Policies Towards Foreign Direct Investment

Foreign investment in New Zealand is generally encouraged without discrimination.  New Zealand has an open and transparent economy, where businesses and investors can generally make commercial transactions with ease.  Successive governments accept that foreign investment is an important source of financing for New Zealand and a means to gain access to foreign technology, expertise, and global markets.  Some restrictions do apply in a few areas of critical interest including certain types of land, significant business assets, and fishing quotas. These restrictions are facilitated by a screening process conducted by the Overseas Investment Office (OIO), described in the next section.

New Zealand has a rapidly expanding network of bilateral investment treaties and free trade agreements that include investment components.  New Zealand also has a well-developed legal framework and regulatory system, and the judicial system is generally effective in enforcing property and contractual rights.  Investment disputes are rare, and there have been no major disputes in recent years involving U.S. companies.

The Labour Party-led government has embarked on a program of tighter screening of some forms of foreign investment.  It has also focused on different aspects of trade agreement negotiation compared with the previous government, such as an aversion to investor-state dispute settlement provisions, and moved to restrict the availability of permits for oil and gas exploration.  This will be discussed below in a later section.

Crown entity New Zealand Trade and Enterprise (NZTE) is New Zealand’s primary investment promotion agency.  In addition to its New Zealand central and regional presence, it has 40 international locations, including four offices in the United States.  Approximately half of the NZTE staff is based overseas. The NZTE offers to help investors develop their plans, access opportunities, and facilitate connections with New Zealand-based private sector advisors: https://www.nzte.govt.nz/investment-and-funding/how-we-help.  Once investors independently complete their negotiations, due diligence, and receive confirmation of their investment, the NZTE offers aftercare advice. The NZTE works to channel investment into regional areas of New Zealand to build capability and to promote opportunities outside of the country’s main cities. 

In recent years new visa categories were created for investors and for entrepreneurs, and measures introduced to allow foreign investors – under certain circumstances – to bid alongside New Zealand businesses for contestable government funding for research and innovation grants.  Most of the programs which are operated by NZTE, the Ministry of Business, Innovation, and Employment (MBIE), and Callaghan Innovation, provide support through skills and knowledge, or supporting innovative business ventures. Grants are available, but many are co-funded, requiring some investment by the business owner, and extra conditions apply to non-resident applicants.  For more see: https://www.business.govt.nz/how-to-grow/getting-government-grants/what-can-i-get-help-with/

The New Zealand-United States Council, established in 2001, is a non-partisan organization funded by business and the government.  It fosters a strong and mutually beneficial relationship between New Zealand and the United States through both government-to-government contacts, and business-to-business links.  The American Chamber of Commerce in Auckland provides a platform for New Zealand and U.S. businesses to network among themselves and with government agencies.

Limits on Foreign Control and Right to Private Ownership and Establishment

[Sectors:]

The New Zealand government does not discriminate against U.S. or other foreign investors in their rights to establish and own business enterprises.  It has placed separate limitations on foreign ownership of airline Air New Zealand and telecommunications provider Spark New Zealand (Spark).

Air New Zealand’s constitution requires that no person who is not a New Zealand national hold 10 percent or more of the voting rights without the consent of the Minister of Transport.  There must be between five and eight board directors, at least three of which must reside in New Zealand. In 2013 the government sold a partial stake in Air New Zealand reducing its equity interest from 73 percent to 53 percent.

Spark’s constitution requires at least half of its Board be New Zealand citizens, and at least one director must live in New Zealand.  It requires no person shall have a relevant interest in 10 percent or more of the voting shares without the consent of the Minister of Finance and the Spark Board, and no person who is not a New Zealand national can purchase a relevant interest in more than 49.9 percent of the total voting shares without approval from the Minister of Finance.  This telecommunications service obligation (TSO) – formerly known as the “Kiwishare obligation” – has been in operation since Spark’s privatization in 1990, and was motivated in part because of the vital emergency call service it provides. There are TSOs for charge-free local calling (provided by Spark and supported by Chorus), and for the services for deaf, hearing impaired, and speech impaired people (provided by Sprint International).

The establishment of telecommunications infrastructure provider Chorus resulted from a demerger of Spark in 2011.  Chorus owns most of the telephone infrastructure in New Zealand, and provides wholesale services to telecommunications retailers, including Spark.  The demerger freed Spark from the TSO, but obligated Chorus as a natural monopoly and infrastructure provider. To date the New Zealand government has granted approval to two private companies – in April 2012 and December 2017 – to exceed the 10 percent threshold, and increase their interest in Chorus up to 15 percent.

[National Security: TICSA]

New Zealand screens overseas investment mainly for economic reasons, but has legislation that outlines a framework to protect the national security of telecommunication networks.  The Telecommunications (Interception and Security) Act 2013 (TICSA) sets out the process for network operators to work with the Government Communications Security Bureau (GCSB) – in accordance with Section 7   – to prevent, sufficiently mitigate, or remove security risks arising from the design, build, or operation of public telecommunications networks; and interconnections to or between public telecommunications networks in New Zealand or with networks overseas.   In April 2019 the government signaled it would be considering a “national interest” restriction on foreign investment, when it issued a document for public consultation  .

[Economic Security: OIO]

New Zealand otherwise screens overseas investment to ensure quality investments are made that benefit New Zealand.  Failure to obtain consent before purchase can lead to significant financial penalties. The Overseas Investment Office (OIO) is responsible for screening foreign investment that falls within certain criteria specified in the Overseas Investment Act 2005. 

The OIO requires consent be obtained by overseas persons wishing to acquire or invest in significant business assets, sensitive land, farm land, or fishing quota, as defined below.

A “significant business asset” includes: acquiring 25 percent or more ownership or controlling interest in a New Zealand company with assets exceeding NZD 100 million (USD 68 million); establishing a business in New Zealand that will be operational more than 90 days per year and expected costs of establishing the business exceeds NZD 100 million; or acquiring business assets in New Zealand that exceed NZD 100 million. 

OIO consent is required for overseas investors to purchase “sensitive land” either directly or acquiring a controlling interest of 25 percent or more in a person who owns the land.  Non-residential sensitive land includes land that: is non-urban and exceeds five hectares (12.35 acres); is part of or adjoins the foreshore or seabed; exceeds 0.4 hectares (1 acre) and falls under of the Conservation Act of 1987 or it is land proposed for a reserve or public park; is subject to a Heritage Order, or is a historic or wahi tapu area (sacred Maori land); or is considered “special land” that is defined as including the foreshore, seabed, riverbed, or lakebed and must first be offered to the Crown.  If the Crown accepts the offer, the Crown can only acquire the part of the “sensitive land” that is “special land,” and can acquire it only if the overseas person completes the process for acquisition of the sensitive land.

The Waitangi Tribunal was established by the Treaty of Waitangi Act 1975 to hear Maori claims relating to the loss of land and resources as a result of historical breaches by the Crown of the Treaty of Waitangi signed in 1840.  Maori land claims may not be lodged relating to privately owned land and affect only land owned by the Crown. Some private land titles are noted with a memorial recording that the land, when Crown land, would be subject to a claim and therefore repurchased by the Crown for market value at some future time.  No land in New Zealand has to date been the subject of a repurchase decision.

Where a proposed acquisition involves “farm land” (land used principally for agricultural, horticultural, or pastoral purposes, or for the keeping of bees, poultry, or livestock), the OIO can only grant approval if the land is first advertised and offered on the open market in New Zealand to citizens and residents.  The Crown can waive this requirement in special circumstances at the discretion of the relevant Minister.

Commercial fishing in New Zealand is controlled by the Fisheries Act, which sets out a quota management system that prohibits commercial fishing of certain species without the ownership of a fishing quota which specifies the quantity of fish that may be taken.  OIO legislation together with the Fisheries Act, requires consent from the relevant Ministers in order for an overseas person to obtain an interest in a fishing quota, or an interest of 25 percent or more in a business that owns or controls a fishing quota.

For investments that require OIO screening, the investor must demonstrate in their application they meet the criteria for the “Investor Test” and the “Benefit to New Zealand test.” The former requires the investor to display the necessary business experience and acumen to manage the investment, demonstrate financial commitment to the investment, and be of “good character” meaning a person who would be eligible for a permit under New Zealand immigration law.

The “Benefit to New Zealand test” requires the OIO assess the investment against 21 factors, which are set out in the OIO Act and Regulations.  The OIO applies a counterfactual analysis to those benefit factors that are capable of having a counterfactual applied, the onus is upon the investor to consider the likely counterfactual if the overseas investment does not proceed.  Economic factors are given weighting, particularly if the investment will create new job opportunities, retain existing jobs, and lead to greater efficiency or productivity domestically.

For all four categories the threshold is higher for Australian investors.  Australian non-government investors are screened at NZD 530 million (USD 360 million) and Australian government investors at NZD 111 million (USD 75 million) for 2019, with both amounts reviewed each year in accordance with the 2013 Protocol on Investment to the New Zealand-Australia Closer Economic Relations Trade Agreement.  Separately, non-government investors from CPTPP countries face a screening threshold of NZD 200 million (USD 136 million).

The OIO Regulations set out the fee schedule for lodging new applications which can be costly, currently ranging between NZD 13,000 (USD 8,800) to NZD 54,000 (USD 36,700).  The Overseas Investment Act does not prescribe timeframes within which the OIO must make a decision on any consent applications, and current processing times regularly exceed six months.  In recent years some investors have abandoned their applications, and have been vocal in their frustration with costs and time frames involved in obtaining OIO consent.

The OIO monitors foreign investments after approval.  All consents are granted with reporting conditions, which are generally standard in nature.  Investors must report regularly on their compliance with the terms of the consent. Offenses include: defeating, evading, or circumventing the OIO Act; failure to comply with notices, requirements, or conditions; and making false or misleading statements or omissions.  If an offense has been committed under the Act, the High Court has the power to impose penalties, including monetary fines, ordering compliance, and ordering the disposal of the investor’s New Zealand holdings.

Other Investment Policy Reviews

New Zealand has not conducted an Investment Policy Review through the OECD or the United Nations Conference on Trade and Development (UNCTAD) in the past three years.  New Zealand’s last Trade Policy Review was in 2015 and the next will take place in 2021: https://www.wto.org/english/tratop_e/tpr_e/tp416_e.htm . 

Business Facilitation

The New Zealand government has shown a strong commitment to continue efforts to streamline business facilitation.  According to the World Bank’s Ease of Doing Business 2019 report New Zealand is ranked first in “Starting a Business,” “Registering Property,” “Getting Credit,” and is ranked second for “Protecting Minority Investors.”

There are no restrictions on the movement of funds into or out of New Zealand, or on the repatriation of profits.  No additional performance measures are imposed on foreign-owned enterprises, other than those that require OIO approval.  Overseas investors must adhere to the normal legislative business framework for New Zealand-based companies, which includes the Commerce Act 1986, the Companies Act 1993, the Financial Markets Conduct Act 2013, the Financial Reporting Act 2013, and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT).  The Contract and Commercial Law Act 2017 was passed to modernize and consolidate existing legislation underpinning contracts and commercial transactions. 

The tightening of anti-money laundering laws has impacted the cross-border movement of remittance orders from New Zealanders and migrant workers to the Pacific Islands.  Banks, non-bank institutions, and people in occupations that typically handle large amounts of cash, are required to collect additional information about their customers and report any suspicious transactions to the New Zealand Police.  If an entity is unable to comply with the AML/CFT in its dealings with a customer, it must not do business with that person. For banks this would mean not processing certain transactions, withdrawing the banking products and services it offers, and choosing not to have that person as a customer.  This has resulted in some banks charging higher fees for remittance services in order to reduce their exposure to risks, which has led to the forced closing of accounts held by some money transfer operators. Phase 1 sectors which include financial institutions, remitters, trust and company service providers, casinos, payment providers, and lenders have had to comply with the AML/CFT since 2013.  Under Phase 2 the AML/CFT was extended to lawyers, conveyancers from July 2018, accountants, and bookkeepers from October 2018, and realtors from January 2019.

In order to combat the increasing use of New Zealand shell companies for illegal activities, the Companies Amendment Act 2014 and the Limited Partnerships Amendment Act 2014 introduced new requirements for companies registering in New Zealand.  Companies must have at least one director that either lives in New Zealand, or lives in Australia and is a director of a company incorporated in Australia. New companies incorporated must provide the date and place of birth of all directors, and provide details of any ultimate holding company.  The Acts introduced offences for serious misconduct by directors that results in serious losses to the company or its creditors, and aligns the company reconstruction provisions in the Companies Act with the Takeovers Act 1993 and the Takeovers Code Approval Order 2000.

The Companies Office holds an overseas business-related register, and provides that information to persons in New Zealand who intend to deal with the company or to creditors in New Zealand.  The information provided includes where and when the company was incorporated, if there is any restriction on its ability to trade contained in its constitutional documents, names of the directors, its principal place of business in New Zealand, and where and on whom documents can be served in New Zealand.  For further information on how overseas companies can register in New Zealand: https://www.companiesoffice.govt.nz/companies/learn-about/starting-a-company/register-an-overseas-company-other 

The New Zealand Business Number (NZBN) Act 2016 allows the allocation of unique identifiers to eligible entities to enable them to conduct business more efficiently, interact more easily with the government, and to protect the entity’s security and confidentiality of information.  All companies registered in New Zealand have had NZBNs since 2013, and are also available to other types of businesses such as sole traders and partnerships.

Tax registration is recommended when the investor incorporates the company with the Companies Office, but is required if the company is registering as an employer and if it intends to register for New Zealand’s consumption tax, the Goods and Services Tax (GST), which is currently 15 percent.  Companies importing into New Zealand or exporting to other countries which have a turnover exceeding NZD 60,000 (USD 40,800) over a 12-month period, or expect to pass NZD 60,000 in the next 12 months, must register for GST. Non-resident businesses that conduct a taxable activity supplying goods or services in New Zealand and make taxable supplies in New Zealand, must register for GST:  https://www.ird.govt.nz/index/all-tasks. From 2014, non-resident businesses that do not make taxable supplies in New Zealand have been able to claim GST if they meet certain criteria  . 

To comply with GST registration, overseas companies need two pieces of evidence to prove their customer is a resident in New Zealand, such as their billing address or IP address, and a GST return must be filed every quarter even if the company does not make any sales.

In 2016 mandatory GST registration was extended to non-resident suppliers of “remote services” to New Zealand customers, if they meet the NZD 60,000 annual sales threshold.  In 2018, the government introduced legislation that if enacted, will require non-resident suppliers of low-value import goods to register for GST, if they meet the NZD 60,000 annual sales threshold.  Both are discussed in a later section.

Outward Investment

The New Zealand government does not place restrictions on domestic investors to invest abroad.

NZTE is the government’s international business development agency.  It promotes outward investment and provides resources and services for New Zealand businesses to prepare for export and advice on how to grow internationally.  The Ministry of Foreign Affairs and Trade (MFAT) and Customs New Zealand each operates business outreach programs that advise businesses on how to maximize the benefit from FTAs to improve the competitiveness of their goods offshore, and provides information on how to meet requirements such as rules of origin.

New Zealand currently has signed bilateral investment treaties (BITs) with four partners: Argentina (August 1999), Chile (July 1999), China (November 1988), and Hong Kong (July 1995), but only the BITs with China and Hong Kong have entered into force.  Besides these treaties, the country has concluded a number of economic agreements that also contain provisions on investment.

New Zealand has a Trade and Investment Framework Agreement with the United States that entered into force on October 2, 1992.  In July 2018 New Zealand and the United States resumed meetings under the Trade and Investment Framework Agreement (TIFA), which had been suspended after the United States entered negotiations for the Trans-Pacific Partnership (TPP) in 2008:  https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/july/united-states-and-new-zealand-meet.

New Zealand and Australia trade through a Closer Economic Relationship (CER), which is a free trade agreement eliminating all tariffs between the two countries.  However, the rules of origin under the CER do not permit products to enter Australia duty free from New Zealand unless the products are of at least 50 percent New Zealand origin.  Additionally, the last manufacturing process must be carried out in New Zealand. The enactment of the Free Trade Agreement (FTA) between Australia and the United States on January 1, 2005, removed any tariff disadvantage to U.S. firms that choose to re-export products from New Zealand to Australia.

New Zealand concluded a Closer Economic Partnership (CEP) agreement with Singapore that entered into force on January 1, 2001.  Negotiations to upgrade the agreement were concluded in November 2018. 

New Zealand concluded a CEP agreement with Thailand that entered into force on July 1, 2005.  The FTA contains a specific chapter on investment.

New Zealand has a Trade and Investment Framework Agreement with Mexico that entered into force on October 21, 1996.

New Zealand concluded an FTA with China that entered into force on October 1, 2008.  The FTA contains a specific chapter on investment. In November 2016, an agreement was reached to launch negotiations upgrade the agreement.  There have been six rounds of negotiations to date.

New Zealand and Malaysia signed an FTA that entered into force on August 1, 2010.  The FTA contains a specific chapter on investment.

New Zealand concluded a CEP with Hong Kong, which entered into force on January 1, 2011.

New Zealand has an agreement on Economic Cooperation with the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, which entered into force on December 1, 2013.  The agreement established rules between the two countries based on international best practice to facilitate investment flows and provide for the balanced protection of investment.

An FTA between New Zealand, Australia, and the Association of South East Asian Nations (ASEAN) entered into force January 1, 2010.  The FTA contains a specific chapter on investment.

New Zealand has an FTA with the Republic of Korea that entered into force December 20, 2015.  The FTA contains a specific chapter on investment.

New Zealand signed the Trans-Pacific Strategic Economic Partnership Agreement (the P4 Agreement) with Brunei, Chile, and Singapore that entered into force on May 28, 2006.

New Zealand concluded work on an FTA with the Gulf Cooperation Council (GCC) on October 31, 2009, but the agreement has not yet been signed.

New Zealand signed the Pacific Agreement on Closer Economic Relations Agreement (PACER Plus) with Australia, Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Nauru, Niue, Palau, Papua New Guinea, Republic of Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu on June 14, 2017.

New Zealand signed the Anti-Counterfeiting Trade Agreement (ACTA) on October 1, 2011.  The United States, Australia, Canada, the European Union, Japan, Korea, Morocco, Mexico, Singapore and Switzerland have also signed.  The ACTA requires ratification by six signatories and the New Zealand government’s consideration whether to ratify ACTA remains on hold.  New Zealand is also a party in negotiations for the Trade in Services Agreement (TiSA), and in January 2019 announced its intention to participate in negotiations to establish global e-commerce trade rules with other World Trade Organization (WTO) members. 

New Zealand reached agreement with the European Union (EU) to enter negotiations in October 2015.  Negotiations were launched in June 2018 and a second round was held in October. New Zealand has indicated progress on the FTA will continue without the United Kingdom after it leaves the European Union.

Negotiations continue for a bilateral FTA with India.  However negotiations for a Russia-Belarus-Kazakhstan FTA were suspended in May 2014.

In June 2017, New Zealand launched negotiations with the countries of the Pacific Alliance, including Chile, Colombia, Mexico, and Peru.  There have been six rounds of negotiations to date.

New Zealand joined the Regional Comprehensive Economic Partnership (RCEP), launched at the East Asia Summit in November 2012.  The RCEP covers 16 countries: the ten members of ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and the six countries with which ASEAN has existing FTAs – Australia, China, India, Japan, Korea, and New Zealand.  There have been 25 rounds of negotiations to date.

In 2018 New Zealand signed and ratified the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) which entered into force on December 30, 2018 after it was ratified by six countries.  The CPTPP covers 11 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

New Zealand has 40 bilateral income tax treaties and 19 information exchange agreements currently in force.  The Convention between the United States of America and New Zealand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed in 1982 was replaced by a new treaty signed in December 2008, which came into force on November 12, 2010.  New Zealand (NZ) has an intergovernmental agreement with the United States for their Foreign Account Tax Compliance Act (FATCA), which entered into force on July 3, 2014.

In 2017, there were two rulings from the New Zealand Court of Appeal and the New Zealand High Court after cases were brought regarding the correct interpretation of New Zealand’s double tax agreements (DTAs).  A Court of Appeal decision (on the NZ-China DTA) ruled DTAs should be treated in the same manner as private contracts, rather than considering the international context and purposes of such treaties, in accordance with previous local and international rulings.  In another case that went to the Supreme Court and back, the High Court ruled against the Inland Revenue Department (IRD) Commissioner for issuing information product notices to a tax agent that were found to be “not necessary” as specified in the (NZ-Korea) DTA.

In April 2019 an update to the existing NZ-China DTA was signed.  The new agreement when in force updates the original 1986 agreement to provide clarity on the tax treatment of investment flows, include measures to prevent base erosion and profit shifting (BEPS), lower withholding taxes, and clarify methods to prevent double taxation:  http://taxpolicy.ird.govt.nz/tax-treaties/china.

In August 2018, an update to the NZ-Hong Kong DTA entered into force.  The amendment updates the original 2010 agreement to bring it in line with the majority of New Zealand’s other DTAs by enabling the automatic exchange of information (AEOI) between the two tax jurisdictions.  The AEOI initiative is an international response to combat off-shore tax evasion.

New Zealand is a party to the OECD’s Convention on Mutual Administrative Assistance in Tax Matters, and to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit-Shifting (MLI).  In August 2018 New Zealand completed its treaty examination process and ratified the MLI which allows New Zealand to adjust its existing DTAs with other participating countries rather than renegotiate each DTA individually from October 1, 2018. 

In June 2018, Parliament passed the Taxation (Neutralizing Base Erosion and Profit Shifting) Act, referred to as the “BEPS Tax Act.”  The Act is intended to address the ability of firms with presences in multiple countries from using (1) artificially high interest rates on loans from related parties to shift profits out of New Zealand (interest limitation rules); (2) artificial arrangements to avoid having a taxable presence in New Zealand; (3) transfer pricing payments to shift profits into their offshore group members that does not reflect the actual economic activities undertaken in New Zealand; and (4) hybrid and branch mismatches that exploit differences between countries’ tax rules to achieve an advantageous tax position.  The BEPS Tax Act also enhances the IRD’s ability to extract information from multinational firms held overseas to prevent firms from obstructing investigation through non-cooperation, and retains the discretion to fine firms for failing to comply with a request for information.

In February 2019, following consultation with the IRD, the government announced they will begin work to introduce a digital services tax and will issue a discussion document in May.  The government said the tax will be an interim measure while the OECD continues to work on an internationally agreed solution on how to include the digital economy within countries’ tax frameworks.  The value of cross-border digital services in New Zealand is estimated to be around NZD 2.7 billion (USD 1.8 billion). The tax would be between 2-3 percent on the revenue of multinational online companies’ generated from sales in New Zealand and could be enacted as early as 2020.

The Tax Working Group, which was an independent advisory body established by the government soon after it was elected in late 2017, released its final report in February 2019.  The group made 99 recommendations to overhaul New Zealand’s tax system, including the introduction of a capital gains tax on profits made from the sale of assets, excluding the family home and personal items such as cars, boats and art.  The Government ruled out implementing any of the recommendations before 2021 after the next general election in late 2020. In April 2019, the Labour party and previous party leaders campaigned on introducing a capital gains tax in general elections.  Historically, coalition partner New Zealand First has been opposed to such a tax.

In 2016 mandatory GST registration was extended to non-resident suppliers of cross-border remote services and digital downloads under the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Act.  It requires offshore suppliers to register and return GST if their taxable supplies to New Zealand exceed – or are expected to exceed – NZD 60,000 (USD 40,800) in a 12-month period. The IRD defines qualifying remote services including: e-books, movies and TV shows, online newspaper subscriptions, online supplies of games and software, webinars or distance learning courses, insurance services, gambling services, web design services, legal, accounting or consultancy services:  https://www.ird.govt.nz/index/all-tasks. Separate conditions apply to cross-border suppliers of telecommunication services.

In response to New Zealand retailers’ claims of a competitive disadvantage resulting from the high volume of low-value imported goods purchased online by New Zealand consumers, the government introduced a bill to Parliament in December 2018 that – if enacted – would require non-resident suppliers of low-value goods to register with IRD and collect GST at the point of sale.  Currently online purchases by New Zealand customers with a value of more than NZD 400 (USD 272) have GST and tariff duty collected at the border by Customs New Zealand. The bill would require non-resident suppliers of goods with sales to New Zealand customers that exceed or are expected to exceed NZD 60,000 in a 12-month period to charge GST on goods bought by a New Zealand customer that value NZD 1,000 (USD 680) or below, from October 1, 2019.  Customs New Zealand would retain the responsibility to collect GST on goods valued at more than NZD 1,000. The Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill will have its Select Committee report due June 11, 2019: https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_82431/taxation-annual-rates-for-2019-20-gst-offshore-supplier.

As mentioned in the previous section, GST registration requires the overseas company to: provide two pieces of evidence to prove the customer is a resident in New Zealand, such as their billing address or IP address, and file a GST return every quarter even if the company does not make any sales.

Transparency of the Regulatory System

The New Zealand government policies and laws governing competition are transparent, non-discriminatory, and consistent with international norms.  New Zealand ranks high on the World Bank’s Global Indicators of Regulatory Governance, scoring 4.25 out of a possible 5, but is marked down in part for a lack of transparency in departments’ individual forward regulatory plans, and the development of the government’s annual legislative program (for primary laws), for which the Ministers responsible do not make public. 

While regulations are not in a centralized location in a form similar to the United States Federal Register, the New Zealand government requires the major regulatory departments to publish an annual regulatory stewardship strategy.

Draft bills and regulations including those relating to FTAs and investment law, are generally made available for public comment, through a public consultation process.  In a few instances there has been criticism of New Zealand governments choosing: following a “truncated” or shortened public consultation process or adding a substantive legislative change after public consultation through the process of adding a Supplementary Order Paper to the Bill. 

The Regulatory Quality Team within the New Zealand Treasury is responsible for the strategic coordination of the Government’s regulatory management system.  Treasury exercises stewardship over the regulatory management system to maintain and enhance the quality of government-initiated regulation. The Treasury’s responsibilities include the oversight of the performance of the regulatory management system as a whole and making recommendations on changes to government and Parliamentary systems and processes.  These functions complement the Treasury’s role as the government’s primary economic and fiscal advisor. New Zealand’s seven major regulatory departments are the Department of Internal Affairs, IRD, MBIE, Ministry for the Environment, Ministry of Justice, the Ministry for Primary Industries, and the Ministry of Transport. 

In recent years there has been a revision to the Regulatory Impact Assessment (RIA) requirements in order to help New Zealand’s regulatory framework keep up with global standards.  To improve transparency in the regulatory process, RIAs are published on the Treasury’s website at the time the relevant bill is introduced to Parliament or the regulation is gazetted, or at the time of Ministerial release.  A RIA provides a high-level summary of the problem being addressed, the options and their associated costs and benefits, the consultation undertaken, and the proposed arrangements for implementation and review.

MBIE is responsible for the stewardship of 16 regulatory systems covering about 140 statutes.  In 2018 the government introduced three omnibus bills that contain amendments to legislation administered by MBIE, including economic development, employment relations, and housing:  https://www.mbie.govt.nz/cross-government-functions/regulatory-stewardship/regulatory-systems-amendment-bills/. The government’s objective with this package of Regulatory Systems Amendment Bills is to ensure that they are effective, efficient, and accord with best regulatory practice by providing a process for making continuous improvements to regulatory systems that do not warrant standalone bills. 

The vast majority of standards are developed through Standards New Zealand, which is a business unit within MBIE, operating on a cost-recovery basis rather than a membership subscription service as previously.  The Standards and Accreditation Act 2015 set out the role and function of the Standards Approval Board which commenced from March 2016. The majority of standards in New Zealand are set in coordination with Australia.

