Kathryn Docherty and Tessa Baker (Chapman Tripp) authored this publication

The Overseas Investment Office (OIO) is the regulator responsible for the administration of the Overseas Investment Act 2005 (OIA), the statute that regulates investments in New Zealand assets by overseas investors.

The OIA sets out a consent regime in relation to investments in business assets that meet a value threshold in certain types of land and investment in fishing quotas.

In addition, investments by foreign governments or investments in businesses that are considered strategically important are also subject to a national interest assessment, which gives consideration to factors such as national security, public order, international relations, market structure and alignment with New Zealand's values and interests. Further, overseas investments in particular strategically important businesses not requiring consent are subject to the national security and public order risks management regime (NSPO) and are required to be notified to the OIO.

This consent regime ensures that overseas investment into New Zealand is of high quality and provides benefits to New Zealand, and acknowledges that it is a privilege for overseas persons to own or control sensitive New Zealand assets.

The OIO has delegated authority to determine most consent applications, based on an assessment of whether the investor meets an investor test and, where the acquisition relates to certain sensitive land, both the investor test and the benefit to New Zealand test are considered. Where land is residential land, specific tests are required to be met by an investor.

For certain land acquisitions, or where a national interest assessment is required—including as part of the NSPO regime—ministerial approval is required.

Who files?

An overseas person making an acquisition that requires consent under the OIA's consent regime, or clearance under the NSPO regime, must apply to the OIO for such consent or clearance (as applicable) before completion of the acquisition. Any agreement to make the acquisition must be subject to receiving such consent or clearance.

An individual or entity will be considered an overseas person if they are not a New Zealand citizen, not ordinarily a resident in New Zealand, or in the case of an entity, incorporated overseas or more than 25 percent owned or controlled by overseas persons. A New Zealand citizen or entity will also be considered an overseas person if they are investing on behalf of an overseas person.

A consent application includes a filing fee that varies according to the type and complexity of a transaction and whether a national interest assessment is required. A notification under the NSPO regime does not require any filing fee.

Types of deals reviewed

Consent under the OIA is required for a range of acquisitions by overseas persons, including an acquisition of a more than 25 percent ownership or control interest in a target entity—or an increase in an existing interest to or through 50 percent, 75 percent or 100 percent.

Consent is required where the value of the applicable New Zealand assets, or consideration attributable to those assets, exceeds NZD 100 million (or the alternative monetary threshold discussed below); or the target owns or controls (directly or indirectly) an interest in sensitive land. The definition of sensitive land is detailed and requires analysis from qualified advisors. In particular, land may be sensitive if it adjoins certain types of land or is associated with other land already controlled by an overseas person. It also includes all residential land.

Consent is also required if the target owns or controls (directly or indirectly) an interest in fishing quotas.

In addition, an overseas person, establishing a business in New Zealand must obtain consent if, before commencing business, the expected expenditure incurred in establishing the business exceeds NZD 100 million (US$61.2 million), or an alternative monetary threshold.

Direct acquisition of interests in sensitive land will also require consent, including the acquisition of a leasehold interest of three years or more for residential land and ten years or more for other sensitive land, together with the acquisition of forestry rights and fishing quotas.

Consent requirements can be triggered for transactions occurring upstream of the New Zealand assets, as well as for direct acquisitions in New Zealand.

Certain types of investors receive differing treatment for their transactions.

A higher monetary threshold applies to acquisitions by certain Australian investors. Currently, that higher threshold is NZD 586 million for Australian non-government investors and NZD 123 million for Australian government investors. On January 1, 2024, this threshold will increase to NZD 618 million for Australian non-government investors and NZD 129 million for Australian government investors.

Consistent with New Zealand's free trade agreement commitments, a higher monetary threshold of NZD 200 million applies to acquisitions in significant business assets made by certain non-government investors from the United Kingdom, Korea, Taiwan, Hong Kong, China, and countries for which the Comprehensive and Progressive Agreement for Trans-Pacific Partnership is in force.

Certain Australian and Singaporean investors are exempt from consent requirements for investments in residential land. Meanwhile, further scrutiny is applied to investments by foreign government investors, in respect of which a national interest assessment is undertaken as part of the consent process.

Under the NSPO regime, certain investments in strategically important businesses (where a consent requirement is not already triggered) can, and in some cases must, be notified to the OIO for clearance by the relevant minister. Notification is mandatory for investments in critical direct suppliers to New Zealand's intelligence or security agencies, and businesses involved in military or dual-use technology, but is otherwise optional. Non-notified transactions can be called in for review by the minister prior to or after completion of the transaction.

