).

 

Interests of ‘associates’ are aggregated under the Act 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 assets. The definition of 'associate' is intentionally broad so as to act as an effective anti-avoidance mechanism, and, as well as usual control, influence and direction tests, any kind of direct or indirect arrangement or understanding to act in concert in relation to the entity or the investment will be caught.

Special rules for SOEs and SWFs

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

New Zealand's national interest test mandatorily applies to all transactions that require consent under the Act and where, as a result of the transaction, a 'non-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 below the 25 per cent threshold, but grants that government (or its associates, or both) disproportionate levels of access or control to sensitive New Zealand assets (such as access to non-public information, membership or observer rights on the board, the power to control board composition and any involvement other than through the exercise of ordinary voting rights in the target entity’s decision-making) may also be considered by the minister under the national interest test.

Guidance issued by the government 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 (as opposed to purely commercial) objectives through their investments, and those objectives may not align with New Zealand’s 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 majority upstream ownership by a single foreign government that the New Zealand government views unfavourably.

A 'non-New Zealand government investor' is defined broadly and includes any foreign government (including regional or local government), as well as 'relevant government enterprises'. An entity will be a 'relevant government enterprise' if one or more government-related investors from a single country (either alone, or together with their associates) have, directly and indirectly, in aggregate, a more 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 country, regardless of the size of the holding. An investor will be considered to be government related if it is, acts on behalf of or is related to any national, state or municipal government, and includes any national, state or municipal pension funds, state-owned enterprises, sovereign wealth funds and any similar government-related or controlled (or both) entities.

Relevant authorities

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

The Minister of Finance has formal decision-making responsibility under the national interest test and national security and public order call-in regime; however, the OIO is responsible for administering the regime and making recommendations to the minister, on which the minister relies heavily. The investor's engagement is with the OIO.

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

The term 'national interest', and what would be contrary to it, is not defined; instead, the government is granted broad discretion to decide on a case-by-case basis whether a prospective investment would be contrary to New Zealand's national interest.

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

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