The Resource Management Act 1991 (RMA) has drawn criticism from both foreign and domestic investors as a barrier to investment in New Zealand.  The RMA regulates access to natural and physical resources such as land and water. Critics contend that the resource management process mandated by the law is unpredictable, protracted, and subject to undue influence from competitors and lobby groups.  In some cases companies have been found to exploit the RMA’s objections submission process to stifle competition. Investors have raised concerns that the law is unequally applied between jurisdictions because of the lack of implementing guidelines. The Resource Management Amendment Act 2013 and the Resource Management (Simplifying and Streamlining) Amendment Act 2009 were passed to help address these concerns.

The Resource Legislation Amendment Act 2017 (RLAA) is considered the most comprehensive set of reforms to the RMA.  It contains almost 40 amendments and makes significant changes to five different Acts including the RMA, the Conservation Act 1986, Reserves Act 1977, Public Works Act 1981, and the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2013.  Broadly, the RLAA attempts to balance environmental management with the need to increase capacity for housing development. It also aims to align resource consent processes in a consistent manner among New Zealand’s 78 local councils, by providing a stronger national direction, a more responsive planning process, and improved consistency with other legislation.

The Public Works Act (PWA) 1981 enables the Crown to acquire land for public works by agreement or compulsory acquisition and prescribes landowner compensation.  New Zealand continues to face a significant demand for large-scale infrastructure works and the PWA is designed to ensure project delivery and enable infrastructure development.  Compulsory acquisition is exercised only after an acquiring authority has made all reasonable endeavors to negotiate in good faith the sale and purchase of the owner’s land, without reaching an agreement.  The land owner retains the right to have their objection heard by the Environment Court, but only in relation to the taking of the land, not to the amount of compensation payable. The RLAA amendment to the PWA aims to improve the efficiency and fairness of the compensation, land acquisition, and Environment Court objection provisions.

The Land Transfer Act came into force in November 2018.  It aims to simplify and modernize the law to make it more accessible and to improve certainty of property rights.  It empowers courts with limited discretion to restore a landowner’s registered title in cases of manifest injustice.

New Zealand enhanced its accountability and transparency by joining the Open Government Partnership in 2014.  Some of the 12 areas of commitment outlined in New Zealand’s third National Action Plan 2018-2020 include: make New Zealand’s secondary legislation readily accessible, public participation in policy development, and increase the visibility of government’s data stewardship:  http://ogp.org.nz/new-zealands-plan/third-national-action-plan-2018-2020/. In March 2018, New Zealand signed the Open Data Charter, which has been adopted by 69 governments. Statistics New Zealand is responsible for the management of the Government’s Open Government Information and Data Program:  https://www.data.govt.nz/open-data/open-government-data-programme/open-data-nz/. 

The Official Information Act 1982 (OIA) enables people to request official information held by Ministers and specified government agencies.  It contains rules on how such requests be handled and provides a right to complain to the Ombudsman in certain situations. The Office of the Ombudsman, the Ministry of Justice and, more recently, the State Services Commission provide guidance to help improve agencies’ performance on OIA practice and reporting on their compliance with the OIA.

The government is determining whether a full review of the OIA is needed by conducting a targeted engagement facilitated by the Ministry of Justice.  A public consultation process is open for a six week period in early 2019. This is in response to criticism of the government’s failure to be fully transparent on the performance of departments responding to OIA requests within the 20-working day deadline, with requests to the NZ Police (who receive about one-third of all OIA requests) being excluded from statistics reported by the State Services Commission (SSC).  In the last six months of 2018, NZ Police and the Earthquake Commission were responsible for more than half of all late OIA responses. The SSC also removes NZ Defense Force requests from the reporting statistics. In addition to timeliness, quality was found to be an issue in a media investigation that found of the 723 complaints to the Ombudsman during the same six months, only one fifth related to delays, more than half (51 per cent) of complaints related to requests being partially or fully refused:  https://www.stuff.co.nz/national/111181806/redacted–our-official-information-problems-and-how-to-fix-them.

The Government of New Zealand is generally transparent about its public finances and debt obligations.  The annual budget for the government and its departments publish assumptions, and implications of explicit and contingent liabilities on estimated government revenue and spending.

International Regulatory Considerations

In recent years the Government of New Zealand has introduced laws to enhance regulatory coordination with Australia as part of their Single Economic Market agenda agreed to in 2009.  In February 2017 the Patents (Trans-Tasman Patent Attorneys and Other Matters) Amendment Act took effect creating a single body to regulate patent attorneys in both countries. Other areas of regulatory coordination include insolvency law, financial reporting, food safety, competition policy, consumer policy and the 2013 Trans-Tasman Court Proceedings and Regulatory Enforcement Treaty, which allows the enforcement of civil judgements between both countries. 

New Zealand Medicines and Medical Devices Safety Authority (Medsafe), a business unit within the Ministry of Health, rules on applications for consent to distribute new and changed medicines and therapeutic products in New Zealand.  In their guidelines, Medsafe advises applicants that the technical data requirements applying in New Zealand are closely aligned with those currently applying in the European Union: https://medsafe.govt.nz/regulatory/current-guidelines.asp.  Medsafe also recognizes the technical guidelines published by the United States Food and Drug Administration (FDA). When guidelines issued by the International Conference on Harmonization, or the Committee for Proprietary Medicinal Products, or the FDA are formally adopted and come into force in the EU or the United States, then they are recognized by Medsafe.  While there is substantial harmonization between New Zealand and Australia for requirements showing evidence of the quality, safety and efficacy of medicines, there are Australian-specific requirements for some aspects of the quality control and stability data that are not relevant to New Zealand.

The Privacy Bill – if enacted – aims to bring New Zealand privacy law into line with international best practice, including the 2013 OECD Privacy Guidelines and the European General Data Protection Regulation (GDPR).

In 2016 the Financial Markets Authority issued two notices, the Disclosure Using Overseas Generally Accepted Accounting Principles (GAAP) Exemption and the Overseas Registered Banks and Licensed Insurers Exemption Notice, which ease compliance costs on overseas entities by allowing them under certain circumstances to use United States statutory accounting principles (overseas GAAP) rather than New Zealand GAAP, and the opportunity to use an overseas approved auditor rather than require a New Zealand qualified auditor.

In 2019, the government introduced the Financial Markets (Derivatives Margin and Benchmarking) Reform Amendment Bill to Parliament to better align New Zealand’s financial markets law with new international regulations, to help strengthen the resilience of global financial markets.  If enacted, the bill will help financial institutions maintain access to offshore funding markets and help ensure institutions – that rely on derivatives to hedge against currency and other risks – can invest and raise funds efficiently.

New Zealand is a Party to WTO Agreement on Technical Barriers to Trade (TBT).  Standards New Zealand is responsible for operating the TBT Enquiry Point on behalf of MFAT.  From 2016, Standards New Zealand became a business unit within MBIE administered under the Standards and Accreditation Act 2015.  Standards New Zealand establishes techniques and processes built from requirements under the Act and from the International Organization for Standardization.

The Standards New Zealand TBT Enquiry Point operates as a service for producers and exporters to search for proposed TBT Notifications and associated documents such as draft or actual regulations or standards.  They also provide contact details for the Trade Negotiations Division of MFAT to respond to businesses concerned about proposed measures. https://www.standards.govt.nz/international-engagement/technical-barriers-to-trade/  

In 2017 the government established a website to provide a centralized point of contact for businesses to access information and support on non-tariff trade barriers (NTB).  The online portal allows exporters to report issues, seek government advice and assistance with NTBs and other export issues. Exporters can confidentially register a trade barrier, and the website serves to track and trace the assignment and resolution across agencies on their behalf.  It also provides the government with an accurate and timely report of NTBs and other trade issues encountered by exporters, and involves the participation of Customs, MFAT, MPI, MBIE, and NZTE. https://tradebarriers.govt.nz/  

New Zealand ratified the WTO Trade Facilitation Agreement (TFA) in September 2015 and entered into force in February 2017.  New Zealand was already largely in compliance with the TFA which is expected to benefit New Zealand agricultural exporters and importers of perishable items to enhanced procedures for border clearances.

Legal System and Judicial Independence

New Zealand’s legal system is derived from the English system and comes from a mix of common law and statute law.  The judicial system is independent of the executive branch and is generally open, transparent, and effective in enforcing property and contractual rights.  The highest appeals court is a domestic Supreme Court, which replaced the Privy Council in London and began hearing cases July 1, 2004. New Zealand courts can recognize and enforce a judgment of a foreign court if the foreign court is considered to have exercised proper jurisdiction over the defendant according to private international law rules.  New Zealand has well defined and consistently applied commercial and bankruptcy laws. Arbitration is a widely used dispute resolution mechanism and is governed by the Arbitration Act of 1996, Arbitration (Foreign Agreements and Awards) Act of 1982, and the Arbitration (International Investment Disputes) Act 1979.

In 2016, the omnibus Judicature Modernization Bill was passed to improve and consolidate older pieces of legislation governing the New Zealand court system.  The legislation enables the sharing of court information, the establishment of a new judicial panel to hear certain commercial cases, increases the monetary limit of the District Court’s civil jurisdiction, and improves accessibility to final written judgments by publishing them online.

In 2018, the government continued efforts to modernize and improve the efficiency of the courts and tribunals system, by passing the Court Matters Bill and the Tribunal Powers and Procedures Legislation Bill.  Legislation to modernize and consolidate laws underpinning contracts and commercial transactions came into effect on September 1, 2017. The Contract and Commercial Law Act 2017 consolidates and repeals 12 acts that date between 1908 and 2002.  The Private International Law (Choice of Law in Tort) Act, passed in December 2017, clarifies which jurisdiction’s law is applicable in actions of tort and abolishes certain common law rules, and establishes the general rule that the applicable law will be the law of the country in which the events constituting the tort in question occur.

Laws and Regulations on Foreign Direct Investment

Overseas investments in New Zealand assets are screened only if they are defined as sensitive within the Overseas Investment Act 2005, as mentioned in the previous section.  The OIO, a dedicated unit located within Land Information New Zealand (LINZ), administers the Act. The Overseas Investment Regulations 2005 set out the criteria for assessing applications, provide the framework for applicable fees, and whether the investment will benefit New Zealand.  Ministerial Directive Letters are issued by the Government to instruct the OIO on their general policy approach, their functions, powers, and duties as regulator. Letters have been issued in December 2010 and November 2017. Substantive changes, such as inclusion of another asset type within “sensitive land,” requires a legislative amendment to the Act. 

The government ministers for finance, land information, and primary industries (where applicable) are responsible for assessing OIO recommendations and can choose to override OIO recommendations on approved applications.  Ministers’ decisions on OIO applications can be appealed by the applicant in the New Zealand High Court. For more see: http://www.linz.govt.nz/regulatory/overseas-investment

In situations where New Zealand companies are acquiring capital injections from overseas investors that require OIO approval, they must meet certain criteria regarding disclosure to shareholders and fulfil other responsibilities under the Companies Act 1993.  Failure to do so can affect the overseas company’s application process with the OIO.

The OIO Act allows for instances when Ministers may confer a discretionary exemption from the requirement to seek OIO consent.  Section 61D is sufficiently broad to enable Ministers to exercise their exemption power for unexpected or unusual circumstances that may not otherwise be provided for:  http://legislation.govt.nz/act/public/2005/0082/latest/LMS112019.html . Overseas persons seeking an exemption must contact the OIO before submitting their application.

The LINZ website reports on enforcement actions they have taken against foreign investors, including the number of compliance letters issued, the number of warnings and their circumstances, referrals to professional conduct body in relation to an OIO breach, and disposal of investments:  https://www.linz.govt.nz/overseas-investment/enforcement/enforcement-action-taken .

The government has made several changes to regulations and legislation governing foreign investment over the past year, and has signaled further changes by issuing a discussion document for public consultation. 

In December 2017, the government introduced regulatory changes that place greater emphasis on the assessment of significant economic benefits to New Zealand.  For forestry investments, the OIO is required to place importance on investments that result in increased domestic processing of wood and advance government strategies.  For rural land, importance is placed on the generation of economic benefits which were previously seldom applied for lifestyle rural property purchases that previously relied on non-economic benefits to gain OIO approval.

In addition to placing emphasis on economic benefits, the government issued new rules that reduced the area threshold for foreign purchases of rural land so that approval is required for rural land of an area over five hectares, rather than the previous metric of farm land “more than ten times the average farm size,” which was about 7,146 hectares for sheep and beef farms, and 1,987 hectares for dairy farms.  Foreign investors can still purchase rural land less than five hectares but the government said it intends to introduce other measures to discourage “land bankers,” or investors holding onto land for speculative purposes. In its final report the Tax Working Group recommended a land tax to be levied by councils as a local tax. A feasibility report is expected in November 2019.

In the same Directive Letter from December 2017, the government issued new rules that overseas investors intending to reside in New Zealand, move within 12 months and become ordinarily resident within 24 months.

[OIO: Residential Property Land:]

As part of the government’s policy to improve housing affordability and reduce speculative behavior in the housing market, the Overseas Investment Amendment Act passed in August 2018 to bring residential land within the category of “sensitive land.” Residential land is defined as land that has a category of residential or lifestyle within the relevant district valuation roll; and includes a residential flat (apartment) in a building owned by a flat-owning company which could be on residential or non-residential land. 

From October 2018 the Overseas Investment Act generally requires persons who are not ordinarily resident in New Zealand to get OIO consent to purchase residential homes on residential land.  Australian and Singaporean citizens are exempt due to existing bilateral trade agreements. To avoid breaching the Act, contracts to purchase residential land must be conditional on getting consent under the Act – entering into an unconditional contract will breach the Act.  All purchasers of residential land (including New Zealanders) will need to complete a statement confirming whether the Act applies, and solicitors/conveyancers cannot lodge land transfer documents without that statement. The government introduced a standing consent for qualifying overseas purchasers who may be granted pre-approval in advance of finding a specific property to buy.  A standing consent cannot be used for land that is sensitive for another reason such as land that adjoins a reserve. 

Overseas persons wishing to purchase one home on residential land will need to fulfil a “commitment to reside test.”  Applicants must hold the appropriate non-temporary visa (those on student visas, work visas, or visitor visas cannot apply), have lived in New Zealand for the immediate preceding 12 months and intend to reside in the property being purchased.  If the applicant stops living in New Zealand they will have to sell the property: https://www.linz.govt.nz/overseas-investment/information-for-buying-or-building-one-home-live . 

OIO applicants not intending to reside will generally need to show: (1) they will convert the land to another use such as a business and are able to demonstrate this would have wider benefits to New Zealand; or (2) they will be developing the land and adding to New Zealand’s housing supply.  Applicants seeking approval under the latter – the “increased housing test” – must intend to increase the number of dwellings on the property by one or more, and they cannot live in the dwelling/s once built (the “non-occupation condition”). If approved, applicants must also on-sell the dwelling/s, unless they are building 20 or more new residential dwellings and they intend to provide a shared equity, rent-to-buy, or rental arrangement (the “on-sale condition”).

The amended Act also imposes restrictions on overseas persons buying into new residential property developments.  Where pre-sales of the new residential dwellings are an essential aspect of the development funding, overseas purchasers may be able to rely on the “increased housing” test, although they will be subject to the on-sale and non-occupation conditions.  Otherwise, individual purchasers must apply for OIO consent and meet the “commitment to reside test,” or make their purchase conditional on receiving an “exemption certificate” held by an apartment developer. 

According to the OIO Regulations, developers can apply for an exemption certificate allowing them to sell 60 percent of the apartments “off the plan” to overseas buyers without those buyers requiring OIO consent:  http://legislation.govt.nz/regulation/public/2005/0220/latest/LMS109607.html . The overseas buyer would not have to fulfil the on-sale condition but will have to meet the non-occupation condition. A purchaser wishing to buy an apartment to which the exemption certificate does not apply, must apply for consent and if approved comply with the on-sale and non-occupation conditions according to Schedule 3 Section 4 (5) under the OIO Act:  http://legislation.govt.nz/act/public/2005/0082/latest/LMS111210.html  .

Ministers may exercise discretion to waive the on-sale condition if an overseas person is applying for consent to acquire an ownership interest in an entity that holds residential land in New Zealand, if the overseas person is acquiring less than a 50 percent ownership interest or if they are acquiring an indirect ownership interest (i.e.  through another entity). Exemptions can also apply for long-term accommodation facilities, hotel lease-back arrangements, retirement village developments, and for network utility companies needing to acquire residential land to provide essential services.

[OIO: Forestry]

The elected government in 2017 indicated that forestry would be a priority in boosting regional development, and introduced it as its own portfolio:  https://www.beehive.govt.nz/portfolio/labour-led-government-2017-2020/forestry . The government also included the Forest Land directive as mentioned in the previous page.

In March 2018, the government announced forestry cutting rights be brought into the OIO screening regime, similar to the screening of investments that exists for leasehold and freehold forestry land.  In the OIO Amendment Act passed in August 2018, forestry rights and residential land, were brought in under the asset class of sensitive land: http://legislation.govt.nz/act/public/2018/0025/latest/DLM7512906.html .  Overseas investors wanting to purchase up to 1,000 hectares of forestry rights per year or any forestry right of less than three years duration, do not generally require OIO approval. 

Overseas investors can apply for consent to buy or lease land that is in forestry, or land to be used for forestry, or to buy forestry rights.  In addition to meeting the “benefit to New Zealand test”, applicants have two other options if they wish to buy or lease land for forestry purposes (including converting farmland to forestry) or purchase forestry rights, the Special Forestry Test, and the Modified benefits test. 

The Special Forestry Test is the most streamlined test, and is used to buy forestry land and continue to operate it with existing arrangements remaining in place, such as public access, protection of habitat for indigenous plants and animals, and historic places, as well as log supply arrangements.  The investor would be required to replant after harvest, unless exempted, and use the land exclusively or nearly exclusively for forestry activities. The land can be used for accommodation only to support forestry activities.

The modified benefits test is suitable for investors who will use the land only for forestry activities, but cannot maintain existing arrangements relating to the land, such as public access.  The investor would need to pass the “benefit to New Zealand” test, replant after harvest, and use the land exclusively or nearly exclusively for forestry activities. 

[OIO Phase 2: Monopolies]

In April 2019 the government signaled it would be considering a “national interest” restriction on foreign investment, when it issued a document for public consultation:  https://treasury.govt.nz/publications/consultation/glance-overseas-investment-new-zealand . The rules would increase ministers’ ability to decline applications from foreign investors wanting to buy New Zealand assets, on the grounds of national security.  The government said they were mainly focusing the level of discretion on blocking the sale of large pieces of infrastructure that had “monopoly characteristics” and that were important to the functioning of the wider economy, on “national interest” grounds.  Public consultations will take place in 2019 and the government plans to pass any changes to the law it decides on in 2020. 

[OIO Phase 2: Water Bottling]

After campaigning in the general election on introducing a “water tax,” the government announced in April 2019 as part of its second phase of the overseas investment review whether more consideration be given to the regulations around planned water extraction or bottling on environmental, economic, and cultural wellbeing.  There has been concern about the extraction of water, particularly for water bottling for export, and the profit that overseas companies gain from a high-value resource without paying a charge. Water bottling is a small industry in New Zealand, accounting for less than 0.02 percent of total New Zealand water use in 2016. Currently, only a small proportion of water bottled is for export purposes, with the majority of consumption occurring within New Zealand.  The consultation document outlines two options to regulate water bottling for export.

[Non-OIO: Bright Line Test for Residential Investment:]

Outside of the OIO framework, the previous government passed the Taxation (Bright-line Test for Residential Land) Bill.  Under this Act, properties bought after October 1, 2015 will accrue tax on any gain earned if the house is bought and sold within two years, unless it is the owner’s main home.  The bill requires foreign purchasers to have both a New Zealand bank account and an IRD tax number, and will not be entitled to the “main home” exception. The purchaser will also need to submit other taxpayer identification number held in countries where they pay tax on income.  To assist the IRD in ensuring investors meet their tax obligations, legislation was passed in 2016 that empowered LINZ to collect additional information when residential property is bought and sold, and to pass this information to the IRD.

In March 2018, the new government passed legislation to extend the “bright-line test” from two to five years as a measure to further deter property speculation in the New Zealand housing market.

[Non-OIO: Oil and Gas Ban:]

In the Energy and Mining sector the government passed the Crown Minerals (Petroleum) Amendment Act in November 2018, to restrict the acreage available for new oil and gas exploration permits to the onshore Taranaki region only.  The policy is part of the government’s efforts to transition away from fossil fuels, and achieve their goal to have net zero emissions by 2050. The annual Oil and Gas Block Offers program has been operational since 2012 as a means to raise New Zealand’s profile among international investors in the allocation of petroleum exploration permits. 

There are currently about 20 offshore permits covering 38,000 square miles that will have the same rights and privileges as before the law came into force, and will continue operation until 2030.  If those permit holders are successful in their exploration, the companies could extract oil and gas from the areas beyond 2030. The ban does not cover the Taranaki area onland, where exploration licenses will still be available for the next three years.

The government estimates there is ten years’ worth of gas to be explored or mined under consented reserves, and also additional supplies from gas discovered in existing permits.  Analysis on the impact to the New Zealand economy has been primarily limited to the fiscal impact to the Government through taxes and royalties which is contained in the Regulatory Impact Statement (RIS) prepared in support of the law.  The RIS was conducted after the policy had already been announced in April 2018. 

Competition and Anti-Trust Laws

The Commerce Act of 1986 prohibits contracts, arrangements, or understandings that have the purpose, or effect, of substantially lessening competition in a market, unless authorized by the Commerce Commission, an independent Crown entity.  Before granting such authorization, the Commerce Commission must be satisfied that the public benefit would outweigh the reduction of competition. The Commerce Commission has legislative power to deny an application for a merger or takeover if it would result in the new company gaining a dominant position in the New Zealand market.  In addition, the Commerce Commission enforces a number of pieces of legislation that, through regulation, aim to provide the benefits of competition in markets with certain natural monopolies, such as the dairy, electricity, gas, airports, and telecommunications industries. In order to monitor the changing competitive landscapes in these industries, the Commerce Commission conducts independent studies, currently including fiber networks (https://comcom.govt.nz/regulated-industries/telecommunications/regulated-services/fibre-regulation/fibre-services-study ), mobile phones (https://comcom.govt.nz/regulated-industries/telecommunications/projects/mobile-market-study ), and retail petrol (https://comcom.govt.nz/about-us/our-role/competition-studies/market-study-into-retail-fuel ). 

In 2018 the government passed the Commerce Amendment Act to empower the Commerce Commission to undertake market (“competition”) studies where this is in the public interest in order to improve the agency’s enforcement actions without having to go to court.  The Government introduced a market studies power to align the Commerce Commission with competition authorities in similar jurisdictions.

Market studies may be initiated by the Minister of Commerce and Consumer Affairs, or by the Commerce Commission on its own initiative.  The Act allows settlements to be registered as enforceable undertakings so breaches can be quickly penalized by the courts, and saves the Commission from the expense and uncertainty of litigation.  The amendment also repeals the cease-and-desist regime in the 1986 Commerce Act, and strengthens the information disclosure regulations for airports.

In November 2018, Parliament amended the Telecommunications Act to regulate the new fiber networks being rolled out for the national ultrafast broadband initiative:  https://comcom.govt.nz/regulated-industries/telecommunications/regulated-services/fibre-regulation/implementation-of-the-new-regulatory-framework-for-telecommunications .  The Act introduced a utility-style regulatory regime, similar to what exists for energy networks and airports, and has set the Commerce Commission the task of also regulating fiber networks, which they will implement a framework for over the next three years. 

The Dairy Industry Restructuring Act of 2001 (DIR) authorized the amalgamation of New Zealand’s two largest dairy co-operatives to create Fonterra Co-operative Group Limited (Fonterra).  The DIR is designed to manage Fonterra’s dominant position in the dairy market, until sufficient competition has emerged. A review by the Commerce Commission in 2016 found competition was not yet sufficient to warrant the removal of the DIR provisions, but it made recommendations to create a pathway to deregulation.  One of the most contentious issues in the Act was the issue of open entry, which requires Fonterra to accept all milk from new suppliers. The co-operative claims this part of the legislation is no longer needed because the dairy industry had become highly competitive in recent years. The government is continuing its review of the DIR it embarked on in 2017 to determine if the Act still meets its objectives, if it has created unintended consequences, and if it is still needed in its current form:  https://www.mpi.govt.nz/law-and-policy/legal-overviews/primary-production/dairy-industry-restructuring-act/dairy-industry-restructuring-act-2001-review/ . 

The Commerce Commission is also charged with monitoring competition in the telecommunications sector.  Under the 1997 WTO Basic Telecommunications Services Agreement, New Zealand has committed to the maintenance of an open, competitive environment in the telecommunications sector. 

Following a four-year government review of the Telecommunications Act of 2001, the Telecommunications (New Regulatory Framework) Amendment Bill passed in November 2018.  It establishes a regulatory framework for fiber fixed line access services; removes unnecessary copper fixed line access service regulation in areas where fiber is available; streamline regulatory processes; and provides more regulatory oversight of retail service quality.  The amendment requires the Commerce Commission to implement the new regulatory regime by January 2022. 

Chorus won government contracts to build 70 percent of New Zealand’s new ultra-fast broadband fiber-optic cable network and has received subsidies.  Chorus is listed on the NZX stock exchange and the Australian Stock Exchange. From 2020, Chorus and the local fiber companies are required under their open access deeds to offer an unbundled mass-market fiber service on commercial terms.

The telecommunications service obligations (TSO) regulatory framework established under the Telecommunications Act of 2001 enables certain telecommunications services to be available and affordable.  A TSO is established through an agreement under the Telecommunications Act between the Crown and a TSO provider. Currently there are two TSOs. Spark (supported by Chorus) is the TSO Provider for the local residential telephone service, which includes charge-free local calling.  Sprint International is the TSO Provider for the New Zealand relay service for deaf, hearing impaired and speech impaired people. Under the Telecommunications (New Regulatory Framework) Amendment Bill, the TSOs which apply to Chorus and Spark will cease to apply in areas which have fiber.  Consumers in these areas will have access to affordable fiber-based landline and broadband services.

Radio Spectrum Management (RSM) is a business unit within MBIE that is responsible for providing advice to the government on the allocation of radio frequencies to meet the demands of emerging technologies and services.  Spectrum is allocated in a manner that ensures radio spectrum provides the greatest economic and social benefit to New Zealand society. The allocation of spectrum is a core regulatory issue for the deployment of 5G in New Zealand.  The Commerce Commission is conducting a study during 2019 of the mobile network operators, and in part will look into whether the process for 5G spectrum allocation will impact the ability of new mobile network operators to enter the market.

In March 2019, the government announced it freed up space on the spectrum in order for a fourth mobile network operator to compete with the three existing ones.  In order to do so, the three existing operators lost parts of their spectrum, for which sources criticized the government, claiming they supported competition in principle but questioned the ability of the New Zealand market to cope with another operator:  https://www.stuff.co.nz/business/111304958/government-clears-path-for-new-entrant-to-take-on-spark-vodafone-and-2degrees . The Government claims it needs to keep some of that spectrum in reserve to retain flexibility and it might be used for new technologies or by the emergency services network.  The Government announced the first auction of 5G spectrum will be in early 2020, and ready for use by November 2022. The Government is also considering a cap on the amount of 5G spectrum given to a single operator to prevent monopolistic behavior, but also to set aside spectrum to deal with potential Treaty of Waitangi issues. 

