Mateship in foreign investment becomes law

POSTED BY Andrew Wallace
17 March 2013

posted in Overseas investment

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In February last year the New Zealand and Australian governments signed an investment protocol under the CER trade agreement that further strengthens the investment relationship between the two countries. A key aspect of the protocol was to increase the screening thresholds above which foreign investments in business assets require regulatory approval. That initiative has now become law; the higher thresholds apply to transactions entered into on or after 1 March 2013. The changes will be of interest to Australian investors and Australian-owned or controlled investors. Just as important will be knowing what hasn't changed.

To recap, the general position under New Zealand's current overseas investment rules is that an "overseas person” (which includes New Zealand companies and partnerships that are 25% or more foreign-owned or controlled), or an "associate” of an overseas person, who wants to acquire sensitive land or an interest in sensitive land in New Zealand, significant New Zealand business assets, or fishing quota or an interest in fishing quota in New Zealand, needs to get the consent of the Overseas Investment Office (OIO) before doing so. If OIO consent isn't obtained when required, a range of penalties can be imposed including imprisonment, fines and orders that the transaction must be cancelled.

The general screening threshold for investments in significant business assets by overseas investors is $100 million. However, now the the screening threshold for investments in significant business assets by Australian non-government investors has been pushed out to $477 million. The threshold for Australian government investors remains at $100 million for the moment. Both of these thresholds for Australian investors are subject to adjustment, on an annual basis, according to an inflation-based formula.

An investor qualifies as an Australian non-government investor if the investor is an Australian individual, or the investor is an entity or a branch located in Australia and either carries on substantive business operations in Australia or is more than 75% owned or controlled by Australian or New Zealand individuals. The investor can't be 25% or more owned or controlled by the Australian government or a foreign government.

An investor qualifies as an Australian government investor if the investor is the Australian government or is an Australian entity or branch in relation to which the Australian government has a 25% or more ownership or control interest. The investor can't be a foreign government or an entity or branch which is 25% or more owned or controlled by a foreign government.

Importantly, the changes don't affect acquisitions of sensitive land or interests in sensitive land in New Zealand, or acquisitions of fishing quota or interests in fishing quota in New Zealand. The existing rules continue to apply to those types of transactions. So, even if the higher screening threshold isn't reached in a transaction involving an Australian investor, if the transaction involves sensitive land (which it often does in large-scale transactions), OIO consent will be required.

For investments in significant business assets by all other overseas investors, the screening threshold stays at $100 million.

If you're interested in reading more about this, there's a wealth of general information available about the overseas investment rules and the consent process. A good start is on the OIO's website, www.linz.govt.nz/overseas-investment.

This article was first published in the Your Law column in the Sunday Star Times on 17 March 2013.

POSTED BY Andrew Wallace
17 March 2013

posted in Overseas investment

VIEWED 3205 TIMES

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