Invest and reside

In the past 15 years, New Zealand has become more attractive as a residency by investment destination for high-net-worth individuals (HNWIs) and their families.

The Active Investor Plus (AIP) category visa can, subject to qualifying criteria being satisfied, result in New Zealand resident visas being granted to a principal applicant, their partner and any dependent children. Under the key requirements for the AIP category visa, applicants must:

• make an investment of between NZD5 million and NZD15 million (depending on a weighting system that incentivises more ‘active’ investments);
• invest across three years and maintain the investment for a further fourth year;
• spend 117 days in New Zealand across the four-year investment period; and
• have a reasonable command of English to at least Level 5 of the International English Language Testing System.

Acceptable investments

Acceptable investments carry different weightings towards the NZD15 million investment threshold.[1] Direct investments into businesses receive a 3x weighting (the highest), i.e., each NZD1 invested will be accorded the value of NZD3. An investor could meet the required investment amount by investing NZD5 million into direct investments.

Investments into managed funds such as private equity or venture capital funds receive a 2x weighting. An investor could meet the required investment amount by investing NZD7.5 million into managed funds.

Investments into listed equities and philanthropy receive no weighting and are each capped at 50 per cent of the NZD15 million investment requirement. An investor could meet the required investment amount by investing NZD7.5 million into listed equities and NZD7.5 million into eligible philanthropic causes.

Acquiring ‘sensitive’ New Zealand assets

New Zealand has an open, export-driven and competitive economy that works on free market principles. Although foreign direct investment in New Zealand is generally encouraged, there are restrictions imposed by the Overseas Investment Act 2005 (the Act) and enforced by the Overseas Investment Office (OIO).

The Act’s purpose is to acknowledge that it is a privilege for overseas persons to own or control ‘sensitive’ New Zealand assets and, accordingly, the Act requires overseas persons to obtain consent from the OIO where they wish to acquire interests in such assets.

Sensitive New Zealand assets fall into three categories: significant business assets, sensitive land and fishing quotas. The OIO has wide discretion to refuse consent to an application or to grant it with or without conditions.

The Act applies to ‘overseas persons’ who are:

• not New Zealand citizens or ordinarily resident in New Zealand;
• companies incorporated outside New Zealand; and
• companies or other entities that are at least 25 per cent owned or controlled by an overseas person/s.

It also applies to ‘associates’ of overseas persons, defined widely in order to prevent overseas persons getting around the rules by using a formal third-party arrangement (such as an agent, trust or nominee) or by making some other informal arrangement (such as an unwritten agreement or understanding) with a New Zealand citizen or resident.

Obtaining consent from the OIO

The pathway and requirements to obtain consent from the OIO depend on the type of investment proposed.

Significant business assets

OIO consent must be obtained where an overseas person wishes to invest in high-value New Zealand business assets that are worth more than the applicable NZD threshold (usually NZD100 million). Investments can be via:

• the purchase of securities/shares in an existing company;
• the purchase of an asset (e.g., buying a windfarm); and
• establishing a new business, such as developing an apartment building.

For investments in significant business assets, the ‘investor test’ must be met. The investor test determines whether the overseas person is unsuitable to own or control any sensitive New Zealand assets by assessing whether they are likely to pose risks to New Zealand, based on factors relating to their character and capability.

An interest in ‘sensitive land’

Consent will be required where an overseas person, directly or indirectly, wishes to purchase or acquire an interest (for more than three years) in land that is ‘sensitive’, as defined in the Act.

At a high level, individuals wishing to invest in sensitive land will need to meet the investor test above and the ‘benefit to New Zealand’ test. The latter assesses a potential investment against seven factors to determine if the investment is likely to provide a benefit to New Zealand.

However, the consent pathway, tests and other requirements differ if the proposed investment is in sensitive land that is also residential property, apartments, residential land to develop, forestry or forestry rights, or farmland.

One home to live in consent pathway

Individuals who have a New Zealand residence class visa (or are Australian or Singaporean citizens or permanent residents) but are not yet ordinarily resident can buy or build one home to live in as long as they get prior consent from the OIO. Once consent is granted the individual must:

• live in the property as their main home;
• be present in New Zealand for at least 183 days in each 12-month period after consent is granted; and
• continue to hold a New Zealand residence class visa or continue to be an Australian or Singaporean citizen or permanent resident.

This is a helpful consent pathway for individuals who are able to live in New Zealand (for example, because they have received a New Zealand resident visa under the AIP category) but have not yet spent enough time in New Zealand to be ordinarily resident.

Fishing quotas

Consent is required for overseas persons acquiring an interest in New Zealand fishing quotas. Individuals will need to meet the investor test and the benefit to New Zealand test.

Exemptions

There are exemptions available in some situations, including with respect to Australian and Singaporean residents and citizens and couples acquiring relationship property that is a ‘sensitive asset’ where one person is also an overseas person.

Tax in New Zealand

There are currently no gift duties, stamp duties, land taxes or inheritance/estate or wealth taxes in New Zealand. Capital gains tax applies only in limited circumstances.

Transitional residents

A first-time resident or a returning expatriate who has been absent for a continuous period of ten years or more is entitled to a four-year tax exemption when moving to New Zealand. With very few exceptions,[2] all foreign-sourced income of the transitional resident is exempt from tax in New Zealand, even if it is remitted into New Zealand. Concessions also apply in respect of the transitional resident’s interests in controlled foreign companies, foreign investment funds and offshore trusts.

New Zealand tax residents

A person will be considered a New Zealand tax resident and taxed on their worldwide income if they:

• are in New Zealand for more than 183 days in any 12-month period and have not become a non-resident;
• have a ‘permanent place of abode’ in New Zealand; or
• are away from New Zealand in the service of the New Zealand government.

Double-taxation agreements

To eliminate situations where an individual may be subject to double taxation, New Zealand has a network of double-taxation agreements in force with its main trading and investment partners.

Personal tax rates

New Zealand residents are taxed on worldwide income and non-residents are taxed on New Zealand-sourced income. New Zealand has progressive tax rates that increase as income increases. The highest tax rate, applicable to income earned over NZD180,000, is currently 39 per cent.

The company tax rate is currently 28 per cent. Income earned by trusts is currently taxed at a rate of 33 per cent, unless it is distributed to beneficiaries in the same tax year as it arises, in which case it is taxed at the relevant beneficiary’s marginal tax rate.

Conclusion

This article has, hopefully, provided some practical guidance for foreign investors, migrants and advisors. Nonetheless, as with any engagement with, or investment in, a foreign jurisdiction, local expertise is essential.