The Commerce Commission has a regulatory role to promote competition within the electricity industry under the Commerce Act and the Fair Trading Act 1986.  As natural monopolies, the electricity transmission and distribution businesses are subject to specific additional regulations, regarding pricing, sales techniques, and ensuring sufficient competition in the industry.  The Commerce Commission is in the process of setting the default price-quality path that will apply to electricity distributors from 2020 to 2025. In its five-yearly review of the New Zealand energy market, the International Energy Agency made recommendations in 2017 for the structure, governance and regulation of the electricity distribution service sector, and for network regulation and retail market reforms to ensure efficient transmission pricing.  The New Zealand government has commissioned an independent Expert Advisory Panel to lead a review into electricity prices to investigate whether the electricity market is delivering a fair and equitable price to end-consumers. The review will also consider possible improvements to ensure the market and its governance structure will be appropriate in a changing technological environment. 

The New Zealand motor fuel market became more concentrated after Shell New Zealand sold its transport fuels distribution business in 2010, and Chevron sold its retail brands Caltex and Challenge to New Zealand fuel distributor Z-Energy in 2016.  The Commerce Commission approved Z-Energy’s application to acquire 100 percent of the shares in Chevron New Zealand on the condition it divest 19 of its retail sites and one truck stop in locations where it considered competition would be substantially reduced as a result of the merger.  Z-Energy holds almost half of the market share for fuel distribution in New Zealand. In December 2018 the Commerce Commission commenced a market study looking into the factors that may affect competition for the supply of retail petrol and diesel used for land transport throughout New Zealand.  The purpose of the study is to consider and evaluate whether competition in the retail fuel market is promoting outcomes that benefit New Zealand consumers over the long-term. A final report is due December 2019. 

In August 2017 the Commerce (Cartels and Other Matters) Amendment Act was passed to enable easier enforcement action against international cartels.  It created a new clearance regime allowing firms to test their proposed collaboration with the Commerce Commission and get greater legal certainty before they enter into the arrangements.  It expanded prohibited conduct to include price fixing, restricting output, and allocating markets, and expands competition oversight to the international liner shipping industry. It empowers the Commerce Commission to apply to the New Zealand High Court for a declaration to determine if the acquisition of a controlling interest in a New Zealand company by an overseas person will have an effect of “substantially lessening” competition in a market in New Zealand.

In April 2019, the government passed the Commerce (Criminalization of Cartels) Amendment Bill to criminalize cartel behavior – a provision was removed from the 2017 amendment part-way through its passage through the Parliament.  The amendment means that individuals convicted of engaging in cartel conduct – price fixing, restricting output, or allocating markets – will face fines of up to NZD 500,000 (USD 340,000) and/or up to seven years imprisonment. Business have been given two years to ensure compliance before the criminal sanctions enter into force.  While not a significant issue in New Zealand, the government believes criminalizing cartel behavior provides a certain and stable operating environment for businesses to compete, and aligns New Zealand with overseas jurisdictions that impose criminal sanctions for cartel conduct, enhancing the ability of the Commerce Commission to cooperate with its overseas counterparts in investigations of international cartels.

In January 2019, the Government announced proposed amendments to section 36 of the Commerce Act, which relates to the misuse of market power.  The government is seeking consultation on repealing sections of the Commerce Act that shield some intellectual property arrangements from competition law, in order to prevent dominant firms misusing market power by enforcing their patent rights in a way they would not do if it was in a more competitive market.  It also seeks to strengthen laws and enforcement powers against the misuse of market power by aligning it with Australia and other developed economies, particularly because New Zealand competition law currently does not prohibit dominant firms from engaging in conduct with an anti-competitive effect. Section 36 of the Act only prohibits conduct with certain anti-competitive purposes.

The Commerce Commission has international cooperation arrangements with Australia since 2013 and Canada since 2016, to allow the sharing of compulsorily acquired information, and provide investigative assistance.  The arrangements help effective enforcement of both competition and consumer law.

Expropriation and Compensation

Expropriation is generally not an issue in New Zealand, and there are no outstanding cases.  New Zealand ranks first in the World Bank’s 2017 Doing Business report for “registering property” and for “protecting minority investors.”

The government’s KiwiBuild program aims to build 100,000 affordable homes over ten years, with half being in Auckland.  The government has indicated it will use compulsory acquisition under the PWA if necessary, to achieve planned government housing development. 

The lack of precedent for due process in the treatment of residents affected by liquefaction of residential land caused by the Canterbury earthquake in 2011 resulted in drawn out court cases against the Government based largely on the compensation offered.  Several large areas of residential land in Christchurch were deemed “red zones,” meaning there had to be significant and extensive area wide land damage, the extent of the damage required an area-wide solution, engineering solutions would be uncertain, disruptive, not timely, and not cost-effective, and the health and well being of residents was at risk from remaining in the area for prolonged periods. 

In August 2015 the Government offered the 2007 value of all land and of insured homes, but did not offer to pay for uninsured homes, affecting about 100 homeowners.  More than 7,000 people accepted red-zone buy-out offers, about 135 did not, with some wanting to stay on in their homes. The Christchurch City council is legally required to provide services to the red zone, such as collecting sewage which it did initially did.  A group of 16 red-zone residents who had sold their uninsured properties ultimately won a case in 2017, when a Court of Appeal judgment ruled the Government made an “unlawful” decision to discriminate against uninsured homeowners. A previous offer made in 2012, for 50 per cent of the rateable value to owners of uninsured Christchurch red zone land was deemed unlawful in the Court of Appeal in 2013.  The government has demolished about 7,000 homes in the flat land red zone, or about 99 per cent of Crown owned properties: https://www.linz.govt.nz/crown-property/types-crown-property/christchurch-residential-red-zone.

Dispute Settlement

ICSID Convention and New York Convention

New Zealand is a party to both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Washington Convention), and to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Proceedings taken under the Washington Convention are administered under the Arbitration (International Investment Disputes) Act 1979.  Proceedings taken under the New York Convention are now administered under the Arbitration Act 1996.

Investor-State Dispute Settlement

Investment disputes are rare, and there have been no major disputes in recent years involving U.S. companies.  The mechanism for handling disputes is the judicial system, which is generally open, transparent and effective in enforcing property and contractual rights.

Investment disputes brought against other foreigners by the New Zealand government have been largely due to non-compliance of the investors’ obligations under the OIO Act or their failure to gain OIO approval before making their investment.

Most of New Zealand’s recently enacted FTAs contain Investor-State Dispute Settlement (ISDS) provisions, and to date no claims have been filed against New Zealand.  The current Government has signaled it will seek to remove ISDS from future FTAs, having secured exemptions with several CPTPP signatories in the form of side letters.  ISDS claims challenging New Zealand’s tobacco control measures – under the Smoke-free Environments (Tobacco Standardized Packaging) Amendment Act 2016 – cannot be made against New Zealand under CPTPP.

International Commercial Arbitration and Foreign Courts

Arbitrations taking place in New Zealand (including international arbitrations) are governed by the Arbitration Act 1996.  The Arbitration Act includes rules based on the United Nations Commission on International Trade Law (UNCITRAL) and its 2006 amendments.  Parties to an international arbitration can opt out of some of the rules, but the Arbitration Act provides the default position.

The Arbitration Act also gives effect to the New Zealand government’s obligations under the Protocol on Arbitration Clauses (1923), the Convention on the Execution of Foreign Arbitral Awards (1927), and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).  Obligations under the Washington Convention are administered under the Arbitration (International Investment Disputes) Act 1979 as mentioned previously.

The New Zealand Dispute Resolution Centre (NZDRC) is the leading independent, nationwide provider of private commercial, family and relationship dispute resolution services in New Zealand.  It also provides international dispute resolution services through its related entity, the New Zealand International Arbitration Centre (NZIAC). The NZDRC is willing to act as an appointing authority, as is the Arbitrators’ and Mediators’ Association of New Zealand (AMINZ).

Forms of dispute resolution available in New Zealand include formal negotiations, mediation, expert determination, court proceedings, arbitration, or a combination of these methods.  Arbitration methods include ‘ad hoc,’ which allows the parties to select their arbitrator and agree to a set of rules, or institutional arbitration, which is run according to procedures set by the institution.  Institutions recommended by the New Zealand government include the International Chamber of Commerce (ICC), the American Arbitration Association (AAA), and the London Court of International Arbitration (LCIA).

An amendment to the Arbitration Act 1996 in March 2017 provided for the appointment of an “appointed body” to exercise powers which were previously powers of the High Court.  It also provides for the High Court to exercise the powers in the event that the appointed body does not act, or there is a dispute about the process of the appointed body. Since then the Minister of Justice has appointed the AMINZ the default authority for all arbitrations sited in New Zealand in place of the High Court.  In 2017 AMINZ issued its own Arbitration Rules based on the latest editions of rules published in other Model Law jurisdictions, to be used in both domestic and international arbitrations, and consistent with the 1996 Act.

In May 2019 the Arbitration Amendment Bill was passed to bring New Zealand’s policy of preserving the confidentiality of trust deed clauses in line with foreign arbitration legislation and case law.  The amendment means arbitration clauses in trust deeds are given effect to extend the presumption of confidentiality in arbitration to the presumption of confidentiality in related court proceedings under the Act because often such cases arise from sensitive family disputes. 

Bankruptcy Regulations

Bankruptcy is addressed in the Insolvency Act 2006, the Receiverships Act 1993, and the Companies Act 1993.  The Insolvency (Cross-border) Act 2006 implements the Model Law on Cross-Border Insolvency adopted by the United Nations Commission on International Trade Law in 1997.  It also provides the framework for facilitating insolvency proceedings when a person is subject to insolvency administration (whether personal or corporate) in one country, but has assets or debts in another country; or when more than one insolvency administration has commenced in more than one country in relation to a person.  New Zealand bankrupts are subject to conditions on borrowing and international travel, and violations are considered offences and punishable by law. 

The registration system operated by the Companies Office within MBIE, is designed to enable New Zealand creditors to sue an overseas company in New Zealand, rather than forcing them to sue in the country’s home jurisdiction.  This avoids attendant costs, delays, possible language problems and uncertainty due to a different legal system. An overseas company’s assets in New Zealand can be liquidated for the benefit of creditors. All registered ‘large’ overseas companies are required to file financial statements under the Companies Act of 1993.  See: https://www.companiesoffice.govt.nz/companies/learn-about/overseas-companies/managing-an-overseas-company-in-new-zealand

The Insolvency and Trustee Service (the Official Assignee’s Office) is a business unit of MBIE.  The Official Assignee is appointed under the State Sector Act of 1988 to administer the Insolvency Act of 2006, the insolvency provisions of the Companies Act of1993 and the Criminal Proceeds (Recovery) Act of 2009.  The Official Assignee administers all bankruptcies, No Asset Procedures, Summary Installment Orders, and some liquidations. The Official Assignee administers bankruptcies and liquidations by collecting and selling assets to repay creditors.  It will ask the bankrupt or company directors for information to help them identify and deal with the assets. The money recovered is paid to creditors who have made a claim, and the order in which payments are made is set out in the relevant Acts.  Creditors can log in to the Insolvency and Trustee Service website to track the progress of the administration and how long it is likely to take. The time will depend on several things such as the type and number of assets the debtor has.

In the World Bank’s Doing Business 2019 Report New Zealand is ranked 31st in “resolving insolvency”.  Despite a high recovery rate (84.1 cents per dollar compared with 70.5 cents for the average across high-income OECD countries), New Zealand scores lower on the strength of its insolvency framework.  Specific weaknesses identified in the survey include the management of debtors’ assets, the reorganization proceedings, and particularly on the participation of creditors. The survey notes New Zealand’s insolvency framework does not require approval by the creditors for sale of substantial assets, nor does it provide creditors the right to request information from the insolvency representative.

In August 2018, the government revived the Insolvency Practitioners Bill by reopening public consultation and Select Committee review, after the bill stalled in 2013.  The government has made significant changes to the bill, aiming to introduce a coregulatory licensing framework, rather than a “negative licensing system” that would have empowered the Registrar of Companies to ban people from acting as a liquidator or receiver.  As the revised bill currently stands, insolvency practitioners would be required to be licensed by an accredited body under a new stand-alone Act. In addition, the bill requires that insolvency practitioners would have to provide information and assistance to an insolvency practitioner that replaces them; imposes obligations on insolvency practitioners to provide detailed reports on insolvency engagements; and empowers courts to compensate people suffering as a result of an insolvency practitioner’s failure to comply with any relevant laws and sanction insolvency practitioners who fail to comply with any relevant laws.

Investment Incentives

New Zealand has no specific economic incentive regime because of its free trade policy.  The New Zealand government, through its bodies such as Tourism New Zealand and NZTE, provides assistance in certain sectors such as tourism and the export of locally manufactured goods.  The government generally does not have a practice of jointly financing foreign direct investment projects.

In the Media and Entertainment sector, the New Zealand Film Commission administers a grant for international film and television productions on behalf of the Ministry for Culture and Heritage and MBIE.  Established in 2014, the New Zealand Screen Production Grant provides rebates for international productions of 20 percent on specified goods and services purchased in New Zealand. An additional five percent is available for productions that meet a significant economic benefit points test for New Zealand. 

Callaghan Innovation is a stand-alone Crown Entity established in February 2013.  It connects businesses with research organizations offering services, and the opportunity to apply for government funding and grants that support business innovation and capability building.  Callaghan Innovation requires businesses applying for any of their research and development grants to have at least one director who is resident in New Zealand and to have been incorporated in New Zealand, have a center of management in New Zealand, or have a head office in New Zealand.  For more information see: http://www.business.govt.nz/support-and-advice/grants-incentives   

Foreign Trade Zones/Free Ports/Trade Facilitation

New Zealand does not have any foreign trade zones or duty-free ports.

Performance and Data Localization Requirements

The government of New Zealand does not maintain any measures that are alleged to violate the Trade Related Investment Measures text in the WTO.  There are no government mandated requirements for company performance or local employment, and foreign investors that do not require OIO approval are treated equally with domestic investors.  As mentioned previously, some overseas investors that require OIO approval must comply with legal obligations governing OIO satisfying the benefit to New Zealand test through local employment, using domestic content in goods, or promising the introduction of a new technology to New Zealand.  Investors requiring OIO approval also must maintain “good character”, and reporting requirements. Investors are generally required to report annually to the OIO for up to five years from consent, but if benefits are expected to occur after that five-year period, monitoring will reflect the time span within which benefits will occur.  Failure to meet obligations under the investors’ consent can result in fines, court orders, or forced disposal of their investment. 

There have been several recent cases taken against OIO consent holders for failing to maintain the requirement of “good character.”  In 2017 a majority shareholder of a winery was ordered to divest his interest in the company by the OIO after he was sentenced to four years imprisonment for fraud in the United States.  In 2019 the New Zealand High Court imposed civil penalties on a director for breaching the good character conditions of his company’s consent when it bought a controlling interest (50.2 percent) in New Zealand’s largest agricultural services company in 2011:  https://www.linz.govt.nz/news/2019-03/agria-ordered-pay-220000-for-overseas-investment-breach. The breaches of the overseas investment good character conditions arise from an investigation by United States Securities and Exchange Commission (SEC) concerning alleged violations of United States securities law.  The director was found to have been involved in fraudulent accounting and share price manipulation in the United States. As part of the settlement reached with the OIO the director’s company agreed to divest its interest in the company below 50 percent (to 46.5 percent). A government-commissioned independent review in 2016 found the good character test to be robust after questions were asked whether it was being used consistently and accurately.  LINZ reports on enforcement actions taken since 2015 on its website: https://www.linz.govt.nz/overseas-investment/enforcement/enforcement-action-taken  . 

Businesses wanting to establish in New Zealand and seeking to relocate their employees to New Zealand will need to apply for and satisfy the conditions of the Employees of Relocating Business Resident Visa:  https://www.immigration.govt.nz/new-zealand-visas/apply-for-a-visa/about-visa/relocating-with-an-employer-resident-visa  .  These conditions include providing evidence the business is up and running, have the support of NZTE, and provide a letter from the business CEO.  Immigration New Zealand may grant temporary work visas to key employees to get the business established and resident visas once the business is operating.  Applicants must provide evidence the business is up and running, such as a certificate of incorporation, tax records, and documents showing a business site has been purchased or leased.  Immigration New Zealand also considers if the relocation benefits New Zealand, if the business is trading profitably (or has the potential to do so in the next 12 months), and contributing to economic growth by, for example introducing new technology, management or technical skills; enhancing existing technology, management or technical skills; introducing new products or services; enhancing existing products or services; creating new export markets; expanding existing export markets; creating at least one full-time job for a New Zealander.  Visa holders can bring family, and after meeting conditions of the visa may be eligible to live and work in New Zealand indefinitely.

New Zealand supports the ability to transfer data across borders, and to not force businesses to store their data within any particular jurisdiction.  While data localization and cloud computing is not specifically legislated for, all businesses must comply with the Privacy Act 1993 to protect customers’ “personal information.” However under certain circumstances approval is required from the Commissioner of Inland Revenue to store electronic business and tax records outside of New Zealand, and under Section 23   of the Tax Administration Act 1994.  Alternatively, tax payers can use an IRD authorized third party to store their information without having to seek individual approval.  It remains the taxpayer’s responsibility to meet their obligations to retain business records for the retention period (usually seven years) required under the Act.

From October 2018, the Customs and Excise Act – which replaces the 1996 Act – allows customers who are required to keep Customs-related records to apply to Customs New Zealand, to store their business records outside of New Zealand.  Under the 1996 Act it was an offence for businesses to not store physical records in New Zealand or their electronic records with a New Zealand-based cloud storage provider. Under the new legislation a business can apply for permission to keep their Customs-related business records outside New Zealand, including in a cloud storage facility that is not based in New Zealand.  Businesses denied permission must still be required to store business records in New Zealand, including with New Zealand-based cloud providers.

New Zealand is considering e-commerce issues in trade agreements, including upgrades of existing FTAs, and in January 2019 joined other WTO members to launch negotiations on E-Commerce.  In CPTPP these rules come with a “public policy safeguard”, which gives governments the discretion to control the movement and storage of data for legitimate public policy objectives, such as cybersecurity, and the protection of privacy and data.

In March 2018 the government introduced the Privacy Bill into Parliament to repeal and replace the Privacy Act 1993.  The bill aims to strengthen the protection of confidential and personal information and modernize privacy regulations.  It also aims to incorporate provisions included in the European General Data Protection Regulation (GDPR), however the select committee report on the bill released in March 2019 advised against strict alignment with the GDPR. 

In its current form, the Bill would apply to all actions by a New Zealand agency regardless of where that agency is located, and would apply to all personal information collected or held by a New Zealand agency regardless of where that information is collected or held, or where the relevant individual is located.

The bill extends the current law to apply to agencies located outside of New Zealand as long as that agency is “carrying on business in New Zealand.” It would apply to personal information collected in the course of such business, again regardless of where the agency is located and where the information is held.  Additionally, it will apply regardless of whether that agency charges monetary payment, or makes a profit from its business in New Zealand. The intent is to ensure that global businesses doing business in New Zealand, irrespective of where the individual or the agency is located, comply with the new Privacy Act.

A provision affecting cloud service providers places the onus of liability for privacy breaches on the customer, as long as the provider is not using or disclosing that customer’s information for its own purposes.

The bill includes a new information privacy principle has been added for the off-shoring of personal information similar to that in the GDPR.  Agencies wanting to disclose personal information to an overseas person will need to apply for an exemption if the individual authorizes but is expressly informed their information may not have comparable protection as the New Zealand Privacy act, the overseas person is conducting business in New Zealand and is therefore subject to the act or the overseas person is a participant in a prescribed binding scheme.

New Zealand does not have any requirements for foreign information technology (IT) providers to turn over source code or provide access to encryption.  There may be obligations on individuals to assist authorities under Section 130 of the Search and Surveillance Act 2012. An agency with search authority in terms of data held in a computer system or other data storage device may require a specified person to provide access information that is reasonable to allow the agency exercising the search power to access that data.  This could include a requirement that they decrypt information which is necessary to access a particular device. The search power cannot be used to require the specified person to give information intending to incriminate them. Failure to assist a person exercising a search power under section 130(1), without reasonable excuse, is a criminal offence punishable with imprisonment for up to three months.  A specified person is (1) a user of a computer system or other data storage device or an Internet site who has relevant knowledge of that system, device, or site; or (2) a person who provides an Internet service or maintains an Internet site and who holds access information. A user is (1) owns, leases, possesses, or controls the system, device, or site; or (2) is entitled, by reason of an account or other arrangement, to access data on an Internet site; or (3) is an employee of a specified person described previously.

The Act includes powers to search and notification requirements of search power in connection to a “remote access search” defined in the Act as a search of a thing such as an Internet data storage facility that does not have a physical address that a person can enter and search.

Such mandatory demands as mentioned are legal obligations that must be complied with, and are made under a search warrant.  The Privacy Act permits disclosure in such a case. The organization can only disclose the information requested and any excess information provided will be in breach of the Privacy Act unless it is able to be provided as part of a voluntary request.

If an organization is ordered a voluntary demand, then it is not required to provide the information, but it may do so if it believes (1) there is a serious threat to health and safety of the public, the individual concerned, or any other individual; or (2) the maintenance of law exception (to avoid prejudice to the maintenance of the law by any public sector agency, including the prevention, detection, investigation, prosecution, and punishment of offences).  Both of these exceptions are expected to exist under the Privacy Bill.

The Customs and Excise Act 2018 sets specific legal thresholds for Customs officers to search passengers’ electronic devices, and imposes a fine of NZD 5,000 (USD 3,400) if they refuse to hand over passwords, pins, or encryption keys to access the device.  The officer must have “reasonable cause to suspect,” that the passenger has been or is about to be involved in the commission of relevant offending.

There are many laws that establish rules to protect privacy or confidentiality in particular situations, such as the Tax Administration Act.  As such there is not a particular government agency that enforces all privacy law, however the Office of the Privacy Commissioner is empowered through the Privacy Act 1993 and has a wide ability to consider developments or actions that affect personal privacy.  Separately, New Zealand courts have developed a privacy tort allowing individuals to sue another for breach of privacy.

Real Property

New Zealand recognizes and enforces secured interest in property, both movable and real.  Most privately owned land in New Zealand is regulated by the Land Transfer Act 2017. These provisions set forth the issuance of land titles, the registration of interest in land against land titles, and guarantee of title by the State.  The Registrar-General of Land develops standards and sets an assurance program for the land rights registration system. New Zealand’s legal system protects and facilitates acquisition and disposition of all property rights.

The Land Transfer Act – which was enacted in November 2018 and repealed the Land Transfer Act 1952 – maintains the Torrens system of land title in which land ownership is transferred through registration of title instead of deeds, a system which has been in operation in New Zealand since the nineteenth century.  The new Act aims to improve the certainty of property rights, modernize, simplify and consolidate land transfer legislation. It empowers courts with limited discretion to restore a landowner’s registered title in rare cases, in the event of fraud or other illegality, where it is warranted to avoid a manifestly unjust result.  The Act includes new provisions to prevent mortgage fraud, to protect Maori freehold land, and to extend the Registrar-General’s powers to withhold personal information to protect personal safety.

As mentioned in Section 2, overseas persons wanting to purchase certain types of land must apply to the OIO for approval.

Land leasing by foreign or non-resident investors is governed by the OIO Act.  About eight percent of New Zealand land is owned by the Crown. The Land Act 1948 created pastoral leases which run for 33 years and can be continually renewed.  Rent is reviewed every 11 years, basing the rent on how much stock the land can carry for pastoral farming. The Crown Pastoral Land Act 1998 and its amendments contain provisions governing pastoral leases that apply to foreign and domestic lease holders.  Holders of pastoral leases have exclusive possession of the land, and the right to graze the land, but require permission to carry out other activities on their lease. 

Lessees can gain freehold title over part of the land under a voluntary process known as tenure review.  Under this process, areas of the lease can be restored to full Crown ownership, usually as conservation land managed by the Department of Conservation.  In February 2019 the government announced an end to tenure review because it has resulted in more intensive farming and subdivision on the 353,000 hectares of land which has been freeholded, affecting the landscape and biodiversity of the land.  With tenure review ending, the remaining Crown pastoral lease properties, currently 171 covering 1.2 million hectares of Crown pastoral land, will continue to be managed under the regulatory system for Crown pastoral lands. In April 2019 there had been 2,500 submissions for feedback to the government on the future management of the South Island high country. 

The types of land ownership in New Zealand are: Freehold title, Leasehold title, Unit title, Strata title, and cross-lease.  The majority of land in New Zealand is freehold. LINZ holds property title records that show a property’s proprietors, legal description and the rights and restrictions registered against the property title, such as a mortgage, easement or covenant.  A title plan is the plan deposited by LINZ when the title was created. Property titles do not contain information about the value of the property.

No land tax is payable, but the local government authorities are empowered to levy taxes, termed as “rates,” on all properties within their territorial boundaries.  Rates are assessed on either assessed annual rental value, land value or capital value. There is no stamp duty in New Zealand. 

In general, New Zealand requires GST be returned on all land sales and claimed on all land purchases unless the property is used solely for making “exempt supplies” (such as residential accommodation), or the GST is charged at 0 percent or “zero-rated.”  When land is transferred between GST-registered parties, the transaction must be zero-rated for GST, provided that the purchaser intends to use the land to make taxable supplies and the land is not intended to be used as a principal place of residence by the purchaser.  Where the transaction is zero-rated, no GST would be added to the sale price, no GST should be returned by the vendor, and no GST should be claimed by the purchaser. The purchaser may be required to account for GST if the property will be partly used for making exempt supplies. 

When commercial property is sold, GST may need to be added to the purchase price.  A purchaser who pays the tax may be entitled to a refund. A mortgagee sale is subject to GST if the mortgagor would be liable to pay GST on the sale.

While there is no comprehensive capital gains tax in New Zealand, profits made on the sale of any asset (including land) is assessable as income, where the IRD determines the asset is purchased as part of a dealing or investment business, or for the purpose of resale, or where there was an undertaking or scheme entered into for the purpose of making a profit.  Profits from the sale of land are taxable, where construction, development or subdivision is involved, and if a consent or zoning change has or will benefit the land, and if the land is sold within ten years. For residential land the requirement is five years.

Mortgages and liens are available in New Zealand.  There is no permanent government policy as such that discriminates lending to foreigners.  However the Reserve Bank of New Zealand (RBNZ) introduced a macro-prudential tool as a means to curb rising house prices.  In October 2013, the RBNZ introduced a series of temporary loan-to-valuation ratio restrictions on banks’ lending to (domestic and foreign) investors and owner-occupiers wanting to purchase residential housing. 

During 2018, the RBNZ started a process of easing these restrictions due to the new Government’s housing market policies.  From January 1, 2019, banks are limited to lending residential investors who have less than a 30 percent deposit, to be no more than 5 percent of their total new lending in that category; and no more than 20 percent of banks’ new lending to owner-occupiers who have a deposit of less than 20 percent. 

A registered memorandum of mortgage is the usual form used to create a lien on real estate to secure an indebtedness.  There is no mortgage recording or mortgage tax in New Zealand. However from October 22, 2018 all non-resident purchasers must complete a Residential Land Statement declaring they are eligible to buy residential property in New Zealand, before signing any sale and purchase agreement:  https://www.linz.govt.nz/overseas-investment/information-for-buying-or-building-one-home-live#statement. Failure to do so could incur significant penalties under the Overseas Investment Act. 

