New Zealand has long been well known as a business friendly country with light handed regulatory regimes. However, there have been recent political events and murmurings which suggest that this may be changing.
Company Incorporations
The New Zealand government has recently introduced a requirement for all company directors to provide more personal information to the New Zealand Companies Office and for every company to have a New Zealand resident director (or an Australian resident director). It appears that this may just be the start of things to come.
The Companies Office has also started to rigorously check the identity of shareholders and directors when an overseas holding company is involved.
Foreign Trust Regime
With the release of the so called “Panama Papers” there has been an outcry amongst the populous that New Zealand is a tax haven. While that is not correct in the strict sense, New Zealand allows foreign trusts to establish in New Zealand with minimal oversight or information being provided. The National government bowed to public pressure and launched a review of the foreign trust regime. It seems reasonably likely that what will flow from that review will be (at a minimum) a tightening of the existing foreign trust regime and for much more information to be disclosed including the identity of trust appointers, beneficiaries and trust assets.
Real Estate Sector
In the residential real estate market Auckland and its satellite towns and cities (and more recently Wellington and Christchurch) have seen dramatic increases in value. Since 2012 the average price of residential property in Auckland has climbed from NZD$555,000 to NZD$931,000. This is currently more expensive than Sydney! When the price of residential property is tested against incomes, Auckland is supposedly the most unaffordable place in the OECD for the purchase of residential property. The blame has been placed on various factors including lack of supply, internal migration and population growth, overseas immigration and foreign investment.
In response to building pressure, Prime Minister John Key recently announced the possibility of the application of a land tax to foreign based house buyers if there is evidence that they are pushing up New Zealand property prices. In a country where land tax was long ago abolished along with stamp duty and other property based taxes this would be an unwelcome development, particularly for a foreign investor.
In the rural real estate sector, the Overseas Investment Office which is charged with scrutinising applications for the purchase of significant or sensitive land holdings by foreign investors has been severely criticised for approving too many applications and for not exercising enough scrutiny over those it does approve. The most recent example (which also stemmed from the “Panama Papers”) was in connection with an acquisition by Argentinean interests of sensitive farmland. It transpired that the effective purchasers of the land had been prosecuted for environmental defaults in their country of origin and might not therefore be seen as being “of good character”. This was not picked up by the OIO despite it following its usual investigative processes. The OIO will be nervous of a repeat and the government is likely to direct it to exercise greater oversight than is currently the case.
Conclusion
As New Zealand approaches an election in 2017 the National government is likely to want to be seen to be policing foreign investment more strictly to appeal to the populist element in the New Zealand electorate. Whether this will ultimately result in a significant shift in New Zealand policy and regulation is yet to be seen, but more controls appear likely.