Scope of the review

Under the consent regime, each overseas investor and the individuals who control that investor is required to meet a bright-line investor test comprising a closed list of character and capability factors. This test applies whether the investment is in significant business assets, sensitive land, forestry rights or fishing quotas.

The investor test factors include whether the overseas investor has: convictions resulting in imprisonment; corporate fines; prohibitions on being a director, promotor or manager of a company; penalties for tax avoidance or evasion; and unpaid tax of NZD 5 million or more in New Zealand or an equivalent amount in another jurisdiction.

Where the overseas investment is an investment in sensitive land, the overseas investor must also satisfy the benefit to New Zealand test. The requirements under the test differ depending on the nature of the land—for example, stricter provisions apply where the land is farmland.

Generally, when determining whether the benefit test is met, the ministers will assess the benefits that will be delivered by the transaction against certain factors including economic, environmental, public access, protection of historic heritage and advancement of government policy, and assess whether that benefit is proportionate to the sensitivity of the land and the nature of the transaction. A specific test must be met for investments in residential land—either increased housing, non-residential use or incidental residential use.

Recent reforms mean that an overseas person looking to invest in farmland to convert into forestry must also satisfy the benefit to New Zealand test instead of the streamlined "special forestry test," which is reserved for applications to purchase existing forestry land.

In addition, a national interest assessment is applied to transactions involving strategically important businesses or being undertaken by foreign government investors. National interest assessments are supported by a cross-government standing committee that looks across the New Zealand government system to obtain and use a wide range of information. The minister has broad discretion to determine whether to block a transaction on the basis that it is contrary to New Zealand's national interests.

Under the NSPO regime, the minister will consider whether there are any national security or public order risks associated with the transaction. If there are such risks, the minister can impose conditions on the transaction, prohibit the transaction, if not yet completed, or require a disposal, if completion has occurred.

Review process timeline

Following the 2021 reforms, there are statutory timeframes that apply to the OIO and ministers' considerations of a consent application under the OIA. Timeframes under the regulations differ depending on the nature of the application. However, they can be paused or extended and do not create any legal obligation enforceable in a court of law, or limit or affect the way in which a person is required to exercise a statutory power of decision.

There is no recourse for any applicant where the specified timeframe is not met. Depending on its complexity, a land application can take three to six months, or even longer.

Under the NSPO regime, an initial review period of 15 working days applies, after which the OIO will inform the applicant whether the transaction has been cleared or is being subjected to a more detailed assessment. If a more detailed assessment is required, a full assessment will be completed and decisions must be made within 55 working days, with a possible extension of up to 30 working days.

How foreign investors can protect themselves

In most circumstances, it is difficult to obtain consent under the OIA in advance of agreeing a transaction, as the consent regime operates to screen specific transactions rather than simply to identify the investor. It is possible for an investor to apply on a standalone basis to be screened against the investor test, but this does not negate the need to seek consent for a relevant transaction, although in theory it would make that consent application easier and quicker.

Where consent under the OIA is required, or the investor is required or wishes to make a notification under the NSPO regime, the transaction should be conditional on receiving the relevant consent or clearance, and must not proceed to completion until such consent or clearance is received.

Given the relatively long review timeframes, investors should assess early in a transaction process whether consent or notification under the OIA will be required. In some (but not most) circumstances, a discussion with the OIO ahead of filing can be helpful to gauge the OIO's reaction to aspects of the transaction.

Trends in the review process

After a number of years of amendments under the OIA from 2018 to 2021, New Zealand has seen a stabilization of the overseas investment regime. Following the change of government as a result of the 2023 election, announcements have been made that changes will be made to better support investments in build-to-rent housing developments.

The reforms over recent years have resulted in a number of welcome changes to exclude lower-risk transactions from consent requirements and provided pathways for overseas investors to invest in residential land. However, the New Zealand government has now given itself broader powers to intervene in transactions on national interest grounds.

Historically, there have been few formal rejections of consent applications by the OIO or ministers. In part, that results from investors withdrawing applications before a decision was made, with respect to which there are no published statistics. However, the recent change to the test in respect of converting farmland to forestry and the requirement to comply now with the benefit test has resulted in the majority of applications of this type to date being declined on the basis that the ministers were not satisfied that the likely benefit was proportionate to the sensitivity of the land and nature of overseas investment.

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