When a lien secured by real property is foreclosed, there is a statutory process that must be followed which overrides the mortgage form itself as well as legal costs relating to foreclosing a lien on real property.  There are no restrictions on foreign lenders securing their advances over real estate in New Zealand. Nevertheless, on any mortgagee sale, lenders need to comply with the requirements concerning foreign ownership of land if the buyer or the land falls within certain criteria.

There are some statutory controls imposed on the amount of interest which may be charged on a loan secured by real property (and private and government agencies that monitor and report on interest charges) that ensure that interest rates and costs are not excessive or illegal.  There are no laws that that restrict the ability to make a borrower or guarantor personally liable for indebtedness secured by real property.

Property legally purchased but unoccupied can generally not revert to other owners.  The Land Transfer Act 2017 repealed the Land Transfer Amendment Act 1963 which previously outlined the process for cases of “adverse possession” or “squatters’ rights.”  Section 155 of the Land Transfer Act 2017 allows a person to apply to the Registrar-General of Land for a record of title in that person’s name as owner of the freehold estate in land if: a record of title has already been created for the estate; the person has been in adverse possession of the land for a continuous period of at least 20 years and continues in adverse possession of the land; and the possession would have entitled the person to apply for a title to the freehold estate in the land if the land were not subject to the Act.  The section applies to diverse instances, such as the case where an entire section is being occupied by someone unconnected to the registered owner, or in the case of a “boundary adjustment” between two properties. Section 159 of the Act lists instances when applications may not be made, such as land owned by the Crown, Māori land, or land occupied by the applicant – where the applicant owns an adjoining property – because of a mistaken marking of a boundary.

Intellectual Property Rights

New Zealand has a generally strong record on intellectual property rights (IPR) protection and is an active participant in international efforts to strengthen IPR enforcement globally.  It is a party to nine World Intellectual Property Organization (WIPO) treaties and participates in the Trade Related Aspects of Intellectual Property Rights (TRIPS) Council. 

In March 2019, New Zealand entered into force the WIPO Copyright Treaty, the WIPO Performances and Phonograms Treaty, the Budapest Treaty and the Berne Convention.  It implemented the Madrid Treaty in December 2012, allowing New Zealand companies to file international trademarks through the Intellectual Property Office of New Zealand (IPONZ).  Since 2013, an online portal hosted on the IPONZ and IP Australia websites has allowed applicants to apply for patent protection simultaneously in Australia and New Zealand with a single examiner assessing both applications according to the respective countries’ laws.

New Zealand is a party to the multilateral ACTA, which is aimed at establishing a comprehensive international framework that will assist parties to the agreement in their efforts to effectively combat the infringement of intellectual property rights, in particular the proliferation of counterfeiting and piracy.

Changes to copyright regulations bestow copyright protection in New Zealand for nationals of countries which have recently joined the WTO, the Berne Convention for the Protection of Literary and Artistic Works, and the Universal Copyright Treaty from January 2017.  The change is reciprocal protecting New Zealand copyright owners in those countries.

There are about ten statutes that provide civil and criminal enforcement procedures for IPR owners in New Zealand.  The Copyright Act 1994 and the Trade Marks Act 2002 impose civil liability for activities that constitute copyright and trademark infringement.  Both Acts also contain criminal offences for the infringement of copyright works in the course of business and the counterfeiting of registered trademarks for trade purposes.  The Fair Trading Act 1986 imposes criminal liability for the forging of a trademark, falsely using a trademark or sign in a way that is likely to mislead or deceive, and trading in products bearing misleading and deceptive trade descriptions.

The government is reviewing the Copyright Act 1994 in light of significant technological changes since the last review in 2004.   . New Zealand had agreed to tougher IPR and copyright protections under the TPP agreement, but the CPTPP suspended some of the original TPP copyright obligations, such as increasing rights protection from 50 years to 70 years.  In November 2018, MBIE, which administers the Act, released a 135-page Issues Paper which summarizes the operation of the New Zealand copyright regime, its shortcomings, and the wide range of issues that need to be addressed. 

New Zealand has amended some legislation to comply with obligations under CPTPP.  Customs New Zealand has had its powers to act on its own initiative to temporarily detain imported or exported goods that it suspects infringe copyright or trademarks.  Previous policy to cover the infringing label or sticker, or simply removing the infringing part such as a logo will no longer be sufficient. Customs New Zealand now has authority to inspect and detain any goods in its control suspected of being pirated.  The New Zealand High Court has been empowered to award additional damages for trade mark infringement, and unless exceptional circumstances exist, the courts must order the destruction of counterfeit goods. This will be in addition to the existing availability of compensatory damages under the Trade Marks Act 2002. 

New Zealand will retain its existing copyright term for creative works – and minimum required under the Berne Convention – of the life of the author plus 50 years after their death for films, sound recordings, books, screenplays, music, lyrics and artistic works.  New Zealand will not be required to provide stronger protection for technological protection measures (TPMs) which act as “digital locks” to protect copyright work, nor provide stronger protection for rights management information; nor alter its internet service provider liability provisions for copyright infringement. 

The Copyright Tribunal hears disputes about copyright licensing agreements under the Act and applications about illegal uploading and downloading of copyrighted work.  The Copyright (Infringing File Sharing) Amendment Act 2011 put in place a three notice regime, issuing alleged infringers up to three warnings within a nine month period, before ruling that infringement has occurred.  The legislation enables copyright owners to seek the suspension of the internet account for up to six months through the District Court.

The CPTPP will require New Zealand to provide a 12-month grace period for patent applicants.  Under this requirement, inventors will not be deprived of their ability to be granted a patent in New Zealand if an inventor makes their invention public, provided the inventor files the patent application within 12 months of disclosure.  This is important for many New Zealand businesses who will now not lose the right to patent their invention through accidental disclosure. In addition, pharmaceutical patent holders (who have provided their details to Medsafe) will have to be informed of someone seeking to use their drug’s clinical trial data before marketing approval is granted. 

The Smoke-free Environments (Tobacco Standardized Packaging) Amendment Act passed in September 2016, and from June 2018, all tobacco packets will be the same standard dark brown/green background color as Australia.  New pictures and health warnings will be enlarged to cover at least 75 percent of the front of tobacco packs, and all tobacco company marketing imagery will be removed. The Smoke-free Environments Regulations 2017 standardize the appearance of tobacco manufacturers’ brand names. 

In November 2018, the Government announced plans to regulate vaping and smokeless tobacco products in New Zealand.  An amendment to the Smoke-free Environments Act 1990 is expected to be passed this year limit the areas people can use such products, and change the way they are displayed in retail stores, similar to other tobacco products.  The government has indicated a public consultation process will occur before an amendment is passed.

New Zealand meets the minimum requirements of the TRIPS Agreement, providing patent protection for 20 years from the date of filing.  The Patents Act 2013 brought New Zealand patent law into substantial conformity with Australian law. Consistent with Australian patent law, an ‘absolute novelty’ standard is introduced as well as a requirement that all applications be examined for “obviousness” and utility.  The Patents Act stops short of precluding from patentability all computer software and has a provision for patenting “embedded software.”

New Zealand currently provides data exclusivity of five years from the date of marketing approval for a new pharmaceutical under Section 23B of the Medicines Act 1981.  Data protection on pharmaceuticals applies from the date of marketing approval, regardless of whether it is granted before or after the expiration of the 20-year patent.  Under section 74 of the Agricultural Compounds and Veterinary Medicines Act 1997 data protection for non-innovative agricultural and veterinary products (products including reformulations and new uses), and from November 2016 data protection is available for ten years for innovative trade name products. 

From July 2017 New Zealand wine and spirit makers can register the geographical origins of their products under the Geographical Indications (Wine and Spirits) Registration Act 2006 .  The Act and its amendments are administered by IPONZ and aims to protect wine and spirit markers’ products, to allow the registration of New Zealand geographical indications overseas, and to enforce action for falsely claiming a product comes from a certain region.

.  The most commonly intercepted item by Customs New Zealand is fake toys, according to an Official Information Act request  .   Electronics were the second most commonly intercepted item, followed by clothing and accessories.  Most items originate from China, the United Kingdom, Vietnam, and Hong Kong.

New Zealand is not on the USTR’s Special 301 report list.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/details.jsp?country_code=NZ  

Capital Markets and Portfolio Investment

New Zealand policies generally facilitate the free flow of financial resources to support the flow of resources in the product and factor markets.  Credit is generally allocated on market terms, and foreigners are able to obtain credit on the local market. The private sector has access to a limited variety of credit instruments.  New Zealand has a strong infrastructure of statutory law, policy, contracts, codes of conduct, corporate governance, and dispute resolution that support financial activity. The banking system, mostly dominated by foreign banks, is rapidly moving New Zealand into a “cashless” society.

New Zealand adheres to International Monetary Fund (IMF) Article VIII and does not place restrictions on payments and transfers for international transactions.

New Zealand has a range of other financial institutions, including a securities exchange, investment firms and trusts, insurance firms and other non-bank lenders.  Non-bank finance institutions experienced difficulties during the global financial crisis (GFC) due to risky lending practices, and the government of New Zealand subsequently introduced legal changes to bring them into the regulatory framework.  This included the introduction of the Non-bank Deposit Takers Act 2013 and associated regulations which impose requirements on exposure limits, minimum capital ratios, and governance. It requires non-bank institutions be licensed and have suitable directors and senior officers.  It also provides the RBNZ with powers to detect and intervene if a non-bank institution becomes distressed or fails.

The GFC also prompted New Zealand to introduce broad-based financial market law reform which included the establishment of the Financial Markets Authority (FMA) in 2014.  The Financial Markets Conduct Act (FMC) 2013 provided a new licensing regime to bring New Zealand financial market regulations in line with international standards. It expanded the role of the FMA as the primary regulator of fair dealing conduct in financial markets, provided enforcement for parts of the Financial Advisers Act 2008, and made the FMA one of the three supervisors for AML/CFT, alongside the RBNZ and the Department of Internal Affairs.  The FMA supervises approximately 800 reporting entities.

Legal, regulatory, and accounting systems are transparent.  Financial accounting standards are issued by the New Zealand Accounting Standards Board (NZASB), which is a committee of the External Reporting Board established under the Crown Entities Act 2004.  The NZASB has the delegated authority to develop, adopt and issue accounting standards for general purpose financial reporting in New Zealand. The NZASB’s accounting standards are based largely on international accounting standards, and generally accepted accounting principles.

Smaller companies (except issuers of securities and overseas companies) that meet proscribed criteria face less stringent reporting requirements.  Entities listed on the stock exchange are required to produce annual financial reports for shareholders. Stocks in a number of New Zealand listed firms are also traded in Australia and in the United States.  Small, publicly held companies not listed on the NZX may include in their constitution measures to restrict hostile takeovers by outside interests, domestic, or foreign. However, NZX rules generally prohibit such measures by its listed companies.

In 2017 the market capitalization of listed domestic companies in New Zealand was 46 percent of GDP, at USD 95 billion.  The small size of the market reflects in part the risk averse nature of New Zealand investors, preferring residential property and bank term deposits over equities or credit instruments for investment.  New Zealand’s stock of investment in residential property has exceeded NZD 1 trillion (USD 680 billion) since in 2016. Between December 2015 and December 2018, the value of residential property increased 28 percent to NZD 1.12 trillion (USD 762 billion).

Money and Banking System

The Reserve Bank (RBNZ) regulates banks in New Zealand in accordance with the Reserve Bank of New Zealand Act 1989.  The RBNZ is statutorily independent and is responsible for conducting monetary policy and maintaining a sound and efficient financial system.  The New Zealand banking system consists of 26 registered banks, and more than 90 percent of their combined assets are owned by foreign banks, mostly Australian.  There is no requirement in New Zealand for financial institutions to be registered to provide banking services, but an institution must be registered to call itself a bank.

In November 2017 the government announced it would undertake the first ever review of the RBNZ Act.  In December 2018 the government passed an amendment to the Act to broaden the legislated objective of monetary policy beyond price stability, to include supporting maximum sustainable employment.  It also requires that monetary policy be decided by a consensus of a Monetary Policy Committee, which must also publish records of its meetings. While policy decisions at the RBNZ have been made by the Governing Committee for several years before the amendment, the Act had laid individual accountability with the Governor, who could be removed from office for inadequate performance according to the goals set through the Policy Targets Agreement.

Applicants for bank registration must meet qualitative and quantitative criteria set out in the RBNZ Act.  Applicants who are incorporated overseas are required to have the approval of their home supervisor to conduct banking business in New Zealand, and the applicant must meet the ongoing prudential requirements imposed on it by the overseas supervisor.  Accordingly, the conditions of registration that apply to branch banks mainly focus on compliance with the overseas supervisor’s regulatory requirements.

The RBNZ introduced a Dual Registration Policy for Small Foreign Banks in December 2016.  Foreign-owned banks are permitted to apply for dual registration – operating both a branch and a locally incorporated subsidiary in New Zealand – provided both entities comply with relevant prudential requirements.  Locally incorporated subsidiaries are separate legal entities from the parent bank. They are required, among other things, to maintain minimum capital requirements in New Zealand and have their own board of directors, including independent directors.  In contrast, bank branches are essentially an extension of the parent bank with the ability to leverage the global bank balance sheet for larger lending transactions. Capital and governance requirements for branch banks are established by the home regulatory authority.  There are no local capital or governance requirements for registered bank branches in New Zealand.

New Zealand has no permanent deposit insurance scheme and the RBNZ has no requirement to guarantee the viability of a registered bank.  The RBNZ operates the Open Bank Resolution (OBR) which allows a distressed bank to be kept open for business, while placing the cost of a bank failure primarily on the bank’s shareholders and creditors, rather than on taxpayers.  While the scheme has been generally successful, in 2010 the government paid out NZD 1.6 billion (USD 1.1 billion) to cover investor losses when New Zealand’s largest locally owned finance company at the time, went into receivership.  There have since been bailouts of several insurance companies and other smaller finance companies.

New Zealand’s banking system relies on offshore wholesale funding markets as a result of low levels of domestic savings.  Banks are able to raise funds in international markets relatively easily at reasonable cost, but are vulnerable to global market volatility, geopolitics, and domestic economic conditions.  Domestically, banks face exposure due to the concentration of New Zealand exports in a small number of commodity-based sectors which can be subject to considerable price volatility. Residential mortgage and agricultural lending exposures have also presented risk.

The four largest banks (ASB, ANZ, BNZ and Westpac) control 88 percent of the retail and commercial banking market measured in terms of total banking assets.  With the addition of Kiwibank, that rises to 91 percent. Kiwibank launched in 2002 and is majority owned by NZ Post (53 percent), with the NZ Superannuation Fund (25 percent), and the Accident Compensation Corporation (22 percent).

The RBNZ report the total assets of registered banks to be about NZD 556 billion (USD 378 billion) as of March 2019.  They estimate the amount of non-performing loans to be about NZD 3.7 billion (USD 2.5 billion) for December 2018. Approximately 0.7 percent of bank loans are non-performing.

The four banks have capital generally above the regulatory requirements.  The initial findings from a RBNZ review of bank capital requirements released in March 2017 found New Zealand banks to be “in the pack” in terms of capital ratios relative to international peers.  There have since been subsequently four rounds of consultations revisiting capital requirements after the Australian Financial System Inquiry made recommendations that were subsequently accepted by the Australian Prudential Regulation Authority to improve the resilience of the Australian banks.  While this contributes to the ultimate soundness of the New Zealand subsidiaries, it does not directly strengthen their balance sheets.

In February 2019 the RBNZ proposed to almost double capital requirements for the four big banks.  The RBNZ proposed to require banks’ Tier 1 capital to be comprised solely of equity and to increase from the current minimum of 8.5 percent of total capital to 16 percent over five years.  It also wants Tier 1 capital to be pure equity, rather than hybrid-type securities that usually behave as debt but which can be converted into equity if required, and which are about a fifth of the cost of pure equity.  Since the GFC, the minimum tier 1 capital has already been raised from 4 percent of risk-weighted assets to 8.5 percent. 

All New Zealand’s banks have more tier 1 capital than the current minimum with the RBNZ estimating it averages about 12 percent.  The RBNZ expect with better capitalized banks, will improve the strength of the banking system and make bank failures less frequent.  The RBNZ admit higher capital requirements could make it more expensive for New Zealanders to borrow. A higher capital ratio could impact the RBNZ monetary policy rate and the New Zealand currency.

The RBNZ acknowledge the proposals take New Zealand to the higher end of international norms, but cite Basel Committee estimates that will put New Zealand in the third quartile.  The RBNZ has estimated the extra capital the big four Australian-owned banks will need to raise to meet its current proposals would be about NZD 20 billion (USD 13.6 billion).

Rating agency risk assessments of the large New Zealand banks is heavily influenced by expectations of support from the Australian parent banks.  While the implicit support of the parent banks is valuable, it can also present risk if they are placed on negative outlook. Ratings agency Standard & Poor’s (S&P) have said the current RBNZ proposals could place a burden on the Australian parents of New Zealand’s four major banks because the potential implications are material and complex due to cross-border regulatory issues.  Banks would also need to replace capital if they implement the additional proposal to exclude quasi-equity instruments, usually fixed interest securities that can be converted to equity if a bank gets into difficulties, from qualifying as tier 1 capital. S&P are skeptical that additional capital requirements would improve the banks’ credit ratings because they equalize their ratings on the New Zealand banks with the credit profiles of their respective parent groups, and the parent banks are highly likely to provide timely financial support for the New Zealand major banks, if needed.  Further the proposals are unlikely to affect the parent bank ratings but they will likely need to strengthen their consolidated group capital to meet RBNZ requirements. If ratings agencies do not raise their assessment, then the improved “safety” of New Zealand banks are unlikely to get access to cheaper credit as suggested.

Similarly, Fitch Ratings called the proposals radical and highly conservative relative to international peers.  But were in favor of banks’ increasing their resilience to potential threats to the stability of the financial system.

While the Zealand banking system has one of the lowest ratios of non-performing loans to gross lending in the OECD, macro prudential measures introduced in October 2013 have introduced loan-to-value ratio restrictions, defined as those with loans greater than 80 percent of value.  In the intervening years these tools have been tweaked by the RBNZ to reduce banks’ risk exposure during an escalation of house prices and debt, and several banks announced they would at least temporarily cease lending to foreigners for residential property purchases.

The penetration of New Zealand’s major banks has improved since the introduction of the voluntary superannuation scheme, KiwiSaver in 2007.  The increase in their market share is also a result of the appointment of three additional banks as default KiwiSaver providers in 2014. In 2018 there were over 2.8 million KiwiSaver members, and the amount invested in KiwiSaver schemes is estimated to be NZD 50 billion (USD 34 billion).

There are some restrictions on opening a bank account in New Zealand that include providing proof of income and needing to be a permanent New Zealand resident of 18 years old or above.  Access to money in the account will not be granted until the individual presents one form of photo ID and a proof of address in-person at a branch of the bank in New Zealand. Some banks will require a copy of the applicant’s visa.  If the applicant does not apply for an IRD number, the tax rate on income earned will default to the highest rate of 33 percent. New Zealand banks typically have a dedicated branch for migrants and businesses to set up banking arrangements.

Foreign Exchange and Remittances

Foreign Exchange

New Zealand has revoked all foreign exchange controls.  Accordingly, there are no such restrictions – beyond those that seek to prevent money laundering and financing of terrorism – on the transfer of capital, profits, dividends, royalties or interest into or from New Zealand.  Full remittance of profits and capital is permitted through normal banking channels and there is no difficulty in obtaining foreign exchange. However, withholding taxes can apply to certain payments out of New Zealand including dividends, interest, and royalties, and may apply to capital gains for non-residents and on the payment of profits to certain non-resident contractors.

New Zealand operates a free-floating currency.  As a small nation that relies heavily on trade and global financial and geopolitical conditions, the New Zealand currency experiences more fluctuation when compared with other developed high-income countries.

Remittance Policies

The Pacific Islands are the main destination of New Zealand remittances from residents and from temporary workers participating in the Recognized Seasonal Employer (RSE) scheme.  The RSE allows the horticulture and viticulture industries to recruit workers from nine Pacific Island nations for seasonal work when there are not enough New Zealand workers. The cap for workers has gradually increased over time from 5,000 when the RSE was established in 2007, to 12,850 in November 2018.  Other people who use remittance services include recently resettled refugees, and other migrant workers particularly in the hospitality and construction sectors. 

The tightening of anti-money laundering and combatting terrorism financing laws has made access to cross-border financial services difficult for some Pacific island countries.  Banks, non-bank institutions, and people in occupations that typically handle large amounts of cash, are required to collect additional information about their customers and report any suspicious transactions to the New Zealand Police.  From 2018 the law has been extended to lawyers, conveyancers, accountants, and bookkeepers, and from January 2019 it has been extended to realtors.

Financial institutions have had to comply with the AML/CFT Act since 2013 (Phase 1 sectors remitters, trust and company service providers, casinos, payment providers, lenders and other financial institutions).  If a bank is unable to comply with the Act in its dealings with a customer, it must not do business with that person. This would include not processing certain transactions, withdrawing the banking products and services it offers, and choosing not to have that person as a customer.  Since then New Zealand banks have been reducing their exposure to risks and charging higher fees for remittance services, which in some instances has led to the forced closing of accounts held by money transfer operators (MTOs). 

The New Zealand government is working with banks to improve the bankability of small MTOs, and to develop low cost products for seasonal migrant workers in the RSE.  New Zealand is also using its membership in global fora to encourage a coordinated approach to addressing high remittance costs, and is working with Pacific Island governments to find ways to lower costs in the receiving country, such as the adoption and use of an electronic payments systems infrastructure.

The New Zealand Treasury released a report in March 2017 to explore feasible policy options to address the issues in the New Zealand remittance market that would maintain access and reduce costs of remitting money from New Zealand to the Pacific.

In 2017, the Tongan Development Bank in partnership with the World Bank Group launched a remittance facility, the ‘Ave Pa’anga Pau voucher, for use between New Zealand and Tonga:  http://www.avepaanga.co.nz/. The voucher is purchased online in New Zealand and redeemed or remitted to a bank account in Tonga. The Tonga Development Bank receives the funds only via electronic payments in New Zealand before disbursing them in Tonga using the liquidity obtained by importers.

In 2018 the New Zealand and Australian governments hosted a series of roundtable meetings in Auckland, Sydney, and Tonga, with the Asian Development Bank and the International Monetary Fund that included officials from banks, MTOs, and regulators from Australia, New Zealand, and the Pacific, senior officials from international financial institutions, and training providers to discuss the issue and identify practical solutions to address the costs and risks of transferring remittances to Pacific countries and difficulties in undertaking cross-border transactions.

Sovereign Wealth Funds

The New Zealand Superannuation Fund was established in September 2003 under the New Zealand Superannuation and Retirement Income Act 2001.  The fund was designed to partially provide for the future cost of New Zealand Superannuation, which is a universal benefit paid by the New Zealand government to eligible residents over the age of 65 years irrespective or income or asset levels.

The Act also created the Guardians of New Zealand Superannuation, a Crown entity charged with managing and administering the fund.  It operates by investing initial government contributions (and the associated returns) in New Zealand and internationally, in order to grow the size of the fund over the long term.  Between 2003 and 2009, the government contributed NZD 14.9 billion (USD 10.1 billion) to the fund, after which it temporarily halted contributions during the GFC. In December 2017 the newly elected government resumed contributions, with the Fund receiving an estimated NZD 500 million (USD 340 million) payment in the year to June 2018.  Planned contributions will be NZD 1 billion (USD 680 million) in the year to June 2019, NZD 1.5 billion (USD 1 billion) to June 2020, and NZD 2.2 billion (USD 1.5 billion) to June 2021. 

The guardians have a stated commitment to responsible investment, including environmental, social and governance factors, which is closely aligned to the United Nations Principles for Responsible Investment.  It is a member of the International Forum of Sovereign Wealth Funds, and is signed up to the Santiago Principles.

In February 2019, the fund was valued at NZD 41.2 billion (USD 28 billion) of which 45.8 percent was in North America, 19.3 percent in Europe, 13.9 percent in New Zealand, 10.2 percent in Asia excluding Japan, 6.1 percent in Japan, and 2.7 percent in Australia.

Following an announcement in October 2016 the NZSF significantly reduced its exposure to both fossil fuel reserves and carbon emissions, divesting assets of value USD 690 million from 297 companies by August 2017.  The NZSF claims its global passive equity portfolio – about 40 per cent of the total fund – is “low-carbon.” However remaining investments include at least 29 airlines and over 300 companies within the oil and gas sector and the metals and mining sector.

In April 2019, the fund divested NZD 19 million (USD 13 million) from seven companies (including four U.S. companies), involved in the manufacture of civilian automatic and semi-automatic firearms, magazines or parts prohibited under recently enacted New Zealand law.  For several years the fund has explicitly excluded companies that are directly involved in the manufacture of cluster munitions, the manufacture or testing of nuclear explosive devices, the manufacture of anti-personnel mines, the manufacture of tobacco, recreational cannabis, and the processing of whale meat.  In 2013 the fund divested a group of five U.S. companies due to their involvement with nuclear weapons.

The Commercial Operations group in the New Zealand Treasury is responsible for monitoring the Crown’s interests as a shareholder in, or owner of organizations that are required to operate as successful businesses, or that have mixed commercial and social objectives.  Each entity monitored by the Treasury has a primary legislation that defines its organizational framework, which include: State-Owned Enterprises (SOEs), Crown-Owned Entity Companies, Crown Research Institutions, Crown Financial Institutions, Other Crown Entity Companies, and Mixed Ownership Model Companies.

SOEs are subject to the State-Owned Enterprises Act 1986, are registered as companies, and are bound by the provisions of the Companies Act 1993.  The board of directors of each SOE reports to two ministers, the Minister of Finance and the relevant portfolio minister. A list of SOEs and information on the Crown’s financial interest in each SOE is made available in the financial statements of the government at the end of each fiscal year.  For a list of the SOEs see: http://www.treasury.govt.nz/statesector/commercial/portfolio/bytype/soes

In the 12 months to June 30, 2018 New Zealand State-Owned Enterprises held NZD 61.7 billion (USD 42 billion) assets, earned NZD 16.9 billion (USD 11.5 billion) in revenue and yielded an operating gain of NZD 861 million (USD 585 million).  Crown entities held NZD 150 billion (USD 102 billion) assets, earned NZD 40.5 billion (USD 27.5 billion) and yielded an operating loss of NZD 474 million (USD 322 million). Air New Zealand made the largest net gain for the financial year of NZD 628 million (USD 427 million).

Most of New Zealand’s SOEs are concentrated in the energy and transportation sectors.  Private enterprises are allowed to compete with public enterprises under the same terms and conditions with respect to markets, credit, and other business operations.  For example, Contact Energy, a publicly listed company, is allowed to sell energy in direct competition with Meridian Energy Limited, which is an SOE. Under SOE Continuous Disclosure Rules, SOEs are required to continuously report on any matter that may materially affect their commercial value.

New Zealand has a history of bailing out SOEs, including Air New Zealand, and the Bank of New Zealand.  In 2013 it loaned funds at a lower than market rate to coal producer Solid Energy which ultimately went into receivership.  As mentioned previously, the government also bailed out a private non-bank financial company in 2012 to prevent catastrophic losses to local investors.

