New Zealand’s Overseas Investment Act 2005 (Act) governs overseas investments in sensitive assets. It lays out how to obtain consent for overseas investments in those assets and sets out the powers of the Overseas Investment Office (OIO) to impose conditions on investments. Through this process, the government assesses whether overseas investments may pose a significant risk to national security or public order.
Notably, the Act applies to investments made not only by overseas persons but also their associates. This includes someone controlled by the overseas person or subject to their direction, control or influence, as well as their agent, trustee or representative.
A transaction requires consent under the Act if it will result in an overseas investment in sensitive land or significant business assets.
Sensitive land
Consent is required for investments into sensitive land, which includes an estate or interest in residential land, non-urban land that exceeds five hectares and marine and coastal areas. To be sensitive, that acquired estate or interest must be:
- freehold; or
- if it is residential land, any interest in land for at least 3 years; or
- if it is sensitive but not residential land, any interest in land for at least 10 years.
The acquisition of a person’s rights or interests in securities may also be considered sensitive if they own or control an estate or interest in sensitive land. Broadly, that acquisition must result in:
- gaining more than 25% ownership or control interest; or
- an increase in an existing more than 25% ownership or control interest; or
- the person becoming an overseas person.
More details about what is considered sensitive land can be found in section 12 of the Act.
Significant business assets
The Act makes it mandatory to obtain consent for investments in significant business assets.
Firstly, this means the acquisition of rights or interests in securities if:
- the acquisition results in the person gaining more than 25% ownership or control interest; or
- the acquisition results in an increase in an existing more than 25% ownership; or
- the value of the securities or consideration provided exceeds $100 million.
Significant business assets also include the establishment of a New Zealand business if the business is carried on for more than 90 days in a year and the total expenditure expected to be incurred in establishing that business exceeds $100 million.
The acquisition of property in New Zealand, to be used to carry on business in New Zealand, will also be a significant business asset if the total value of consideration provided exceeds $100 million.
However, for some overseas investors, the monetary threshold is more than $100 million. This means that investors from those countries do not need to obtain consent if their investments fall under the alternate monetary thresholds. For instance, the threshold for Australian non-government investors in 2023 is NZ$586 million, while the threshold for Australian government investors in 2023 is NZ$123 million. For investors from other countries that New Zealand has economic agreements with, such as free trade agreements, the current threshold is NZ$200 million. This includes investors from China, Hong Kong and South Korea.
Further information on the definition of significant business assets can be found in section 13 of the Act.
National Security and Public Order (NSPO) notification regime
In addition to these requirements, Land Information New Zealand has a National Security and Public Order (NSPO) notification regime. This regime took effect on 7 June 2021, which means that transactions entered into:
- on or after 7 June 2021 (even if it was notified before then) falls under the NSPO regime; and
- before 7 June 2021 (even if it is notified after) falls under the emergency notification regime.
The NSPO regime applies to investments in a strategically important business (SIB) or its assets.
An SIB is a business that operates in an area considered to be strategically important. This includes businesses involved in military technology, sensitive information, registered banks, and those involved in electricity generation, airports and telecommunications. A full list of SIBs is in section 4 of the Act.
The NSPO regime covers transactions of any value to acquire an initial interest in an SIB, some increases in an existing interest in an SIB and buying assets if the buyer will become an SIB in their own right.
The regime empowers the Minister of Finance to impose conditions on or dispose of investments considered contrary to New Zealand’s national interest. This means that the OIO must be notified of certain types of investments. Notifications are made online, free of charge, through the Land Information New Zealand website.
Notifications are mandatory for investments in certain industries, and voluntary for others.
Mandatory notifications
The OIO must be notified of an investment if the target business or entity is involved in military or dual use technology or is a critical direct supplier to the defence force, security bureau or intelligence services. To qualify as critical, the goods or services supplied must be integral to the agency’s functionality and cannot be readily replaced.
Mandatory notifications must be submitted before the investment transaction is given effect to.
Voluntary notifications
A voluntary notification regime applies to investments into certain businesses, including those involved in airports, electricity generation, water infrastructure, registered banks and sensitive information.
Voluntary notifications can be made either before or up to 6 months after the investment transaction takes effect. They are recommended because if they are made and the OIO finds that the investment does not pose significant risks to New Zealand’s national security and public order, the OIO issues a direction order which provides the investment with “safe harbour” and the investment will not be subsequently scrutinised by the OIO (unless such scrutiny is warranted as a result of, for example, false and misleading information).
If an investor decides not to notify the OIO, the investment may be scrutinised at any time in the future. If it is found to pose a significant risk to New Zealand’s national security and public order, the government may block the transaction, impose conditions or order the disposal of assets at its discretion.
Exceptions
Notifications are not required in certain circumstances.
For example, notifications are not needed where the investment results in the investor holding less than 10% of a publicly listed entity’s shares where there is no disproportionate access or control. They are also not needed where an investor obtains 25% or less ownership of a media business, or when an investment in assets or property does not make the buyer an SIB in their own right.
A full list of investments in SIB assets which do not require consent can be found in section 82 of the Act.
Decision-making process
After the OIO becomes aware of a transaction, it makes an initial assessment within 15 days.
If it does not think the transaction poses a significant risk to national security and public order, the transaction will be granted a direction order. This allows the transaction to proceed either unconditionally or subject to conditions.
If the initial assessment shows that an investment could pose a significant risk, it may be referred to the Minister of Finance for a full assessment. This will take 40 days, with a potential extra 30 days’ extension. The Minister will consider the benefits of an investment alongside potential national security risks, such as by assessing the benefit to New Zealand’s economy and society compared to the sensitivity of the asset being acquired, and whether the investor’s character makes them unsuitable to invest in New Zealand.
If the Minister determines that the transaction poses a significant risk to national security and public order, the government can block the transaction, impose conditions or order the disposal of assets.
Key takeaways
It is important for overseas investors to be aware of the scope and ambit of the Overseas Investment Act and its requirements so that prospective investments are in compliance with it. In particular, investors should be prepared to factor in the timing of notification and consent requirements in the planning and implementation of transactions which trigger the application of the Overseas Investment Act. If you would like more information about these regimes and how they may affect your business, please contact the Hamilton Locke New Zealand Corporate team.