Overseas investors can apply to the OIO for consent to invest in an SOE or purchase Crown land in cases of sensitive land and significant business interests.  When the government sold part of its ownership – not through the OIO – in Air New Zealand and three energy companies in 2014, overseas investors were able to purchase shares on the secondary market, after an initial offering to New Zealand investors.  LINZ manages over 2 million hectares of land on behalf of the Crown, and manages land and property behalf of other Crown agencies. The Crown land and property data is available through the LINZ Data Service and identifies state coal and railway reserves, pastoral leases, Crown-owned Canterbury red zone properties and other land managed by LINZ.

Privatization Program

In 2019 the Treasury established the Infrastructure Transaction Unit to improve the quality of infrastructure procurement and delivery in New Zealand.  In addition to supporting major infrastructure projects, the unit has been tasked to coordinate Treasury’s Public Private Partnership (PPP) Program. The PPP manages long term contracts for the delivery of a specific service, where the provision of that service requires the construction of a new asset, or the enhancement of an existing asset, that is financed from private sources on a non-recourse basis and where full legal ownership of the asset is retained by the Crown.

New Zealand governments have embarked on several privatization programs since the 1980s, as a means to reduce government debt, move non-strategic businesses to the private sector to improve efficiency, and raise economic growth.  More recent projects include the construction of state highways, schools, and prisons: https://treasury.govt.nz/information-and-services/nz-economy/infrastructure/nz-infrastructure-commission/infrastructure-transactions-unit/public-private-partnerships/projects .

In 2014, the government completed a program of asset sales to raise funds to reduce public debt.  It involved the partial sale of three energy companies and Air New Zealand, with the government retaining its majority share in each.  The bulk of the initial share float was made available to New Zealand share brokers and international institutions, and unsold shares were made available to foreign investors.  Foreign investors are free to purchase shares on the secondary market. 

After Spark was privatized in 1990, the government retained a Kiwishare obligation of at least 10 percent due in large part to its emergency services.  Since Chorus demerged from Spark, only the former has a restriction on foreign ownership as mentioned in the earlier section.

The Treasury runs a transparent PPP procurement process that includes developing a business case, an Expression of Interest (EOI) stage to short-list bidders to participate in the Request for Proposals Stage, followed by a negotiation during the preferred bidder stage:  https://treasury.govt.nz/information-and-services/nz-economy/infrastructure/nz-infrastructure-commission/infrastructure-transactions-unit/public-private-partnerships/guidance/procurement-process . The procuring entity is required to publish the invitation for EOI on the Government Electronic Tenders Service (https://www.gets.govt.nz/ExternalIndex.htm ) or appropriate equivalent. 

The New Zealand government actively promotes corporate social responsibility (CSR), which is widely practiced throughout the country.  There are a number of New Zealand NGOs that are dedicated to facilitating and strengthening CSR, including the New Zealand Business Council for Sustainable Development, the Sustainable Business Network, and the American Chamber of Commerce in New Zealand. 

New Zealand is committed to both the OECD due diligence guidance for responsible supply chains of minerals from conflict-affected and high-risk areas, and the OECD Guidelines for Multinational Enterprises.  Multi-national businesses are the main focus, such as a New Zealand company that operates overseas, or a foreign-owned company operating in New Zealand. The guidance can also be applied to businesses with only domestic operations that form part of an international supply chain.  Individuals wishing to complain about the activity of a multi-national business that happened in another country, will need to contact the National Contact Points of that country. In New Zealand, MBIE is the NCP to carry out the government’s responsibilities under the guidelines.

To help businesses meet their responsibilities, MBIE has developed a short version of the guidelines to assess the social responsibility ‘health’ of enterprises, and for assessing the actions of governments adhering to the guidelines.  If further action is needed, MBIE provide resolution assistance, such as mediation, but do not adjudicate or duplicate other tribunals that assess compliance with New Zealand law. MBIE is assisted by a liaison group that meets once a year, with representatives from other government agencies, industry associations, and NGOs.

U.S. firms have not identified corruption as an obstacle to investing in New Zealand.  New Zealand is renowned for its efforts to ensure a transparent, competitive, and corruption-free government procurement system.  Stiff penalties against bribery of government officials as well as those accepting bribes are strictly enforced. The Ministry of Justice provides guidance on its website for businesses to create their own anti-corruption policies, particularly improving understanding of the New Zealand laws on facilitation payments.

New Zealand consistently achieves top ratings in Transparency International’s Perceptions of Corruption Perception Index.  In 2018, Transparency International ranked New Zealand 2nd out of 180 countries and territories, scoring 87 out of 100. Transparency International noted that New Zealand is one of several top ranking countries that conduct “moderate and limited enforcement of foreign bribery.”  Their 2018 Exporting Corruption report recommended the removal of the facilitation payment exception for the bribery of foreign public officials, improve whistleblower protection, introduce requirements for auditors to disclose suspicions of foreign bribery, establish comprehensive mechanisms to ensure transparency of New Zealand trust companies, such as public registers that include information on beneficial ownership, fund and develop active investigation mechanisms, remove the requirement that the Attorney General consent to foreign bribery prosecutions, introduce a positive requirement for commercial organizations to prevent foreign bribery:  https://www.transparency.org.nz/new-zealand-needs-increase-efforts-fight-foreign-bribery/. Transparency International New Zealand have listed examples of corruption occurring in the country over the past decade: https://www.transparency.org.nz/newsletter/transparency-times-january-2019/.

New Zealand joined the WTO Government Procurement Agreement (GPA) in 2012, citing benefits for exporters, while noting that there would be little change for foreign companies bidding within New Zealand’s totally deregulated government procurement system.  New Zealand’s accession to the GPA, came into effect in August 2015. New Zealand supports multilateral efforts to increase transparency of government procurement regimes. New Zealand also engages with Pacific island countries in capacity building projects to bolster transparency and anti-corruption efforts.  CPTPP contains a chapter on Transparency and Anti-Corruption which affirms parties’ commitments to eliminate bribery and corruption in international trade and investment, and outlines measures parties can implement to combat corruption.

New Zealand Government Procurement and Property (NZGPP) delivers MBIE’s procurement and property functional leadership objectives including the management of the Government Electronic Tenders Service (GETS) platform.  The NZGPP sets out the Government Rules of Sourcing which must be followed by New Zealand government departments, the Police, the Defense Force, and most Crown entities. All other New Zealand government agencies are encouraged to follow the Rules.  A range of additional mechanisms are used to bind agencies to applying the rules, including the Whole of Government Direction under section 107 of the Crown Entities Act 2004. Information on the rules is available at the MBIE site under: www.procurement.govt.nz

Internationally, New Zealand has signed and ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.  In October 2006, the OECD examined New Zealand for compliance with the convention. New Zealand has also signed and ratified the UN Convention against Transnational Organized Crime.  In 2003, New Zealand signed the UN Convention against Corruption and ratified it in December 2015.

The legal framework for combating corruption in New Zealand consists of domestic and international legal and administrative methods.  Domestically, New Zealand’s criminal offences related to bribery are contained in the Crimes Act 1961 and the Secret Commissions Act 1910. 

The New Zealand government has a strong code of conduct, the Standards of Integrity and Conduct, which applies to all State Services employees and is rigorously enforced.  The Independent Police Conduct Authority considers complaints against New Zealand Police and the Office of the Judicial Conduct Commissioner was established in August 2005 to deal with complaints about the conduct of judges.  New Zealand’s Office of the Controller and Auditor-General and the Office of the Ombudsman take an active role in uncovering and exposing corrupt practices. The Protected Disclosures Act 2000 was enacted to protect public and private sector employees who engage in “whistleblowing.”

The Ministry of Justice is responsible for drafting and administering the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) legislation and regulations.  It also provides guidance online to companies and NGOs in how to combat corruption and bribery. The New Zealand Police Financial Intelligence Unit collates information required under AML/CFT legislation.

The first phase of the AML/CFT Act 2009 came into full effect in June 2013.  The AML/CFT Amendment Act 2015 strengthened the foreign bribery offence to respond to recommendations made by the OECD Working Group on Bribery, and increased penalties for bribery and corruption in the private sector to bring them into line with public sector bribery offences.

The second phase of the AML/CFT will be enacted in 2018 after the Anti-Money Laundering and Countering Financing of Terrorism Amendment Act 2017 was passed in August 2017.  It will extend the 2009 Act to cover lawyers, conveyancers, accountants, real estate agents, and sports and racing betting. Businesses that deal in certain high-value goods, such as motor vehicles, jewelry and art, will also have obligations when they accept or make large cash transactions.

Businesses will be allotted time to comply with the Act and compliance costs are estimated to be USD 554 million and USD 762 million over ten years.  The New Zealand Police Financial Intelligence Unit estimate that NZD 1.35 billion (USD 918 million) of domestic criminal proceeds is generated for laundering in New Zealand each year, driven in part by New Zealand’s reputation as a safe and non-corrupt country.

The second phase of the AML/CFT legislation was enacted earlier than planned following a review of New Zealand’s foreign trust regime in 2016.  Following the “Panama Papers” incident in April 2016, an independent inquiry found New Zealand’s tax treatment of foreign trusts to be appropriate, but recommended changes to the regime’s disclosure requirements, which were subsequently legislated to dispel concerns New Zealand was operating as a “tax haven”.  The Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 amended the Tax Administration Act 1994 for foreign trust registration and disclosure. The changes are intended to deter offshore parties from misusing New Zealand foreign trusts, and reaffirm New Zealand’s reputation as being free of corruption.

In August 2017 the government introduced the Trusts Bill to replace the Trustee Act 1956 and the Perpetuities Act 1964 to make trust law more accessible, clarify and simplify core trust principles and essential obligations for trustees, and preserve the flexibility of the common law to allow trust law to continue to evolve through the courts.  If passed, the Trusts Bill will be the first significant change to New Zealand’s trusts legislation, and will cover all trusts including family trusts and those for corporate structures. It is estimated that there are between 300,000 and 500,000 trusts in New Zealand.

In 2019 members of the Justice Select Committee requested a wider review of the issue of foreign interference through politicized social media campaigns, and from foreign donations to political candidates standing in New Zealand elections.  The inquiry resulted from a standardized review of the 2017 general election and 2016 local body elections. In April 2019, New Zealand intelligence agencies acknowledged political donations as a legally sanctioned form of participation in New Zealand politics, but raised concerns when aspects of a donation is obscured or is channeled in a way that prevents scrutiny of the origin of the donation, with the goal to covertly build and project influence.  The Committee is considering ways New Zealand can improve upon the transparency of the regulatory regimes governing New Zealand elections. The identity of political donors is currently only required for donations above NZD 30,000 (USD 20,400), and allows for donors seeking anonymity to need only split a large donation to fit below the declaration threshold.

Resources to Report Corruption

The Serious Fraud Office and the New Zealand Police investigate bribery and corruption matters.  Agencies such as the Office of the Controller and Auditor-General and the Office of the Ombudsmen act as watchdogs for public sector corruption.  These agencies independently report on and investigate state sector activities.

Serious Fraud Office
P.O.  Box 7124 – Wellesley Street
Auckland, 1141
New Zealand
www.sfo.govt.nz  

Transparency International New Zealand is the recognized New Zealand representative of Transparency International, the global civil society organization against corruption.

Transparency International New Zealand
P.O.  Box 5248 – Lambton Quay
Wellington, 6145
New Zealand
www.transparency.org.nz  

New Zealand is a stable liberal democracy with almost no record of political violence. 

The New Zealand government raised its national security threat level for the first time from “low” to “high”, after the terrorist attack on two mosques in Christchurch on March 15, 2019.  One month later it lowered the risk to “medium” where a “terrorist attack, or violent criminal behavior, or violent protest activity is assessed as feasible and could well occur.”

The New Zealand labor market is experiencing a tightening in labor market conditions with the unemployment rate at historically low levels as the country’s net migration rate has only just started to level off after a prolonged period of record population growth.  The rise in net migration is comprised of international students, professionals, and returning New Zealand citizens. Youth unemployment (age 15-19 years) remains high at around 19.8 percent, compared with the overall rate of 4.2 percent for March 2019. The unemployment rate for those aged 15-24 years is 12.3 percent.

New Zealand operates a Recognized Seasonal Employer Scheme that allows the horticulture and viticulture industry to recruit workers from the Pacific Islands for seasonal work to supplement the New Zealand workforce.  There have been prosecutions and convictions for the exploitation of migrant workers, with reports that the hospitality, agriculture, viticulture, and construction industries are most effected. New Zealand recruitment agencies that recruit workers from abroad must utilize a licensed immigration adviser. 

Immigration advice is regulated under the Immigration Advisers Licensing Act 2007.  The act also established the Immigration Advisers Authority (IAA), the Registrar of Immigration Advisers, and the Immigration Advisers Complaints and Disciplinary Tribunal.  The licensing regime aims to protect consumers and enhance New Zealand’s reputation as a destination for migrants. 

Some foreign migrant workers were reported to have been charged excessive recruitment fees, experienced unjustified salary deductions, nonpayment or underpayment of wages, excessively long working hours, and restrictions on their movement.  Reportedly, some had their passports confiscated and contracts altered.

New Zealand has consistently maintained an active and visible presence in the International Labour Organization (ILO), being a founding member in 1919, and its representatives have attended the annual International Labour Conferences since 1935.  The ILO and the government of New Zealand have collaborated on a number of initiatives, including the elimination of child labor in Fiji, employment creation in Indonesia, the improvement of labor laws in Cambodia, rural development assistance in Timor-Leste, and the RSE Scheme.

In November 2017 the government announced the number of labor inspectorates will increase from 60 to 110 over a three-year period.  Between 2014 and 2017, the number of labor inspectors rose from 41 to 60. By 2020, the government will have added another 50 inspectors, at a cost of about NZD 9 million (USD 6.1 million).  The government seeks to take a more proactive approach to enforcing employment law in New Zealand, because the migrant worker population has increased rapidly in recent years and the resources to protect those workers have not kept up with the increase.

Workers with skills on the immediate lists will find it easier to apply for temporary work visas and, in the case of long-term shortages, resident visas.  However MBIE operates under strict criteria in order for occupations to be listed. Immediate skill shortages exist mainly in the construction, trades, engineering, health, agriculture, and forestry industries.  For more see: https://www.immigration.govt.nz/about-us/policy-and-law/how-the-immigration-system-operates/skill-shortage-lists

The government provides funding for a range of apprentice programs, particularly in the construction trades.  The Building and Construction Industry Training Organization (BCITO) is the largest provider of construction trade apprenticeships in New Zealand.  The BCITO is appointed by the government to develop and implement industry qualifications for the building and construction sector. For more see: https://www.govt.nz/browse/education/training-and-apprenticeships/apprenticeships/

Labor laws are generally well enforced, and disputes are usually handled by the New Zealand Employment Relations Authority.  Its decisions may be appealed in an Employment Court. MBIE is responsible for enforcement of laws governing work conditions.  A number of employment statutes govern the workplace in New Zealand. The most important is the Employment Relations Act (ERA) 2000, which repealed the Employment Contracts Act 1991.  Other key legislation includes the Health and Safety at Work Act 2015, Holidays Act 2003, Minimum Wage Act 1983, the Equal Pay Act 1972, the Parental Leave and Employment Protection Act 1987, and Wages Protection Act 1983.

MBIE provides guidance for employers on minimum standards of employment mandated by law, guidelines to help promote the employment relationship, and optional guidelines that are useful in some roles or industries.  Agreements on severance and redundancy packages are usually negotiated in individual agreements. For more see: https://www.employment.govt.nz/

The ERA requires registered unions to file annual membership returns with the Companies Office.  The Council of Trade Unions estimate total union membership at 407,300 for the December 2018 quarter, representing about 18.8 percent of all employees in New Zealand.  

About 413,800 (19 per cent of all employees in New Zealand) were on a collective agreement, over 1.5 million (69 percent) were on an individual agreement, 118,300 (5.5 percent) had no agreement (which is illegal under local law), and a further 6 percent did not know what kind of employment agreement they had.  By industry, the Health Care, Education, and Public Administration sectors have the highest proportion of union members, followed by Transport, and Manufacturing. Over 2018, union membership grew by 20 percent in Public Administration and Safety, Education grew by 3 percent, Health Care and Social Assistance grew by 4 percent, while Manufacturing fell by 11 percent.

The law provides for the right of workers to form and join independent unions of their choice without previous authorization or excessive requirements, to bargain collectively, and to conduct legal strikes, with some restrictions.  Contractors cannot join unions, bargain collectively, or conduct strike action. Police have the right to organize and bargain collectively, but sworn police officers (excluding clerical and support staff) do not have the right to strike or take any form of industrial action. 

Industrial action by employees who work for providers of key services are subject to certain procedural requirements, such as mandatory notice of a period determined by the service.  New Zealand considers a broader range of key “essential services” than international standards, including: the production and supply of petroleum products; utilities, emergency workers; the manufacture of certain pharmaceuticals, workers in corrections and penal institutions; airports; dairy production; and animal slaughtering, processing, and related inspection services. 

The number of work stoppages has been on a downward trend according to data from MBIE and Statistics NZ.  In 2017 there were six stoppages involving approximately 421 employees totaling 370 person-days of work lost.  This compares to 60 work stoppages in 2005 involving 17,752 employees totaling 30,028 person-days of work lost.  Work stoppages include strikes initiated by unions and lockouts initiated by employers, compiled from the record of strike or lockout forms submitted to MBIE under section 98 of the Employment Relations Act 2000.  The data does not cover other forms of industrial action such as authorized stop-work meetings, strike notices, protest marches, and public rallies. 

Industrial action appears to have increased under the new government during 2018, with some estimates from media sources as high as 70,000 people striking during the year, including nurses, teachers, junior doctors, aged care and support workers, bus drivers, port workers, fast-food workers, retail workers, steel workers, and public servants.  A planned three-day strike in December 2018 by almost 1,000 members of the Air New Zealand engineers union following a pay dispute was canceled. The strike would have disrupted almost 42,000 customers booked to travel on domestic and international flights. In the year to March 2019, public sector and private sector wage inflation both were 2 percent, with Statistics New Zealand saying was the result of collective agreements continuing to push up annual wage inflation, such as the nurses’ collective agreement, which was signed in early August 2018.  Other collective agreements over 2018 included that for the New Zealand Police, and agreements for welfare and social workers. 

The Labour-led government campaigned on a promise to lift the minimum wage to NZD20 (USD 13.60) by April 2021.  From April 1, 2019 the minimum wage for adult employees who are 16 and over and are not new entrants or trainees is NZD 17.70 (USD 12.04) per hour.  The new entrants and training minimum wage is NZD 14.16 (USD 9.63) per hour. In recent years some local government agencies have raised minimum wages for their staff up from the government mandated rate to a “living wage” estimated to be NZD 21.15 (USD 14.38) in 2019.

In December 2018, the government passed the Employment Relations Amendment Bill which aimed to restore employment law when the Labour party last led government in 2008.  The amendments are wide ranging and employers have increased compliance obligations. This includes reinstating minimum standards for rest and meal breaks, allowing union representatives to enter a workplace for the purpose of the union’s business without the consent of the employer, and restricting the 90-day trial – which allowed any employer to dismiss an employee in their first 90-days without reason – to employers with less than 20 employees.  Employers with more than 19 employees can no longer use this trial period provision from May 2019.

The government also campaigned in 2017 on repealing the Employment Relations (Film Production Work) Amendment Bill 2010, which put limits on the ability of workers on film productions to collective bargaining.  Commonly referred to as the “Hobbit law,” the period during which the amendment took effect has seen several large-scale productions filmed in New Zealand. In 2017 New Zealand’s screen industry earned revenue of NZD 3.5 billion (USD 2.4 billion), which was an increase of 8 percent on 2016.  Production and post-production businesses earned revenue of NZD 1.9 billion (USD 1.3 billion), with NZD 792 million (USD 539 million) (42 percent) coming from overseas sources. The Film Industry Working Group established by the government in January 2018, reported back in October with recommendations that include keeping parts of the current law but also allowing contractors to bargain collectively at certain occupation levels. 

New Zealand underwent its most significant workplace health and safety reform leading to the Health and Safety at Work Act 2015 and the formation of the work health and safety regulator WorkSafe New Zealand.  MBIE is the primary policy agency for workplace health and safety.

In December 2017, the government amended the Parental Leave and Employment Protection Act 1987 to increase the duration of parental leave payments in two stages.  From July 1, 2018 parental leave would increase from 18 weeks to 22 weeks, and from July 1, 2020 a further increase to 26 weeks.

The New Zealand government has an adequate labor inspectorate system to identify and remediate labor violations and hold violators accountable.  The MBIE Labor Inspectorate investigates and prosecutes unfair labor practices, such as instances of forced or child labor, and the harassment or dismissal of union members.  Employers who breach employment standards law banned from recruiting further migrant workers. Employers who have incurred an employment standards-related penalty will be banned from recruiting migrant labor for a term ranging from six months to two years, depending on the severity of the case.  For more: https://www.employment.govt.nz/resolving-problems/steps-to-resolve/labour-inspectorate/

The Health and Safety at Work Act 2015 sets out the health and safety duties for work carried out by a New Zealand business.  The Act contains provisions that affect how duties apply where the work involves foreign vessels. These provisions take account of the international law principle that foreign vessels are subject to the law that applies in the flag state they are registered under.  Generally New Zealand law does not apply to the management of a foreign-flagged vessel, but does apply to a New Zealand business that does work on that vessel. Two exceptions when the law does apply, if the New Zealand business is operating a foreign-flagged vessel under a “demise charter” arrangement, or when the foreign flagged vessel is operating between New Zealand and a workplace in the New Zealand exclusive economic zone or on the continental shelf; and that workplace is carrying out an activity associated with mineral extraction (e.g.  a drilling platform or fixed ship) that is regulated under the Exclusive Economic Zone (Environmental Effects) Act 2012 or the Crown Minerals Act 1991.

The Fisheries (Foreign Charter Vessels and Other Matters) Bill 2014 has required all foreign charter fishing vessels to reflag to New Zealand and operate under New Zealand’s full legal jurisdiction since May 2016.  The legislation was part of a range of measures that followed a Ministerial inquiry in 2012 into questionable safety, labor and fishing practices on some foreign-owned vessels. Other measures the government introduced include: compulsory individual New Zealand bank accounts for crew members; observers on all foreign-owned fishing vessels; and independent audits of charter parties to ensure crew visa requirements – including wages – are being adhered to.

In March 2017, the New Zealand government’s ratification of the ILO’s Maritime Labor Convention (MLC) came into effect.  While New Zealand law is already largely consistent with the MLC, ratification gives the Government jurisdiction to inspect and verify working conditions of crews on foreign ships in New Zealand waters.  More than 99 per cent of New Zealand’s export goods by volume are transported on foreign ships. About 890 foreign commercial cargo and cruise ships visit New Zealand each year.

In December 2017, Parliament passed an amendment to the Maritime Transport Act 1994 to implement the intergovernmental International Oil Pollution Compensation’s Supplementary Fund Protocol, 2003.  Accession to the Fund gives New Zealand access to compensation in the event of a major marine oil spill from an oil tanker, and exercises New Zealand’s right to exclude the costs of wreck removal, cargo removal and remediating damage due to hazardous substances from liability limits.  Accession to the Protocol was prompted in part by New Zealand’s worst maritime environmental disaster in October 2011 when a Greek flagged cargo ship ran aground creating a 331 ton oil spill resulting in NZD 500 million (USD 340 million) in clean-up costs.

As an OECD member country and developed nation, New Zealand is not eligible for OPIC programs.  Although the New Zealand government does not provide OPIC-like services to encourage New Zealand investment in developing countries, New Zealand is a member of the Multilateral Investment Guarantee Agency (MIGA).  It also has an export insurance program administered under the New Zealand Export Credit Office (NZECO) within the New Zealand Treasury. Its purpose is to support the internationalization of New Zealand exporters through the provision of trade credit insurance and financial guarantees that cover a range of political and commercial risks associated with doing international business.  NZECO’s financial guarantees and insurance policies are fully backed by the New Zealand Government through the Minister of Finance. The maximum aggregate liability under the scheme is NZD 740 million (USD 503 million).

Table 2: Key Macroeconomic Data, U.S.  FDI in Host Country/Economy

* Host country statistics differ from USG and international sources due to calculation methodologies, and timing of exchange rate conversions.  Almost a third of inbound foreign direct investment in New Zealand is in the financial and insurance services sector. Foreign direct investment data for 2017 was released in July 2018.   Statistics New Zealand data available at www.stats.govt.nz  

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Economic Officer
U.S. Embassy Wellington
PO Box 1190
Wellington 6140
New Zealand
+64-4-462-6000

Policies Towards Foreign Direct Investment

With the exception of a heavily protected agricultural sector, foreign investment into Switzerland is generally not hampered by significant barriers, with no reported discrimination against foreign investors or foreign-owned investments.  Incidents of trade discrimination do exist, for example with regards to agricultural goods such as bovine genetics products. Some city and cantonal governments offer access to an ombudsman, who may address a wide variety of issues involving individuals and the government, but does not focus exclusively on investment issues.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic enterprises may engage in various forms of remunerative activities in Switzerland and may freely establish, acquire, and dispose of interests in business enterprises in Switzerland.  There are, however, some investment restrictions in areas under state monopolies, including certain types of public transportation, postal services, alcohol and spirits, aerospace and defense, certain types of insurance and banking services, and the trade in salt.  Restrictions (in the form of domicile requirements) also exist in air and maritime transport, hydroelectric and nuclear power, operation of oil and gas pipelines, and the transportation of explosive materials. Additionally, the following legal restrictions apply within Switzerland:

Corporate boards: The board of directors of a company registered in Switzerland must consist of a majority of Swiss citizens residing in Switzerland; at least one member of the board of directors who is authorized to represent the company (i.e., to sign legal documents) must be domiciled in Switzerland.  If the board of directors consists of a single person, this person must have Swiss citizenship and be domiciled in Switzerland. Foreign controlled companies usually meet these requirements by nominating Swiss directors who hold shares and perform functions on a fiduciary basis. Mitigating these requirements is the fact that the manager of a company need not be a Swiss citizen and, with the exception of banks, company shares can be controlled by foreigners.  The establishment of a commercial presence by persons or enterprises without legal status under Swiss law requires an establishment authorization according to cantonal law. The aforementioned requirements do not generally pose a major hardship or impediment for U.S. investors.

Hostile takeovers: Swiss corporate shares can be issued both as registered shares (in the name of the holder) or bearer shares.  Provided the shares are not listed on a stock exchange, Swiss companies may, in their articles of incorporation, impose certain restrictions on the transfer of registered shares to prevent hostile takeovers by foreign or domestic companies (article 685a of the Code of Obligations).  Hostile takeovers can also be annulled by public companies; however, legislation introduced in 1992 made this practice more difficult.  Public companies must cite in their statutes significant justification (relevant to the survival, conduct, and purpose of their business) to prevent or hinder a takeover by a foreign entity.  Furthermore, public corporations may limit the number of registered shares that can be held by any shareholder to a percentage of the issued registered stock. In practice, many corporations limit the number of shares to 2-5 percent of the relevant stock.  Under the public takeover provisions of the 2015 Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading and its 2019 amendments, a formal notification is required when an investor purchases more than 3 percent of a Swiss company’s shares.  An “opt-out” clause is available for firms which do not want to be taken over by a hostile bidder, but such opt-outs must be approved by a super-majority of shareholders and must take place well in advance of any takeover attempt.

Banking: Those wishing to establish banking operations in Switzerland must obtain prior approval from the Swiss Financial Market Supervisory Authority (FINMA), a largely independent agency, administered under the Swiss Federal Department of Finance.  FINMA promotes confidence in financial markets and works to protect customers, creditors, and investors. FINMA approval of bank operations is generally granted if the following conditions are met: reciprocity on the part of the foreign state; the foreign bank’s name must not give the impression that the bank is Swiss; the bank must adhere to Swiss monetary and credit policy; and a majority of the bank’s management must have their permanent residence in Switzerland.  Otherwise, foreign banks are subject to the same regulatory requirements as domestic banks.

Banks organized under Swiss law must inform FINMA before they open a branch, subsidiary, or representation abroad.  Foreign or domestic investors must inform FINMA before acquiring or disposing of a qualified majority of shares of a bank organized under Swiss law.  If exceptional temporary capital outflows threaten Swiss monetary policy, the Swiss National Bank, the country’s independent central bank, may require other institutions to seek approval before selling foreign bonds or other financial instruments.  On December 20, 2008, government deposit insurance of individual current accounts held in Swiss banks was raised from CHF 30,000 to CHF 100,000.

Insurance: A federal ordinance requires the placement of all risks physically situated in Switzerland with companies located in the country.  Therefore, it is necessary for foreign insurers wishing to provide liability coverage in Switzerland to establish a subsidiary or branch in-country.

U.S. investors have not identified any specific restrictions that create market access challenges for foreign investors.

Other Investment Policy Reviews

The World Trade Organization’s (WTO) September 2017 Trade Policy Review of Switzerland and Liechtenstein includes investment information.  Other reports containing elements referring to the investment climate in Switzerland include the OECD Economic Survey of November 2017.

• Link to the WTO report: https://www.wto.org/english/tratop_e/tpr_e/tp_rep_e.htm#bycountry  

• Link to the OECD reports / papers: https://www.oecd-ilibrary.org/economics/oecd-economic-surveys-switzerland_19990464;jsessionid=174m5wrgvwd7j.x-oecd-live-02  

Business Facilitation

The Swiss government-affiliated non-profit organization Switzerland Global Enterprise (SGE) has a nationwide mandate to attract foreign business to Switzerland on behalf of the Swiss Confederation.  SGE promotes Switzerland as an economic hub and fosters exports, imports, and investments. Larger regional offices include the Greater Geneva-Berne Area (that covers large parts of Western Switzerland), the Greater Zurich Area, and the Basel Area.  Each canton has a business promotion office dedicated to helping facilitate real estate location, beneficial tax arrangements, and employee recruitment plans. These regional and cantonal investment promotion agencies do not require a minimum investment or job-creation threshold in order to provide assistance. However, these offices generally focus resources on attracting medium-sized entities that have the potential to create between 50 and 249 jobs in their region.

References:

• The Swiss government’s online portal (“easygov”) is Switzerland’s online registration website and includes links to the main local interlocutors for business related questions: https://www.easygov.swiss/easygov/#/  
• Switzerland Global Enterprise connects companies with potential host regions: https://www.s-ge.com/en/investment-promotion  
• Some of the larger promotion offices are:
  • Invest Western Switzerland Area: https://www.ggba-switzerland.ch/  
  • Greater Zurich Area: https://www.greaterzuricharea.com  
  • Basel Area: https://www.baselarea.ch/  

Switzerland has a dual system for granting work permits and allowing foreigners to create their own companies in Switzerland.  Employees who are citizens of the EU/EFTA area can benefit from the EU Free Movement of Persons Agreement. U.S. citizens who are not citizens of an EU/EFTA country and want to become self-employed in Switzerland must meet Swiss labor market requirements.  The criteria for admittance, usually not creating a hindrance for U.S. persons, are contained in the Federal Act on Foreign Nationals (FNA), the Decree on Admittance, Residence and Employment (VZAE) and the provisions of the FNA and the VZAE.

• The Federal Act on Foreign Nationals (FNA) (unofficial English translation): https://www.admin.ch/opc/en/classified-compilation/20020232/index.html  
• Decree on Admittance, Residence and Employment (VZAE) (not available in English): https://www.admin.ch/opc/de/classified-compilation/20070993/index.html  
• Provisions of the FNA and the VZAE (not available in English): https://www.ejpd.admin.ch/dam/data/bfm/rechtsgrundlagen/weisungen/auslaender/weisungen-aug-d.pdf 

Setting up a company in Switzerland requires registration at the relevant cantonal Commercial Registry.  The cost for registering a company is typically USD 1,300 – USD 15,200, depending on the company type. These costs mainly cover the Public Notary and entry into the Commercial Registry.

Other steps/procedures for registration include: 1) placing paid-in capital in an escrow account with a bank; 2) drafting articles of association in the presence of a notary public; 3) filing a deed certifying the articles of association with the local commercial register to obtain a legal entity registration; 4) paying the stamp tax at a post office or bank after receiving an assessment by mail; 5) registering for VAT; and 6) enrolling employees in the social insurance system (federal and cantonal authorities).

The World Bank Doing Business Report 2019 ranks Switzerland 38th in the ease of doing business among the 190 countries surveyed, and  77th in the ease of starting a business, with a  six-step registration process and 10 days required to set up a company.

Outward Investment

While Switzerland does not explicitly promote or incentivize outward investment, Switzerland’s export promotion agency Switzerland Global Enterprise facilitates overseas market entry for Swiss companies through its Swiss Business Hubs in several countries, including the United States.  Switzerland does not restrict domestic investors from investing abroad.

The United States and Switzerland do not have a bilateral investment agreement (BIT).  Switzerland has concluded numerous investment protection treaties with developing and emerging market economies; over 112 BITs and 29 relevant Free Trade Agreements (FTAs) with investment commitments are in force.

See the UNCTAD Investment Policy Hub for a full listing of BITs: https://investmentpolicyhub.unctad.org/IIA/CountryBits/203#iiaInnerMenu  

Currently, Switzerland is in various stages of discussions regarding FTAs with Algeria, Belarus, India, Kazakhstan, Malaysia, MERCOSUR, Russia, Thailand, and Vietnam.

Switzerland concluded an Income Tax Treaty with the United States in 1996.  https://www.irs.gov/businesses/international-businesses/switzerland-tax-treaty-documents  

A 2009 Protocol to this Treaty – ratified by Switzerland but not by the U.S. Senate – has not yet entered into force.

Transparency of the Regulatory System

The Swiss government uses transparent policies and effective laws to foster a competitive investment climate.  Proposed laws and regulations are open for three-month public comment from interested parties, interest groups, cantons, and cities before being discussed within the bicameral parliament.  Proposals may be subject to facultative or automatic referenda that allow Swiss voters to reject or accept the proposals. Only in rare instances – such as the case of the extension of a moratorium until 2021 on planting GMO crops – are regulations reviewed on the basis of political or customer preferences rather than solely on the basis of scientific analysis.

Transparency of Public Finances and Debt Obligations

The Swiss government regularly publishes financial reports that provide transparency regarding planned expenditures and/or expenditures that have been approved and carried out, as well as projected and realized receipts.  Through its annual budgeting and financial planning exercises, the Swiss government approves expenditures and receipts and forecasts spending and revenue in the three years following the budget period. A financial plan is published every four years in accordance with the legislative period plan.  In addition, supplementary funding is submitted to parliament for urgent new tasks or budget extensions that do not emerge during the budget year. The Federal Council creates extrapolations outlining the probable annual results during a budget period and submits an account of the public finances to parliament the following year together with the federal financial statements.

International Regulatory Considerations

Switzerland is not a member of the European Union.  However, Switzerland adopts many EU standards.

The WTO concluded in 2017 that Switzerland has regularly notified its draft technical regulations, ordinances, and conformity assessment procedures to the WTO TBT Committee.  Switzerland has been a signatory to the Trade Facilitation Agreement (TFA) since September 2, 2015.

Legal System and Judicial Independence

Swiss civil law is codified in the Swiss Civil Code (which governs the status of individuals, family law, inheritance law, and property law) and in the Swiss Code of Obligations (which governs contracts, torts, commercial law, company law, law of checks and other payment instruments).  Switzerland’s civil legal system is divided into public and private law. Public law governs the organization of the state, as well as the relationships between the state and private individuals or other entities, such as companies. Constitutional law, administrative law, tax law, criminal law, criminal procedure, public international law, civil procedure, debt enforcement, and bankruptcy law are sub-divisions of public law.  Private law governs relationships among individuals or entities. Intellectual property law (copyright, patents, trademarks, etc.) is an area of private law. Labor is governed by both private and public law.

All cantons have a high court, which includes a specialized commercial court in four cantons (Zurich, Bern, St. Gallen and Aargau).  The organization of the judiciary differs by canton; smaller cantons have only one court, while larger cantons have multiple courts.  Cantonal high court decisions can be appealed to the Swiss Supreme Court. The court system is independent, competent, and fair.

Switzerland is party to a number of bilateral and multilateral treaties governing the recognition and enforcement of foreign judgments.  The Lugano Convention, a multilateral treaty tying Switzerland to European legal conventions, entered into force in 2011 (replacing an older legal framework by the same name).  A set of bilateral treaties is also in place to handle judgments of specific foreign courts. While no such agreement is in place between the United States and Switzerland, Switzerland operates under the New York Convention on Recognition and Enforcement of Foreign Arbitral Law, meaning local courts must enforce international arbitration awards under specific circumstances.

Laws and Regulations on Foreign Direct Investment

The major laws governing foreign investment in Switzerland are the Swiss Code of Obligations, the Lex Friedrich/Koller, Switzerland’s Securities Law, the Cartel Law and the Financial Market Infrastructure Act.  There is no specific screening of foreign investment beyond a normal anti-trust review. Citing Switzerland’s existing comprehensive and effective set of rules to prevent unwanted takeovers in critical infrastructure sectors,  the Federal Council decided on February 19, 2019 against adopting an investment screening mechanism, arguing it would not bring additional benefits to Switzerland, and recommended maintaining the status quo with further monitoring and review of the situation over four years.  There are few sectoral or geographic incentives or restrictions; exceptions are described below in the section on performance requirements and incentives.

Some former public monopolies retain their historical market dominance despite partial or full privatization. Foreign investors sometimes find it difficult to enter these markets due to high entry costs and the relatively small size and linguistic divisions of the Swiss market (e.g., certain types of public transportation, postal services, alcohol and spirits, aerospace and defense, certain types of insurances and banking services, and the trade in salt).

There is no pronounced interference in the court system that should affect foreign investors.

Useful websites:

• The Swiss Code of Obligations, including an unofficial English translation: https://www.admin.ch/opc/en/classified-compilation/19110009/index.html  
• Information on the acquisition of property in Switzerland by persons abroad: https://www.bj.admin.ch/dam/data/bj/wirtschaft/grundstueckerwerb/lex-e.pdf 
• The Federal Act on Stock Exchanges and Securities Trading (unofficial English translation): https://www.six-swiss-exchange.com/download/participants/participation/education/sesta-stock-exchange-act-en.pdf 
• The Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (Unofficial English translation): https://www.admin.ch/opc/en/classified-compilation/20141779/index.html  
• The Federal Act on Cartels and other Restraints of Competition including an unofficial English translation: https://www.admin.ch/opc/en/classified-compilation/19950278/index.html  
• Switzerland Global Enterprise provides a “handbook for investors” with the relevant laws: https://www.s-ge.com/en/publication/handbook-investors/handbook-investors  

Competition and Anti-Trust Laws

The Swiss Competition Commission   and the Swiss Takeover Board   review competition-related concerns.  In 2017, the Swiss Takeover Board concluded that Chinese conglomerate HNA had failed to list the HNA co-founders correctly as beneficial owners in its acquisition prospectus of Swiss airline caterer gategroup Holding AG and tasked the Swiss financial regulator and stock exchange with investigating potential breaches of Swiss financial regulations.  HNA was found guilty and was sentenced to pay a financial penalty of CHF 50,000 (USD 50,000).

Expropriation and Compensation

There are no known cases of expropriation within Switzerland.

Dispute Settlement

ICSID Convention and New York Convention

Switzerland has been a member of the International Center for Settlement of Investment Disputes (ICSID) since June 14, 1968, and a member of the New York Convention on Recognition and Enforcement of Foreign Arbitral Law since June 1, 1965.  Switzerland’s Federal Act on Private International Law (Art. 190 and 194) sets a minimum standard for the implementation of international arbitration awards in Switzerland.

Investor-State Dispute Settlement

Based on Switzerland’s membership in the New York Convention on Recognition and Enforcement of Foreign Arbitral Law, local courts are entitled to enforce international arbitration awards.  According to Switzerland’s State Secretariat for Economic Affairs, Switzerland has never been a party to an investment dispute involving international arbitration.

International Commercial Arbitration and Foreign Courts

Swiss courts recognize and enforce foreign arbitral awards in the framework of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards  .  Post has no knowledge of any investor disputes in Switzerland involving U.S. persons within the last 10 years.

As business associations organized at the cantonal level, the Chambers of Commerce and Industry, of Basel, Bern, Geneva, Lausanne, Lugano, Neuchâtel, and Zurich have established the Swiss Chambers’ Arbitration Institution.  This entity offers dispute resolution based on Swiss Rules of International Arbitration and Swiss Rules of Commercial Mediation. According to the Swiss Chambers’ Arbitration Institution, 100 cases were submitted in 2015 (latest available data); 89 of these cases involved foreign parties.

Bankruptcy Regulations

Switzerland’s bankruptcy law does not criminalize bankruptcy.  Under the bankruptcy law, the same rights and obligations apply to foreign and Swiss contract holders.

Swiss authorities provide information about Swiss residents and companies regarding debts registered with the debt collection register.

The World Bank’s 2019 “Doing Business” survey ranks Switzerland 46th out of 190 countries in resolving insolvency.  The average time to close a business in Switzerland is three years (compared to 1.7 years average across the OECD), with an average of 46.7 cents on the dollar recovered by claimants from insolvent firms (compared to 71.2 cents OECD average).

The Swiss Federal Statute on Private International Law (PILS, Art. 166-175, in force since January 1, 1989) governs Swiss recognition of foreign insolvency proceedings, including bankruptcies, foreign composition, and arrangements.  Swiss law requires reciprocity for recognition of foreign insolvency.

Federal Statute on Debt Enforcement and Bankruptcy of 11 April 1889 (https://wipolex.wipo.int/en/details.jsp?id=17092   in German, French and Italian).

Investment Incentives

Many of Switzerland’s cantons make significant use of financial incentives to attract investment to their jurisdictions.  Some of the more forward-leaning cantons have occasionally waived taxes for new firms for up to ten years. However, this practice has been criticized by the OECD and European Union.  To satisfy OECD and EU standards, the Federal Council proposed the “Corporate Tax Reform III” (later renamed “Tax Reform and AHV Financing” (TRAF), which was approved by the Swiss parliament on September 28, 2018 and was accepted by 64.4 percent of Swiss voters in a May 19, 2019 popular vote.  Left-leaning parties had successfully organized opposition to CTR III, arguing that the proposed reform would benefit business while creating a tax revenue shortfall that would ultimately be borne by individual households.  TRAF appeased some on the Left by including a provision for the federal government to boost Swiss pension system (AHV) funding by CHF 2 billion (USD 2 billion) annually.  The Swiss Finance Ministry notes, however, that this injection will not resolve the structural problem that the pay-as-you-go AHV system is facing.  Green Party leaders criticized TRAF’s passage in Swiss media, stressing that an anticipated CHF 2 billion (USD 2 billion) tax revenue shortfall created by the tax reform would ultimately affect social services, regardless of the government’s additional AHV financing.  TRAF’s proponents have argued that greater investment and job growth resulting from the lower tax rates would likely offset the revenue shortfall. Whatever the economic reasoning, commentators note sweetening the pension pot favorably impacted some voters’ view of the tax reform law.

Entering into force on January 1, 2020, TRAF will oblige Swiss cantons to offer the same corporate tax rates to both Swiss and foreign companies, but will allow cantons to continue to set their own cantonal rates and offer incentives for corporate investment through deductions and preferential tax treatment for certain types of income.  Observers note that tax-friendly cantons such as Zug will likely remain competitive for foreign investment by continuing to offer aggressive incentives.  Swiss firms will also likely benefit, as overall cantonal tax rates are expected to decrease under TRAF.

The new proposed corporate tax code aims to create an internationally compliant, competitive tax system for companies while strengthening the AHV (Swiss pension scheme).  The TRAF tax reform is intended to safeguard the appeal and competitiveness of Switzerland as a business location and secure jobs and tax receipts in the medium to longer term.  In addition, the proposal will generate additional receipts for the AHV, thus helping to secure pensions. If approved by the Swiss public, TRAF would enter into force on January 1, 2020, abolishing special tax privileges that only apply to foreign firms and establishing a level playing field between Swiss and foreign companies, while allowing cantons to offer various tax deductions to incentivize investment.  Many cantons have already lowered their overall corporate tax rate independently of the reform to accommodate foreign companies. Zurich, which is sometimes used as a reference point for corporate location tax calculations within Switzerland, has a combined corporate tax rate of roughly 25 percent, including municipal, cantonal, and federal tax.

Individual income tax rates also vary widely across the 26 cantons.

Foreign Trade Zones/Free Ports/Trade Facilitation

Switzerland’s free ports remain an important hub particularly for art works and collectibles from all over the world.  The country has taken steps in recent years to minimize the risks of abuse in free ports and to ensure that processes are in line with international standards.

Performance and Data Localization Requirements

There are no “forced localization” laws designed to require foreign investors to use domestic content in goods or technology (e.g., data storage within Switzerland).  In a June 2017 court decision regarding a February 2014 Federal Council decision to exclude a foreign competitor from bidding on services related to the government’s critical infrastructure, the court ruled in favor of the Swiss State-Owned Enterprise involved in the bid.  U.S. companies have to date not voiced concerns.

Switzerland follows strict privacy laws and certain data may not be collected in Switzerland, as it is deemed personal and particularly “worthy of protection.”  The collection of certain data may need to be registered at the office of the Federal Data Protection and Information Commissioner. Some foreign companies have located data centers in Switzerland due to the country’s strict privacy rules and neutrality.  On April 1, 2018, FINMA published an outsourcing circular clarifying regulations for data storage for the banking and insurance sector at: https://www.finma.ch/en/documentation/circulars/  

Real Property

Physical property rights are recognized and enforced within Switzerland, which currently ranks 16th out of 190 countries in the ease of transferring and registering property, according to the World Bank’s Doing Business Report 2019.

Intellectual Property Rights

According to the World Intellectual Property Organization’s (WIPO’s) World Intellectual Property Indicators, in 2017 Switzerland ranked 8th globally in filing patents, 11th in industrial designs, and 14th in trademarks, which reflects Switzerland’s overall strong protection and enforcement of intellectual property rights (IPR).  In 2016, USTR placed Switzerland on its Special 301 Watch List due to concerns regarding specific difficulties in Switzerland’s system of online copyright protection.  A legal proposal to address these issues was sent to parliament in November 2017. If the proposed draft law now being debated is approved by parliament, the amended law is expected to provide right holders with necessary tools to limit online piracy, including stay-down obligations for Swiss internet hosting providers and allow the use of IP addresses to file complaints against illegal uploaders.  If approved by parliament in 2019, the revised Copyright Act is expected to enter into force in 2020.

Federal customs authorities in Switzerland have the authority to seize counterfeit goods, upon request from the IPR holder or from related interest groups (e.g., professional associations).  Goods can be seized for 10 days if there is reasonable suspicion that they are counterfeit. Provisional measures can also be obtained from a Swiss court to ensure evidence is not destroyed. If the destruction of goods is requested by an IPR holder, the owner of the goods can dispute that claim in writing within 10 days.  In 2018, Swiss customs conducted 1,682 interventions and seized counterfeit goods valued at USD 20 million (excluding pharmaceuticals, which are tracked separately).  Of the goods seized at the Swiss border, 86.2 percent included bags, watches, jewelry and glasses.  In 2018, a total of 3,203 pharmaceutical consignments, which included both counterfeit and excess items, were reported to Swissmedic, the surveillance authority for medicines and medical devices.  42 percent of the seized consignments came from India.

Detailed information is available on Swiss Customs website: https://www.ezv.admin.ch/ezv/en/home/documentation/publications/fakten_und_zahlen.html  

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at https://www.wipo.int/directory/en/  .

Resources for Rights Holders

Thomas (Toby) Wolf, Economic/Commercial Officer
Theodore Fisher, Economic/Commercial Officer
Nadia Nadalin, Economic Assistant
U.S. Embassy in Bern, Sulgeneckstrasse 19, 3003 Bern, Switzerland
+41 31 357 7319
Email: Business-bern@state.gov

Country / Economy resources

Swiss American Chamber of Commerce
Talacker 41
8001 Zurich
+41 43 443 72 00
Email: info@amcham.ch

Capital Markets and Portfolio Investment

The Swiss government’s attitude toward foreign portfolio investment and market structures is positive, resulting in high global rankings by many indices.

The SIX Swiss stock exchange based in Zurich is one of the top stock markets worldwide based on market capitalization.

Money and Banking System

Switzerland is home to a sophisticated banking system that provides a high degree of service to both foreign and domestic entities.  Switzerland also has an effective regulatory system that encourages and facilitates portfolio investment. Domestic and foreign bidders are treated equally when it comes to hostile takeovers within Switzerland.  The Swiss Bankers Association (SBA), a trade association of almost 300 member financial institutions, estimated that Switzerland’s banks held assets amounting to approximately USD 7 trillion in 2018, almost half of which belong to foreigners.  The largest banks, UBS and Credit Suisse, each hold about USD 1 trillion in assets, while Raiffeisen Switzerland holds about USD 220 billion and Zurich Cantonal Bank holds roughly USD 172 billion. Swiss banks maintain a high ratio of deposit assets when compared with the country’s GDP (178 percent), a measure of the strength of the financial system.  Switzerland also maintains an independent central bank – the Swiss National Bank (SNB).

U.S. citizens who are resident in Switzerland may face difficulties in opening bank accounts at smaller Swiss banks as a result of the administrative costs of complying with additional regulatory and administrative procedures required for U.S. related person accounts under accepted disclosure rules.

The Swiss government created a blockchain task force in January 2018 to foster cooperation between the traditional banking sector and the nascent industry and to discuss potential legal and regulatory reforms to attract blockchain technologies while maintaining anti-money laundering controls.  In December 2018, the Swiss government endorsed a report on the legal framework for blockchain and distributed ledger technology (DLT) in the financial sector with the goal of creating favorable conditions for Switzerland to establish itself and evolve as a leading location for fintech and DLT companies.  On March 22, 2019, the Swiss government initiated consultations on adapting federal legislation to recent developments in DLT.

Several associations provide information about Swiss banks that offer services to U.S. clients:

• https://www.amcham.ch/publications/p_publications.asp?publication=Other percent20Chamber percent20Publications  
• https://americanswelcome-expats.swiss/list-of-swiss-banks.php  

Foreign Exchange and Remittances

Foreign Exchange

On January 15, 2015 the Swiss National Bank (SNB) abandoned the Swiss franc’s euro peg (1.20 CHF/EUR).  In the wake of the SNB’s announcement, the franc increased over 30 percent in value against the euro. The franc currently trades at around 1.13 CHF/EUR.  The Swiss franc trades around parity with the dollar, with one Swiss franc equaling 0.9986 USD (as of 04/04/2019).

Since 2015, the SNB has attempted to prevent further strengthening of the Swiss franc by instituting a negative interest rate for commercial bank deposits at the SNB, currently -0.75 percent, while continuing an expansionary monetary policy through intervention in the foreign currency market.  As of March 21, 2019, the SNB maintained its assessment that the Swiss franc is “highly valued.” The strength of the franc has lowered effective prices of imports to Switzerland, but it also has harmed Swiss competitiveness as an export-oriented economy. In 2018, the Swiss franc remained fairly stable against the euro and the U.S. dollar.

Remittance Policies

There are currently no restrictions on converting, repatriating, or transferring funds associated with an investment (including remittances of capital, earnings, loan repayments, lease payments, royalties) into a freely usable currency and at the a legal market clearing rate.

Sovereign Wealth Funds

Switzerland does not have a sovereign wealth fund or an asset management bureau.

The Swiss Confederation is the largest or sole shareholder in Switzerland’s five State-Owned Enterprises (SOEs), active in the areas of ground transportation (SBB), information and communication (Swiss Post, Swisscom), defense (RUAG – currently slated for a split and partial privatization), and aerospace (Skyguide).  These companies are typically responsible for “public function mandates,” but may also cover commercial activities (e.g., Swisscom in the area of telecommunications). SOEs typically have commercial relationships with private industry; Swisscom and RUAG are also active in foreign markets. Private sector competitors can compete with SOEs under the same terms and conditions with respect to access to markets, credit, and other business operations.  Additional SOEs controlled by the cantons are active in the areas of energy, water supply, and a number of subsectors. SOEs may benefit from exclusive rights and privileges (some of which are listed in Table A 3.2 of the WTO Trade Policy Review https://www.wto.org/english/tratop_e/tpr_e/tp455_e.htm  .

Switzerland is a party to the WTO Government Procurement Agreement (GPA).  Some areas are partly or fully exempted from the GPA, such as the management of drinking water, energy, transportation, telecommunications, and defense.  Private companies may encounter difficulties gaining business in these exempted sectors.

Privatization Program

In the aftermath of a 2016 cyberattack, the Federal Council reviewed RUAG’s structure in light of cybersecurity concerns for the Swiss military and decided in June 2018 to split the company. As of January 1, 2020, RUAG will divide its corporate structure into MRO Switzerland, which will serve the Swiss Armed Forces, and RUAG International, which will be partially privatized and will focus on aerospace technology.

The Swiss Confederation and Swiss companies are generally aware of the importance of pursuing due diligence to responsible business conduct (RBC) and demonstrating corporate social responsibility (CSR).  In response to criticism from civil society about the business practices of Swiss companies abroad, the Swiss government commissioned a series of reports on the government’s role in ensuring CSR, particularly in the commodities sector, and in December 2016 published a national action plan in conjunction with its commitments under the UN Guiding Principles on Business and Human Rights (https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-64884.html  ).  In June 2017, the Swiss government report on the progress of the action plan concluded that Switzerland promotes voluntary principles, such as the upholding of human rights standards, and also supports including mandatory CSR market incentives, such as minimum conditions for the protection of workers abroad, in forthcoming legislation.

The latest updates on corporate social responsibility are available on https://www.seco.admin.ch/seco/en/home/Aussenwirtschaftspolitik_Wirtschaftliche_Zusammenarbeit/Wirtschaftsbeziehungen/Gesellschaftliche_Verantwortung_der_Unternehmen.html  

There is ongoing political debate over whether Swiss courts should exercise jurisdiction over alleged human rights and environmental abuses by Swiss companies abroad. On March 12, 2019, the Swiss Senate voted narrowly to reject talks on a counter-proposal on responsible business put forward by the Lower House of Parliament.  The debate may culminate in an eventual vote on a popular initiative, known as the “Responsible Business Initiative” (RBI), in which Swiss citizens will decide whether to adopt or reject a partial revision of the Swiss Constitution that aims to introduce a specific provision on responsible business (https://www.bk.admin.ch/ch/f/pore/vi/vis462t.html  ).

Switzerland ranked 1st out of 180 countries in the 2018 Yale University-based Environmental Performance Index (EPI).

The Swiss government implements the OECD Due Diligence Guide for Responsible Supply Chains of Minerals from Conflict and High Risk Areas.  Switzerland is a member of the Extractive Industries Transparency Initiative and supports the Better Gold Initiative, which promotes responsible gold mining in Peru, with plans to expand to Bolivia and Colombia.  Switzerland’s Point of Contact for the OECD Guidelines at the State Secretariat for Economic Affairs (SECO) within the Federal Department of Economic Affairs, Education, and Research, may be contacted at: https://mneguidelines.oecd.org/ncps/switzerland.htm  

Information about the Swiss Better Gold Association: https://www.swissbettergold.ch/en/about  

Switzerland has signed a number of nonbinding agreements outlining best practices for corporations, including the Voluntary Principles on Security and Human Rights and the International Code of Conduct for Private Security Service Providers.

Under Swiss law, officials are not to accept anything that would “challenge their independence and capacity to act.”  According to the law, the range of permissible receipt of “individual advantages” is a sliding scale, depending on the role of the official.  Some officials may receive advantages up to several hundred Swiss francs, while others may receive no advantages at all (e.g., those working for financial regulators).  The upper limit value for gifts, such as champagne or watches, is a grey area that varies according to department and canton. Transparency International has recommended that at the federal level a maximum sum should be set.

The law provides criminal penalties for official corruption, and the government generally implements these laws effectively.  Investigating and prosecuting government corruption is a federal responsibility. A majority of cantons requires members of cantonal parliaments to disclose their interests.  A joint working group comprising representatives of various federal government agencies works under the leadership of the Federal Department of Foreign Affairs (MFA) to combat corruption.  Some multinationals have assisted with the fight against corruption by setting up internal hotlines to enable staff to report problems anonymously.

On September 24, 2009, Switzerland ratified the United Nations Convention against Corruption.  Swiss Government experts believe this ratification did not result in significant domestic changes, since passive and active corruption of public servants was already considered a crime under the Swiss Criminal Code (Art. 322).

A Group of States against Corruption (GRECO, Council of Europe) review in March 2017 recommended the adoption of a code of ethics/conduct, together with awareness-raising measures, for members of the federal parliament, judges, and the Office of the Attorney General (OAG) to avoid conflict of interests.  These measures needed to be accompanied by a reinforced monitoring of members of parliament’s compliance with their obligations. In March 2018, the OECD Working Group on Bribery in International Business Transactions recommended that Switzerland adopt an appropriate legal framework to protect private sector whistleblowers from discrimination and disciplinary action, to ensure that sanctions imposed for foreign bribery against natural and legal persons are effective, proportionate, and dissuasive, and to ensure broader and more systematic publication of concluded foreign bribery cases.  The OECD Working Group positively highlighted Switzerland’s proactive policy on seizure and confiscation, its active involvement in mutual legal assistance, and its role as a promoter of cooperation in field of foreign bribery. Regarding detection, the OECD Working Group commended the key role played by the Swiss Financial Intelligence Unit (MROS) in detecting foreign bribery.

A number of Swiss federal administrative authorities are involved in combating bribery.  The Swiss State Secretariat for Economic Affairs (SECO) deals with issues relating to the OECD Convention.  The Federal Office of Justice deals with those relating to the Council of Europe Convention, while the Federal Department of Foreign Affairs (MFA) deals with the UN Convention.  The power to prosecute and judge corruption offenses is shared between the relevant Swiss canton and the Swiss federal government. For the federal government, the competent authorities are the Office of the Attorney General, the Federal Criminal Court, and the Federal Police.  In the cantons, the relevant actors are the cantonal judicial authorities and the cantonal police forces.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

In February 2001, Switzerland signed the Council of Europe’s Criminal Law Convention on Corruption.  In 1997, Switzerland signed the OECD Anti-Bribery Convention, which entered into force on May 1, 2000.  Switzerland signed the UN Convention against Corruption in December 2003. Switzerland ratified the UN Anticorruption Convention on September 24, 2009.

In order to implement the Council of Europe’s convention, the Swiss parliament amended the Penal Code to make bribery of foreign public officials a federal offense (Title Nineteen “Bribery”); these amendments entered into force on May 1, 2000.  In accordance with the revised 1997 OECD Anti-Bribery Convention, the Swiss parliament amended legislation on direct taxes of the Confederation, cantons, and townships to prohibit the tax deductibility of bribes; these amendments became effective on January 1, 2001.

Switzerland maintains an effective legal and policy framework to combat domestic corruption.  U.S. firms investing in Switzerland have not raised with the Embassy any corruption concerns in recent years.  Offering or accepting bribes in Switzerland is subject to criminal and civil penalties, including imprisonment for up to five years.

Resources to Report Corruption

Government Agency Contact:

Michel Huissoud
Director, Swiss Federal Audit Office
Monbijoustrasse 45
3003 Bern / Switzerland
Ph. +41 58 463 10 35
Messages can be submitted via https://www.bkms-system.ch/bkwebanon/report/clientInfo?cin=5efk11  

“Watchdog” Organization Contact:

Martin Hilti
Executive Director, Transparency International Switzerland
Schanzeneckstrasse 25
P.O. Box 8509
3001 Bern / Switzerland
Ph. +41 31 382 3550
E-Mail: info@transparency.ch

Political violence in Switzerland is rare.  It is perpetrated by representatives of both left- and right-wing groups, including nuclear power opponents and neo-Nazi groups.  In April 2011, a letter bomb targeting employees of a nuclear power lobbying organization exploded. A group of Turkish nationalists clashed with a group of Kurdish independence supporters on the streets of Bern (the nation’s political capital) in 2015.  During the resulting violence, two protestors were killed and a number of people were injured. Lower-level clashes between left-wing demonstrators and the police happen several times a year, but violence is directed at police officers rather than businesses or members of the public.

The Swiss labor force is highly educated and highly skilled.  The Swiss economy is capital intensive and geared toward high value-added products and services.  In 2018, 76.6 percent of the workforce was employed in services, 20.3 percent in manufacturing, and 3.1 percent in agriculture.  Full-time work compared to part-time work is more prevalent among foreign workers than among Swiss workers: 73 percent of the foreign working population work full-time, while only 60 percent of their Swiss peers work full-time.  Wages in Switzerland are among the highest in the world. Switzerland continues to observe International Labor Organization (ILO) core conventions. Government regulations cover maximum work hours, minimum length of holidays, sick leave, compulsory military service, contract termination, and other requirements.  There is no minimum wage law.

Foreigners fill not only low-skilled, low-wage jobs, but also highly technical positions in the manufacturing and service industries.  Foreigners account for 31.2 percent of Switzerland’s labor force estimated at about 5 million people. Many foreign nationals are long-time Swiss residents who have not applied for or been granted Swiss citizenship.  Foreign seasonal workers take many low-wage jobs in agriculture.

In a February 9, 2014 national initiative, Swiss voters decided to impose limits on immigration, via parliamentary action, which could have negated the Swiss-EU Free Movement of Persons Agreement and carried potentially significant implications for the immigrant-dependent labor market.  In the wake of the 2014 immigration referendum, the government introduced a series of measures aimed at bringing into the labor market traditionally underemployed groups – women, older job seekers, refugees, and temporarily accepted asylum seekers. In December 2016, the parliament responded to the 2014 initiative by legislating a requirement that companies in sectors with more than 5 percent unemployment provide information on job openings to government-run employment centers.  These centers would provide employers with suitable candidates, which employers would be required to interview before filling a job. However, registration at the employment centers would be open to cross-border commuters and EU residents at large, thus blunting the effect of the legislation, which was implemented by the Federal Council as of July 2018.

Switzerland generally prohibits commerce on Sunday.  Swiss voters narrowly accepted a 2005 revision of the Swiss Federal labor law in order to provide flexible working hours, such as Sunday openings in major railway stations and airports.  Shopping hours outside of these locations remain mainly regulated by cantonal laws. Employees in the retail sector and in restaurants and bars, in cooperation with other interests, have been successful in resisting the easing of the federal and cantonal laws governing opening hours, but in recent years the State Secretariat for Economic Affairs (SECO) has loosened work restrictions on Sundays in a few specific instances, for example in allowing for a limited number of outlet malls to be open on Sundays.

Approximately a quarter of Switzerland’s full-time workers are unionized.  Labor-management relations are generally constructive, with a willingness on both sides to settle disputes by negotiation rather than labor action.  According to the Federal Office of Statistics, some 602 collective agreements exist in Switzerland today, of which approximately 61.5 percent concern the services sector, 37.5 percent the manufacturing sector, and 1 percent the agricultural sector; these are usually renewed without major difficulties.  Trade unions continue to promote a wider coverage of collective agreements for the Swiss labor force. Although the number of workdays lost to strikes in Switzerland is among the lowest in the OECD, Swiss trade unions have encouraged workers to strike on several occasions in recent years. In difficult economic times, employers may temporarily shift their full-time employees to part-time by registering with cantonal authorities and justifying reductions as necessary to business activities.  Employees can reject the shift to part-time work, but risk dismissal. Responsibility for establishing and enforcing rules for part-time work ultimately belongs to the Federal Council, the seven-member executive of the Swiss government.

The prohibition on strikes by Swiss public servants was generally repealed in 2000, although restrictions remain in place in a few cantons.  The Federal Council may now only restrict or prohibit the right to strike where it affects the security of the state, external relations, or the supply of vital goods to the country.

Switzerland’s average unemployment rate was 4.9 percent in 2018 (according to the ILO), or 2.6 percent according to the State Secretariat for Economic Affairs (SECO), using a different methodology.  The average unemployment rate was 5.9 percent for foreigners and 3.5 percent for Swiss citizens in 2017 (according to the ILO). All cantons bordering EU countries experience higher unemployment rates than Switzerland as a whole.  The unemployment rate of younger workers aged 15-24 is slightly below the average unemployment rate (2.4 percent, SECO), and the rate for older employees (50-64 years) is slightly higher (2.5 percent, SECO). According to Swiss labor statistics, 85 percent of unemployed workers found a new position within 12 months in 2017.

Switzerland does not have a free trade agreement with the United States and no agreed bilateral labor standards.

There is no OPIC agreement between the U.S. and Switzerland.  Switzerland is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA); the country has not signed a political risk insurance agreement with any Western European country or the United States.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Average exchange rate for 2017: 1 USD = 0.985 CHF
*Sources: Swiss National Bank   / Federal Office of Statistics  
**According to the OECD
***Significant statistical discrepancies are due to methodological differences in measuring foreign direct investment.  Data most recently available.

As the OECD Benchmark Definition of Foreign Investment concludes, there “are two possible approaches to identify the home country (of the direct investor) for inward FDI and the host country (of the direct investment enterprise) for outward FDI:

• by immediate host country/investing country (IHC/IIC)
• by ultimate host country/ultimate investing country (UHC/UIC)

Switzerland uses the immediate investing country approach (IIC) and the United States uses the more complex ultimate investing country approach (UIC).  The OECD  report explains in detail how the two different approaches generate different figures.

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Thomas (Toby) Wolf, Economic/Commercial Officer
Theodore Fisher, Economic/Commercial Officer
Nadia Nadalin, Economic Assistant
U.S. Embassy in Bern, Sulgeneckstrasse 19, 3003 Bern
+41 31 357 7319
Email: Business-bern@state.gov

Policies Towards Foreign Direct Investment

The UK encourages foreign direct investment.  With a few exceptions, the government does not discriminate between nationals and foreign individuals in the formation and operation of private companies.  The Department for International Trade actively promotes direct foreign investment, and prepares market information for a variety of industries. U.S. companies establishing British subsidiaries generally encounter no special nationality requirements on directors or shareholders. Once established in the UK, foreign-owned companies are treated no differently from UK firms.   The British Government is a strong defender of the rights of any British-registered company, irrespective of its nationality of ownership.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign ownership is limited in only a few national security-sensitive companies, such as Rolls Royce (aerospace) and BAE Systems (aircraft and defense).  No individual foreign shareholder may own more than 15 percent of these companies. Theoretically, the government can block the acquisition of manufacturing assets from abroad by invoking the Industry Act 1975, but it has never done so in practice.  Investments in energy and power generation require environmental approvals. Certain service activities (like radio and land-based television broadcasting) are subject to licensing. The Enterprise Act of 2002 extends powers to the UK government to intervene in mergers and acquisitions which might give rise to national security implications and into which they would not otherwise be able to intervene.

The UK requires that at least one director of any company registered in the UK must be ordinarily resident in the UK.  The UK, as a member of the Organization for Economic Cooperation and Development (OECD), subscribes to the OECD Codes of Liberalization, committed to minimizing limits on foreign investment.

While the UK does not have a formalized investment review body to assess the suitability of foreign investments in national security sensitive areas, an ad hoc investment review process does exist and is led by the relevant government ministry with regulatory responsibility for the sector in question (e.g., the Department for Business, Energy, and Industrial Strategy who would have responsibility for review of investments in the energy sector).  To date, U.S. companies have not been the target of these ad hoc reviews. The UK is currently considering revisions to its national security review process related to foreign direct investment. (https://www.gov.uk/government/consultations/national-security-and-infrastructure-investment-review ).

The Government has proposed to amend the turnover threshold and share of supply tests within the Enterprise Act 2002. This is to allow the Government to examine and potentially intervene in mergers that currently fall outside the thresholds in two areas: (i) the dual use and military use sector, (ii) parts of the advanced technology sector. For these areas only, the Government proposes to lower the turnover threshold from £70 million (USD 92 million) to £1 million (USD 1.3 million) and remove the current requirement for the merger to increase the share of supply to or over 25 percent.

Other Investment Policy Reviews

The Economist’s “Intelligence Unit”, World Bank Group’s “Doing Business 2018”, and the OECD’s “Economic Forecast Summary (May 2019) have current investment policy reports for the United Kingdom:

• http://country.eiu.com/united-kingdom 
• http://www.doingbusiness.org/data/exploreeconomies/united-kingdom/ 
• http://www.oecd.org/economy/united-kingdom-economic-forecast-summary.htm 

Business Facilitation

The UK government seeks to facilitate investment by offering overseas companies access to widely integrated markets.  Proactive policies encourage international investment through administrative efficiency in order to promote innovation and achieve sustainable growth.  The online business registration process is clearly defined, though some types of company cannot register as an overseas firm in the UK, including partnerships and unincorporated bodies. Registration as an overseas company is only required when it has some degree of physical presence in the UK.  After registering a business with the UK government body, named Companies House, overseas firms must register to pay corporation tax within three months. The process of setting up a business in the UK requires as few as thirteen days, compared to the European average of 32 days, which puts the country in first place in Europe and sixth place in the world for ease of establishing a business.  As of April 2016, companies have to declare their Persons of Significant Control (PSC’s).  This change in policy recognizes that individuals other than named directors can have significant influence on a company’s activity and that this information should be transparent.  More information is available at this link: https://www.gov.uk/government/publications/guidance-to-the-people-with-significant-control-requirements-for-companies-and-limited-liability-partnerships .  Companies House maintains a free, publicly searchable directory, available at this link: https://www.gov.uk/get-information-about-a-company .  

The UK offers a welcoming environment to foreign investors, with foreign equity ownership restrictions in only a limited number of sectors covered by the Investing Across Sectors indicators.  As in all other EU member countries, foreign equity ownership in the air transportation sector is limited to 49 percent for investors from outside of the European Economic Area (EEA). Furthermore, the Industry Act (1975) enables the UK government to prohibit transfer to foreign owners of 30 percent or more of important UK manufacturing businesses, if such a transfer would be contrary to the interests of the country.  While these provisions have never been used in practice, they are still included in the Investing Across Sectors indicators, as these strictly measure ownership restrictions defined in the laws.

• https://invest.great.gov.uk/int/ 
• https://www.gov.uk/government/organisations/department-for-international-trade 
• https://www.gov.uk/set-up-business 
• https://www.gov.uk/topic/company-registration-filing/starting-company 
• http://www.doingbusiness.org/data/exploreeconomies/united-kingdom/starting-a-business 

Special Section on the British Overseas Territories and Crown Dependencies

The British Overseas Territories (BOTs) comprise Anguilla, British Antarctic Territory, Bermuda, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Falkland Islands, Gibraltar, Montserrat, Pitcairn Islands, St. Helena, Ascension and Tristan da Cunha, Turks and Caicos Islands, South Georgia and South Sandwich Islands, and Sovereign Base Areas on Cyprus.  The BOTs retain a substantial measure of responsibility for their own affairs. Local self-government is usually provided by an Executive Council and elected legislature. Governors or Commissioners are appointed by the Crown on the advice of the British Foreign Secretary, and retain responsibility for external affairs, defense, and internal security. However, the UK imposed direct rule on the Turks and Caicos Islands in August 2009 after an inquiry found evidence of corruption and incompetence.  Its Premier was removed and its constitution was suspended. The UK restored Home Rule following elections in November 2012.

Many of the territories are now broadly self-sufficient.  However, the UK’s Department for International Development (DFID) maintains development assistance programs in St. Helena, Montserrat, and Pitcairn.  This includes budgetary aid to meet the islands’ essential needs and development assistance to help encourage economic growth and social development in order to promote economic self-sustainability.  In addition, all other BOTs receive small levels of assistance through “cross-territory” programs for issues such as environmental protection, disaster prevention, HIV/AIDS and child protection. The UK also lends to the BOTs as needed, up to a pre-set limit, but assumes no liability for them if they encounter financial difficulty.

Seven of the BOTs have financial centers:  Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat, and the Turks and Caicos Islands.  These Territories have committed to the OECD’s Common Reporting Standard (CRS) for the automatic exchange of taxpayer financial account information.  They are already exchanging information with the UK, and began exchanging information with other jurisdictions under the CRS from September 2017. 

The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes has rated Anguilla as “partially compliant” with the internationally agreed tax standard.  Although Anguilla sought to upgrade its rating in 2017, it still remains at “partially compliant” as of April 2019. The Global Forum has rated the other six territories as “largely compliant.”  Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar and the Turks and Caicos Islands have also committed in reciprocal bilateral arrangements with the UK to hold beneficial ownership information in central registers or similarly effective systems, and to provide UK law enforcement authorities with near real-time access to this information.  These arrangements came into effect in June 2017. 

Anguilla:  Anguilla is a neutral tax jurisdiction.  There are no income, capital gains, estate, profit or other forms of direct taxation on either individuals or corporations, for residents or non-residents of the jurisdiction.  The territory has no exchange rate controls. Non-Anguillan nationals may purchase property, but the transfer of land to an alien includes a 12.5 percent tax.

British Virgin Islands:  The government of the British Virgin Islands welcomes foreign direct investment and offers a series of incentive packages aimed at reducing the cost of doing business on the islands.  This includes relief from corporation tax payments over specific periods but companies must pay an initial registration fee and an annual license fee to the BVI Financial Services Commission.  Crown land grants are not available to non-British Virgin Islanders, but private land can be leased or purchased following the approval of an Alien Land Holding License. Stamp duty is imposed on transfer of real estate and the transfer of shares in a BVI company owning real estate in the BVI at a rate of 4 percent for belongers and 12 percent for non-belongers.  There is no corporate income tax, capital gains tax, branch tax, or withholding tax for companies incorporated under the BVI Business Companies Act. Payroll tax is imposed on every employer and self-employed person who conducts business in BVI. The tax is paid at a graduated rate depending upon the size of the employer. The current rates are 10 percent for small employers (those which have a payroll of less than USD 150,000, a turnover of less than USD 300,000 and fewer than 7 employees) and 14 percent for larger employers. Eight percent of the total remuneration is deducted from the employee, the remainder of the liability is met by the employer. The first USD 10,000 of remuneration is free from payroll tax.

Cayman Islands:  There are no direct taxes in the Cayman Islands.  In most districts, the government charges stamp duty of 7.5 percent on the value of real estate at sale; however, certain districts, including Seven Mile Beach, are subject to a rate of nine percent.  There is a one percent fee payable on mortgages of less than KYD 300,000, and one and a half percent on mortgages of KYD 300,000 or higher. There are no controls on the foreign ownership of property and land.  Investors can receive import duty waivers on equipment, building materials, machinery, manufacturing materials, and other tools.

Falkland Islands:  Companies located in the Falkland Islands are charged corporation tax at 21 percent on the first GBP one million and 26 percent for all amounts in excess of GBP one million.  The individual income tax rate is 21 percent for earnings below USD 15,694 (GBP 12,000) and 26 percent above this level.

Gibraltar:  The government of Gibraltar encourages foreign investment.  Gibraltar has a buoyant economy with a stable currency and few restrictions on moving capital or repatriating dividends.  The corporate income tax rate is 20 percent for utility, energy, and fuel supply companies, and 10 percent for all other companies.  There are no capital or sales taxes. Gibraltar is currently a part of the EU and receives EU funding for projects that improve the territory’s economic development.

Montserrat:  The government of Montserrat welcomes new private foreign investment.  Foreign investors are permitted to acquire real estate, subject to the acquisition of an Alien Land Holding license which carries a fee of five percent of the purchase price.  The government also imposes stamp and transfer fees of 2.6 percent of the property value on all real estate transactions. Foreign investment in Montserrat is subject to the same taxation rules as local investment, and is eligible for tax holidays and other incentives.  Montserrat has preferential trade agreements with the United States, Canada, and Australia. The government allows 100 percent foreign ownership of businesses but the administration of public utilities remains wholly in the public sector.

St. Helena:  The island of St. Helena is open to foreign investment and welcomes expressions of interest from companies wanting to invest.  Its government is able to offer tax based incentives which will be considered on the merits of each project – particularly tourism projects.  All applications are processed by Enterprise St. Helena, the business development agency.

Pitcairn Islands:  The Pitcairn Islands have approximately 50 residents, with a workforce of approximately 29 employed in 10 full-time equivalent roles.  The territory does not have an airstrip or safe harbor. Residents exist on fishing, subsistence farming, and handcrafts.

The Turks and Caicos Islands:  The islands operate an “open arms” investment policy.  Through the policy, the government commits to a streamlined business licensing system, a responsive immigration policy to give investment security, access to government-owned land under long-term leases, and a variety of duty concessions to qualified investors.  The islands have a “no tax” status, but property purchasers must pay a stamp duty on purchases over USD 25,000. Depending on the island, the stamp duty rate may be up to 6.5 percent for purchases up to USD 250,000, eight percent for purchases USD 250,001 to USD 500,000, and 10 percent for purchases over USD500,000.

The Crown Dependencies:

The Crown Dependencies are the Bailiwick of Jersey, the Bailiwick of Guernsey and the Isle of Man.  The Crown Dependencies are not part of the UK but are self-governing dependencies of the Crown. They have their own directly elected legislative assemblies, administrative, fiscal and legal systems and their own courts of law. The Crown Dependencies are not represented in the UK Parliament.

Jersey’s standard rate of corporate tax is zero percent.  The exceptions to this standard rate are financial service companies, which are taxed at 10 percent, utility companies, which are taxed at 20 percent, and income specifically derived from Jersey property rentals or Jersey property development, taxed at 20 percent. VAT is not applicable in Jersey as it is not part of the EU VAT tax area.

Guernsey has a zero percent rate of corporate tax.  Some exceptions include some specific banking activities, taxed at 10 percent, utility companies, which are taxed at 20 percent, Guernsey residents’ assessable income is taxed at 20 percent, and income derived from land and buildings is taxed at 20 percent

The Isle of Man’s corporate standard tax is zero percent.  The exceptions to this standard rate are income received from banking business, which is taxed at 10 percent and income received from land and property in the Isle of Man which is taxed at 20 percent. In addition, a 10 percent tax rate also applies to companies who carry on a retail business in the Isle of Man and have taxable income in excess of £500,000 from that business.  VAT is applicable in the Isle of Man as it is part of the EU customs territory.

This tax data is current as of April 2019.  

Outward Investment

The UK is one of the largest outward investors in the world, often protected through Bilateral Investment Treaties (BITs), which have been concluded with many countries.  The UK’s international investment position abroad (outward investment) increased from GBP 1,696.5 billion in 2017 to GBP 1,713.3 billion in 2018. By the end of 2018 the UK’s stock of outward FDI was GBP 1,713 billion, a 52 rise percent since 2002.  The main destination for UK outward FDI is the United States, which accounted for approximately 23 percent of UK outward FDI stocks at the end of 2017. Other key destinations include the Netherlands, Luxembourg, France, and Ireland which, together with the United States, account for a little under half of the UK’s outward FDI stock.

Europe and the Americas remain the dominant areas for British FDI positions abroad, accounting for 16 of the top 20 destinations for total UK outward FDI.  The UK’s international investment position within the Americas was GBP 401.9 billion in 2017. This is the third largest recorded value in the time series since 2006 for the Americas.  The United States, at GBP 329.3 billion, continued to be the largest destination for UK international investment positions abroad within the Americas in 2017.

The United States and UK have enjoyed a Commerce and Navigation Treaty since 1815 which guarantees national treatment of U.S. investors.  A Bilateral Tax Treaty specifically protects U.S. and UK investors from double taxation. The UK has its own bilateral tax treaties with more than 100 countries and a network of about a dozen double taxation agreements. The UK has concluded 105 Bilateral Investment Treaties (BITs), which are known in the UK as Investment Promotion and Protection Agreements.  These include: Albania, Angola, Antigua and Barbuda, Argentina, Armenia, Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Belize, Benin, Bolivia, Bosnia and Herzegovina, Brazil, Bulgaria, Burundi, Cameroon, Chile, China, Colombia, Congo, Costa Rica, Côte d’Ivoire, Croatia, Cuba, Czech Republic, Dominica, Ecuador, Egypt, El Salvador, Estonia, Ethiopia, Gambia, Georgia, Ghana, Grenada, Guyana, Haiti, Honduras, Hong Kong, China SAR, Hungary, Indonesia, Jamaica, Jordan, Kazakhstan, Kenya, Korea Republic of, Kuwait, Kyrgyzstan, Laos People’s Democratic Republic, Latvia, Lebanon, Lesotho, Libya, Lithuania, Malaysia, Malta, Mauritius, Mexico, Moldova, Mongolia, Morocco, Mozambique, Nepal, Nicaragua, Nigeria, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Russian Federation, Saint Lucia, Senegal, Serbia, Sierra Leone, Singapore, Slovakia, Slovenia, Sri Lanka, Swaziland, Tanzania, United Republic of, Thailand, Tonga, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Vanuatu, Venezuela, Bolivarian Republic of, Vietnam, Yemen, Zambia, and Zimbabwe.

For a complete current list, including actual treaty texts, see:  http://investmentpolicyhub.unctad.org/IIA/CountryBits/221#iiaInnerMenu 

Transparency of the Regulatory System

U.S. exporters and investors generally find little difference between the United States and UK in the conduct of business.  The regulatory system provides clear and transparent guidelines for commercial engagement. Common law prevails in the UK as the basis for commercial transactions, and the International Commercial Terms (INCOTERMS) of the International Chambers of Commerce are accepted definitions of trading terms.  For accounting standards and audit provisions, firms in the UK currently use the International Financial Reporting Standards (IFRS) set by the International Accounting Standards Board (IASB) and approved by the European Commission. The UK’s Accounting Standards Board provides guidance to firms on accounting standards and works with the IASB on international standards.

Statutory authority over prices and competition in various industries is given to independent regulators, for example Ofcom, Ofwat, Ofgem, the Office of Fair Trading (OFT), the Rail Regulator, and the Prudential Regulatory Authority (PRA).  The PRA was created out of the dissolution of the Financial Services Authority (FSA) in 2013. The PRA reports to the Financial Policy Committee (FPC) in the Bank of England. The PRA is responsible for supervising the safety and soundness of individual financial firms, while the FPC takes a systemic view of the financial system and provides macro-prudential regulation and policy actions.  The Consumer and Markets Authority (CMA) acts as a single integrated regulator focused on conduct in financial markets. The Financial Conduct Authority (FCA) is a regulatory enforcement mechanism designed to address financial and market misconduct through legally reviewable processes. These regulators work to protect the interests of consumers while ensuring that the markets they regulate are functioning efficiently.  Most laws and regulations are published in draft for public comment prior to implementation. The FCA maintains a free, publicly searchable register of their filings on regulated corporations and individuals here: https://register.fca.org.uk/ .

The UK government publishes regulatory actions, including draft text and executive summaries, on the Department for Business, Energy & Industrial Strategy webpage listed below.  The current policy requires the repeal of two regulations for any new one in order to make the business environment more competitive.

The primary difference between the regulatory environment in the UK and the United States is that so long as the UK is a member of the European Union, it is mandated to comply with and enforce EU regulations and directives.  The U.S. government has expressed concerns about the degree of transparency and accountability in the EU regulatory process. The extent to which the UK will deviate from the EU regulatory regime after the UK withdraws from the EU is unknown at this time.

• https://www.gov.uk/government/policies/business-regulation 
• https://www.gov.uk/government/organisations/regulatory-delivery 

International Regulatory Considerations

The UK’s withdrawal from the EU may result in an extended period of regulatory uncertainty across the economy as the UK determines the extent to which it will maintain and enforce the current EU regulatory regime or deviate towards new regulations in any particular sector .  The UK is an independent member of the WTO, and actively seeks to comply with all its WTO obligations.

Legal System and Judicial Independence

The UK is a common law country.  UK business contracts are legally enforceable in the UK, but not in the United States or other foreign jurisdictions.  International disputes are resolved through litigation in the UK Courts or by arbitration, mediation, or some other alternative dispute resolution (ADR) method.  The UK has a long history of applying the rule of law to business disputes. The current judicial process remains procedurally competent, fair, and reliable, which helps position London as an international center for dispute resolution with over 10,000 cases filed per annum.

Laws and Regulations on Foreign Direct Investment

There is no specific statute governing or restricting foreign investment in the UK.  The procedure for establishing a company in the UK is identical for British and foreign investors.  No approval mechanisms exist for foreign investment, apart from the ad hoc national security process outlined in Section 1.  Foreigners may freely establish or purchase enterprises in the UK, with a few limited exceptions, and acquire land or buildings.  The UK is currently reviewing its procedures and considering new rules for restricting foreign investment in those sectors of the economy with higher risk for adversely impacting national security.   

The practice of multinational enterprises structuring operations to minimize taxes, referred to as ‘tax avoidance’ in the UK, has been a controversial political issue and subject to investigations by the UK Parliament and EU authorities.  Both foreign and UK firms remain subject to the same tax laws. Foreign investors may have access to certain EU and UK regional grants and incentives designed to attract industry to areas of high unemployment.

In 2015, the UK flattened its structure of corporate tax rates.  The UK currently taxes corporations at a flat rate of 19 percent, with marginal tax relief granted for companies with profits falling between USD 391,000 (GBP 300,000) and 1.96 million (GBP 1.5 million).  Tax deductions are allowed for expenditure and depreciation of assets used for trade purposes. These include machinery, plant, industrial buildings, and assets used for research and development. A special rate of 20 percent is given to unit trusts and open-ended investment companies.  There are different Corporation Tax rates for companies that make profits from oil extraction or oil rights in the UK or UK continental shelf. These are known as ‘ring fence’ companies. Small ‘ring fence’ companies are taxed at a rate of 19 percent for profits up to USD 391,000 (GBP 300,000), and 30 percent for profits over USD 391,000 (GBP 300,000).

UK citizens also make mandatory payments of about 12 percent of income into the National Insurance system, which funds social security and retirement benefits.  The UK requires non-domiciled residents of the UK to either pay tax on their worldwide income or the tax on the relevant part of their remitted foreign income being brought into the UK.  If they have been resident in the UK for seven tax years of the previous nine, and they choose to pay tax only on their remitted earnings, they may be subject to an additional charge of USD 39,141 (GBP 30,000).  If they have been resident in the UK for 12 of the last 14 tax years, they may be subject to an additional charge of USD 78,282 (GBP 60,000).

The Scottish Parliament has the legal power to increase or decrease the basic income tax rate in Scotland, currently 20 percent, by a maximum of three percentage points.  The Scottish Government has been opposed to increasing tax rates, mainly because any financial advantage gained by an increase in taxes would be offset by the need to establish a new administrative body to manage the new revenue.

For guidance on laws and procedures relevant to foreign investment in the UK, follow the link below:

https://www.gov.uk/government/collections/investment-in-the-uk-guidance-for-overseas-businesses 

All USD conversions based on spot exchange rate as of April 08, 2019.

Competition and Anti-Trust Laws

UK competition law contains both British and European elements.  The Competition Act 1998 and the Enterprise Act 2002 are the most important statutes for cases with a purely national dimension.  However, if the impact of a business’ conduct crosses borders, EU law applies. Section 60 of the Competition Act 1998 provides that UK rules are to be applied in line with European jurisprudence.

The Companies Act of 1985, administered by the Department for Business, Entrepreneurship, Innovation and Skills (BEIS), governs ownership and operation of private companies.  The Companies Act of 2006 replaced the 1985 Act, simplifying existing rules.

BEIS uses a transparent code of practice that is fully in accord with EU merger control regulations, in evaluating bids and mergers for possible referral to the Competition Commission.  The Competition Act of 1998 strengthened competition law and enhanced the enforcement powers of the Office of Fair Trading (OFT). Prohibitions under the act relate to competition-restricting agreements and abusive behavior by entities in dominant market positions.  The Enterprise Act of 2002 established the OFT as an independent statutory body with a Board, and gives it a greater role in ensuring that markets work well. Also, in accordance with EU law, if deemed in the public interest, transactions in the media or that raise national security concerns may be reviewed by the Secretary of State of BEIS.

In 2014, the Competition Commission and the OFT merged into a single Non Departmental Government Body: the Competition and Markets Authority.  This new body is responsible for investigating mergers that could restrict competition, conducting market studies and investigations where there may be competition problems, investigating breaches of EU and UK prohibitions, initiating criminal proceedings against individuals who commit cartel offenses, and enforcing consumer protection legislation.  This body is unlikely to alter UK competition policy.

UK competition law has three main tasks: 1) prohibiting agreements or practices that restrict free trading and competition between business entities (this includes in particular the repression of cartels); 2) banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position (practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal and many others); and 3) supervising the mergers and acquisitions of large corporations, including some joint ventures.  Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to “remedies” such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing.

The Competition and Markets Authority (CMA) is the primary regulatory body for competition law enforcement.  It was created through the merger of the Office of Fair Trading (OFT) with the Competition Commission through the Enterprise and Regulatory Reform Act 2013.  Competition law is closely connected with law on deregulation of access to markets, state aids and subsidies, the privatization of state owned assets, and the establishment of independent sector regulators.

Although the OFT and the Competition Commission have general review authority, specific “watchdog” agencies such as Ofgem (the electricity and gas markets regulation authority), Ofcom (the communications regulation authority), and Ofwat (the water services regulation authority) are also charged with seeing how the operation of those specific markets work.

Expropriation and Compensation

The OECD, of which the UK is a member, states that when a government expropriates property, compensation should be timely, adequate and effective.  In the UK, the right to fair compensation and due process is uncontested and is reflected in all international investment agreements. Expropriation of corporate assets or the nationalization of industry requires a special act of Parliament.  A number of key UK banks became subject to full or part-nationalization from early 2008 as a response to the global financial crisis and banking collapse. The first bank to become nationalized was Northern Rock in February 2008, and by March 2009 the UK Treasury had taken a 65 percent stake in Lloyds Banking Group and a 68 percent stake in the Royal Bank of Scotland (RBS).  In the event of nationalization, the British government follows customary international law by providing prompt, adequate, and effective compensation.

Dispute Settlement

As a member of the World Bank-based International Center for Settlement of Investment Disputes (ICSID), the UK accepts binding international arbitration between foreign investors and the State.  As a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the UK provides local enforcement on arbitration judgments decided in other signatory countries.

London is a thriving center for the resolution of international disputes through arbitration under a variety of procedural rules such as those of the London Court of International Arbitration, the International Chamber of Commerce, the Stockholm Chamber of Commerce, the American Arbitration Association International Centre for Dispute Resolution, and others.  Many of these arbitrations involve parties with no connection to the jurisdiction, but who are drawn to the jurisdiction because they perceive it to be a fair, neutral venue with an arbitration law and courts that support efficient resolution of disputes. They also choose London-based arbitration because of the general prevalence of the English language and law in international commerce.  A wide range of contractual and non-contractual claims can be referred to arbitration in this jurisdiction including disputes involving intellectual property rights, competition, and statutory claims. There are no restrictions on foreign nationals acting as arbitration counsel or arbitrators in this jurisdiction. There are few restrictions on foreign lawyers practicing in the jurisdiction as evidenced by the fact that over 200 foreign law firms have offices in London.

ICSID Convention and New York Convention

The UK is a member of the International Center for Settlement of Investment Disputes (ICSID) and a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  The latter convention has territorial application to Gibraltar (September 24, 1975), Hong Kong (January 21, 1977), Isle of Man (February 22, 1979), Bermuda (November 14, 1979), Belize and Cayman Islands (November 26, 1980), Guernsey (April 19, 1985), Bailiwick of Jersey (May 28, 2002), and British Virgin Islands (February 24, 2014).

The United Kingdom has consciously elected not to follow the UNCITRAL Model Law on International Commercial Arbitration.  Enforcement of an arbitral award in the UK is dependent upon where the award was granted. The process for enforcement in any particular case is dependent upon the seat of arbitration and the arbitration rules that apply.  Arbitral awards in the UK can be enforced under a number of different regimes, namely: The Arbitration Act 1996, The New York Convention, The Geneva Convention 1927, The Administration of Justice Act 1920 and the Foreign Judgments (Reciprocal Enforcement) Act 1933, and Common Law.

The Arbitration Act 1996 governs all arbitrations seated in England, Wales and Northern Ireland, both domestic and international. The full text of the Arbitration Act can be found here: http://www.legislation.gov.uk/ukpga/1996/23/data.pdf .

The Arbitration Act is heavily influenced by the UNCITRAL Model Law, but it has some important differences.  For example, the Arbitration Act covers both domestic and international arbitration; the document containing the parties’ arbitration agreement need not be signed; an English court is only able to stay its own proceedings and cannot refer a matter to arbitration; the default provisions in the Arbitration Act require the appointment of a sole arbitrator as opposed to three arbitrators; a party retains the power to treat its party-nominated arbitrator as the sole arbitrator in the event that the other party fails to make an appointment (where the parties’ agreement provides that each party is required to appoint an arbitrator); there is no time limit on a party’s opposition to the appointment of an arbitrator; parties must expressly opt out of most of the provisions of the Arbitration Act which confer default procedural powers on the arbitrators; and there are no strict rules governing the exchange of pleadings.  Section 66 of the Arbitration Act applies to all domestic and foreign arbitral awards. Sections 100 to 103 of the Arbitration Act provide for enforcement of arbitral awards under the New York Convention 1958. Section 99 of the Arbitration Act provides for the enforcement of arbitral awards made in certain countries under the Geneva Convention 1927.

Under Section 66 of the Arbitration Act, the court’s permission is required for an international arbitral award to be enforced in the UK.  Once the court has given permission, judgment may be entered in terms of the arbitral award and enforced in the same manner as a court judgment or order.  Permission will not be granted by the court if the party against whom enforcement is sought can show that (a) the tribunal lacked substantive jurisdiction and (b) the right to raise such an objection has not been lost.

The length of arbitral proceedings can vary greatly.  If the parties have a relatively straightforward dispute, cooperate, and adopt a fast track procedure, arbitration can be concluded within months or even weeks.  In a substantial international arbitration involving complex facts, many witnesses and experts and post-hearing briefs, the arbitration could take many years. A reasonably substantial international arbitration will likely take between one and two years.

There are two alternative procedures that can be followed in order to enforce an award.  The first is to seek leave of the court for permission to enforce. The second is to begin an action on the award, seeking the same relief from the court as set out in the tribunal’s award.  Enforcement of an award made in the jurisdiction may be opposed by challenging the award. However, the court also may refuse to enforce an award that is unclear, does not specify an amount, or offends public policy.  Enforcement of a foreign award may be opposed on any of the limited grounds set out in the New York Convention. A stay may be granted for a limited time pending a challenge to the order for enforcement. The court will consider the likelihood of success and whether enforcement of the award will be made more or less difficult as a result of the stay.  Conditions that might be imposed on granting the stay include such matters as paying a sum into court. Where multiple awards are to be rendered, the court may give permission for the tribunal to continue hearing other matters, especially where there may be a long delay between awards. UK courts have a good record of enforcing arbitral awards, which they will enforce in the same way that they would enforce an order or judgment of a court.  At the time of writing, there are no examples of the English courts enforcing awards which were set aside by the courts at the place of arbitration.

Most awards are complied with voluntarily.  If the party against whom the award was made fails to comply, the party seeking enforcement can apply to the court.  The length of time it takes to enforce an award which complies with the requirements of the New York Convention will depend on whether there are complex objections to enforcement which require the court to investigate the facts of the case.  If a case raises complex issues of public importance the case could be appealed to the Court of Appeal and then to the Supreme Court. This process could take around two years. If no complex objections are raised, the party seeking enforcement can apply to the court using a summary procedure that is fast and efficient.  There are time limits relating to the enforcement of the award. Failure to comply with an award is treated as a breach of the arbitration agreement. An action on the award must be brought within six years of the failure to comply with the award or 12 years if the arbitration agreement was made under seal. If the award does not specify a time for compliance, a court will imply a term of reasonableness.

Bankruptcy Regulations

The UK has strong bankruptcy protections going back to the Bankruptcy Act of 1542, and in modern days both individual bankruptcy and corporate insolvency are regulated in the UK primarily by the Insolvency Act 1986 and the Insolvency Rules 1986, regulated through determinations in UK courts.  The World Bank’s Doing Business report Ranks the UK 14/189 for ease of resolving insolvency.

Regarding individual bankruptcy law, the court will oblige a bankrupt individual to sell assets to pay dividends to creditors.  A bankrupt person must inform future creditors about the bankrupt status and may not act as the director of a company during the period of bankruptcy.  Bankruptcy is not criminalized in the UK, and the Enterprise Act of 2002 dictates that for England and Wales, bankruptcy will not normally last longer than 12 months.  At the end of the bankrupt period, the individual is normally no longer held liable for bankruptcy debts unless the individual is determined to be culpable for his or her own insolvency, in which case the bankruptcy period can last up to fifteen years.

For corporations declaring insolvency, UK insolvency law seeks to equitably distribute losses between creditors, employees, the community, and other stakeholders in an effort to rescue the company.  Liability is limited to the amount of the investment. If a company cannot be rescued, it is liquidated and assets are sold to pay debts to creditors, including foreign investors.

Investment Incentives

The UK offers a range of incentives for companies of any nationality locating in depressed regions of the country, as long as the investment generates employment.  DIT works with its partner organizations in the devolved administrations – Scottish Development International, the Welsh Government and Invest Northern Ireland – and with London and Partners and Local Enterprise Partnerships (LEPs) throughout England, to promote each region’s particular strengths and expertise to overseas investors.

Local authorities in England and Wales also have power under the Local Government and Housing Act of 1989 to promote the economic development of their areas through a variety of assistance schemes, including the provision of grants, loan capital, property, or other financial benefit.  Separate legislation, granting similar powers to local authorities, applies to Scotland and Northern Ireland. Where available, both domestic and overseas investors may also be eligible for loans from the European Investment Bank.

Foreign Trade Zones/Free Ports/Trade Facilitation

The cargo ports and freight transportation ports at Liverpool, Prestwick, Sheerness, Southampton, and Tilbury used for cargo storage and consolidation are designated as Free Trade Zones.  No activities that add value to commodities are permitted within the Free Trade Zones, which are reserved for bonded storage, cargo consolidation, and reconfiguration of non-EU goods. The Free Trade Zones offer little benefit to U.S. exporters or investors, or any other non-EU exporters or investors.  Questions remain as to the UK’s use of Free Trade Zones in a post-Brexit environment.

Performance and Data Localization Requirements

As of May 2018, companies operating in the UK comply with the EU General Data Protection Regulation (GDPR).  The UK presently intends to transpose the requirements of the GDPR into UK domestic law after the UK withdraws from the EU.  The potential impact of the UK leaving the EU on the free flow of data between the EU and the UK, and the UK and United States is unknown.     

The UK does not follow “forced localization” and does not require foreign IT firms to turn over source code.  The Investigatory Powers Act became law in November 2016 addressing encryption and government surveillance. It permitted the broadening of capabilities for data retention and the investigatory powers of the state related to data.

The UK Government does not mandate local employment, though at least one director of any company registered in the UK must be ordinarily resident in the UK.

Immigration policy is in the midst of sweeping reforms in the UK. Freedom of movement between the UK and EU member states is likely to soon come to an end and the government is looking at a post-Brexit system that will favour high-skilled migrants. New immigration rules (HC1888) that came into effect on April 6, 2012 have wide-ranging implications for foreign employees, primarily affecting businesses looking to sponsor migrants under Tier 2 as well as migrants looking to apply for settlement in the UK.  In particular, the UK Government has introduced a 12-month cooling off period for Tier 2 (General) applications similar to the one that is currently in place for Tier 2 (Intra-company transfer). The effect of this is that, while those who enter the UK under Tier 2 (General) to work for one company will be able to apply in-country under Tier 2 (General) to work for another company, if they leave the UK, they will not be able to apply to re-enter the UK under a fresh Tier 2 (General) permission until twelve months after their previous Tier 2 (General) permission has expired.

These provisions represent a significant tightening of the Tier 2 requirements.  One of the consequences is that, where an individual is sent to the UK on assignment under Tier 2 (Intracompany transfer), and the sponsoring company subsequently wishes to hire them permanently in the UK, they will not be able to apply either to remain in the UK under Tier 2 (General) or leave the UK and submit a Tier 2 (General) application overseas.

This change will mean that employers will have to carefully consider the long-term plans for all assignees that they send to the UK and whether Tier 2 (Intracompany transfer) is the most appropriate category. This is because, if the assignee is subsequently required in the UK on a long-term basis, it will not be possible for them to make a new application under Tier 2 (General) until at least twelve months after their Tier 2 (Intra-company transfer) permission has expired.

Real Property

The UK has robust real property laws stemming from legislation including the Law of Property Act 1925, the Settled Land Act 1925, the Land Charges Act 1972, the Trusts of Land and Appointment of Trustees Act 1996, and the Land Registration Act 2002.

Interests in property are well enforced, and mortgages and liens have been recorded reliably since the Land Registry Act of 1862.  The Land Registry is the government database where all land ownership and transaction data are held for England and Wales, and it is reliably accessible online, here: https://www.gov.uk/search-property-information-land-registry .  Scotland has its own Registers of Scotland, while Northern Ireland operates land registration through the Land and Property Services.

Long-term physical presence on non-residential property without their permission is not typically considered a crime in the UK.  Police take action if squatters commit other crimes when entering or staying in a property. A long-term squatter on otherwise unoccupied land can become the registered owner of property that they have occupied without the owner’s permission through an adverse possession process.

Intellectual Property Rights

The UK legal system provides a high level of protection for intellectual property rights (IPR). Enforcement mechanisms are comparable to those available in the United States.  The UK is a member of the World Intellectual Property Organization (WIPO). The UK is also a member of the major intellectual property protection agreements: the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the Universal Copyright Convention, the Geneva Phonograms Convention, the Patent Cooperation Treaty, and the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  The UK has signed and, through implementing various EU Directives, enshrined into UK law the WIPO Copyright Treaty (WCT) and WIPO Performance and Phonograms Treaty (WPPT), known as the internet treaties.

The Intellectual Property Office (IPO) is the official UK government body responsible for IPR including patents, designs, trademarks and copyright.  The IPO website contains comprehensive information on UK law and practice in these areas.

https://www.gov.uk/government/organisations/intellectual-property-office 

The British government tracks and reports seizures of counterfeit goods and regards the production and subsequent sale as a criminal act.  The Intellectual Property Crime Report for 2017/18 highlights the incidence of IPC and the harm caused to the UK economy, showing that almost 4 percent of all UK imports in 2013 were counterfeit, worth £9.3 billion (USD 12 billion). They estimate this equates to around 60,000 jobs being lost and almost £4 billion (USD 5.2 billion) in lost tax revenue.

The Special 301 Report is an annual, congressionally-mandated review of the global state of IPR protection and enforcement.  It is conducted by the Office of the U.S. Trade Representative to identify countries with commercial environments possibly harmful to intellectual property.  The UK is not on the list, nor is it included on the Notorious Markets List

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ 

Capital Markets and Portfolio Investment

The City of London houses one of the largest and most comprehensive financial centers globally.  London offers all forms of financial services: commercial banking, investment banking, re-insurance, venture capital, private equity, stock and currency brokers, fund managers, commodity dealers, accounting and legal services, as well as electronic clearing and settlement systems and bank payments systems.  London is highly regarded by investors because of its solid regulatory, legal, and tax environments, a supportive market infrastructure, and a dynamic, highly skilled workforce.

The UK government is generally hospitable toward foreign portfolio investment.  Government policies are intended to facilitate the free flow of capital and to support the flow of resources in product and services markets.  Foreign investors are able to obtain credit in local markets at normal market terms, and a wide range of credit instruments are available. The principles underlying legal, regulatory, and accounting systems are transparent, and they are consistent with international standards.  In all cases, regulations have been published and are applied on a non-discriminatory basis by the PRA.

The London Stock Exchange is one of the most active equity markets in the world.  London’s markets have the advantage of bridging the gap between the day’s trading in the Asian markets and the opening of the U.S. market.  This bridge effect is also evident as many Russian and Central European companies have used London stock exchanges to tap global capital markets.  The Alternative Investment Market (AIM), established in 1995 as a sub-market of the London Stock Exchange, is specifically designed for smaller, rapidly expanding companies.  The AIM has a more flexible regulatory system than the main market and has no minimum market capitalization requirements. Since its launch, the AIM has raised more than USD 85 billion (GBP 60 billion) for more than 3,000 companies.

Money and Banking System

The UK banking sector is the largest in Europe.  According to TheCityUK, more than 150 financial services firms from the EU are based in the UK.  As of November 2017, EU banks in the UK held USD 1.9 trillion in assets, which represents a decline of USD 425 billion (or 17 percent) in the span of a year.  The sharp drop was a consequence of the Brexit vote, as European Banks trimmed their exposure to UK assets. The financial and related professional services industry contributed approximately 6.5 percent of UK Economic Output in 2017, employed around 1.1 million people, and contributed some GBP 75 billion in tax revenue in 2017/18, or 10.9 percent of total UK tax receipts.  The impact of Brexit on the financial services industry is uncertain at this time. Some firms have already moved jobs outside the UK, but most believe the UK will maintain its position as a top financial hub.

The Bank of England serves as the central bank of the UK by maintaining monetary and fiscal stability.  According to Bank of England guidelines, foreign banking institutions are legally permitted to establish operations in the UK as subsidiaries or branches.  Responsibilities for the prudential supervision of a non-European Economic Area (EEA) branch are split between the parent’s Home State Supervisors (HSS) and the PRA.  However, the PRA expects the whole firm to meet the PRA’s Threshold Conditions. The PRA has set out its approach to supervising branches and its appetite for allowing international banks to operate as branches in the United Kingdom in this Policy Statement and this Supervisory Statement.  In particular, the PRA expects new non-EEA branches to focus on wholesale banking and to do so at a level that is not critical to the UK economy. The FCA is the conduct regulator for all banks operating in the United Kingdom. For non-EEA branches the FCA’s Threshold Conditions and conduct of business rules apply, including areas such as anti-money laundering.  Eligible deposits placed in non-EEA branches may be covered by the UK deposit guarantee program and therefore non-EEA branches may be subject to regulations concerning UK depositor protection.

Although there are no legal restrictions that prohibit non-UK residents from opening a business bank account, in fact banks refuse to open accounts without proof of residency.  Setting up a business bank account as a non-resident is in principle straightforward. However, in practice most banks will not accept applications from overseas due to fraud concerns and the additional administration costs.  To open a personal bank account, an individual must at minimum present an internationally recognized proof of identification and prove residency in the UK. This is a problem for incoming FDI and American expats. Unless the business or the individual can prove UK residency, they will have limited banking options.

The UK has the most substantial financial services sector in the EU by reason of history, time-zone, language, legal system, critical mass of skill sets, expertise in professional services and London’s cultural appeal.  The UK’s withdrawal from the EU will impact the financial services sector and poses some risk to this financial stability. A period of prolonged uncertainty could increase sterling volatility, the risk-premiums on assets, cost and availability of financing, as well as relationships with EU-based financial institutions.  

Foreign Exchange and Remittances

Foreign Exchange

The British pound sterling is a free-floating currency with no restrictions on its transfer or conversion.  Exchange controls restricting the transfer of funds associated with an investment into or out of the UK are not exercised.

Remittance Policies

Not applicable.

Sovereign Wealth Funds

The United Kingdom does not maintain a national wealth fund.  Although there have at time been calls to turn The Crown Estate – created in 1760 by Parliament as a means of funding the British monarchy – into a wealth fund, there are no current plans in motion.  Moreover, with assets of just under USD 12 billion, The Crown Estate would be small in relation to other national funds.

There are 20 partially or fully state-owned enterprises (SOEs) in the UK, with a combined turnover of about USD 15 billion (GBP 11.5 billion) in 2011.  These enterprises range from large, well-known companies to small trading funds. Some of these, where appropriate, are scheduled to be privatized over the next few years.  The government has already successfully sold its remaining shares in Lloyds, the bank nationalized during the global financial crisis. Since privatizing the oil and gas industry, the UK has not established any new energy-related SOEs or resource funds.

Privatization Program

The privatization of state-owned utilities in the UK is now essentially complete.  With regard to future investment opportunities, the few remaining SOEs or government shares in other utilities are likely to be sold off to the private sector when market conditions improve.

Businesses in the UK are accountable for a due diligence approach to responsible business conduct (RBC), or corporate social responsibility (CSR), in areas such as human resources, environmental issues, sustainable development, and health and safety practices – through a wide variety of existing guidelines at national, EU and global levels.  There is a strong awareness of CSR principles among UK businesses, promoted by UK business associations such as the Confederation of British Industry and the UK government.

The British government fairly and uniformly enforces laws related to human rights, labor rights, consumer protection, environmental protection, and other statutes intended to protect individuals from adverse business impacts.  The UK government adheres to the OECD Guidelines for Multinational Enterprises; as such, it has established a National Contact Point (NCP) to promote the Guidelines and to facilitate the resolution of disputes that may arise within that context: https://www.gov.uk/government/groups/uk-national-contact-point-for-the-organisation-for-economic-co-operation-and-development-guidelines 

The UK is committed to the promotion and implementation of these Guidelines and encourages UK multinational enterprises to adopt high corporate standards involving all aspects of the Guidelines.    The UK NCP is housed in BEIS and is partially funded by DFID. A Steering Board monitors the work of the UK NCP and provides strategic guidance. It is composed of representatives of relevant government departments and four external members nominated by the Trades Union Congress, the Confederation of British Industry, the All Party Parliamentary Group on the Great Lakes Region of Africa, and the NGO community.

The results of a UK government consultation on CSR can be found here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/300265/bis-14-651-good-for-business-and-society-government-response-to-call-for-views-on-corporate-responsibility.pdf .

Information on UK and EU regulations and policies relating to the procurement of supplies, services and works for the public sector, and the relevance of promoting RBC, are found here: https://www.gov.uk/guidance/public-sector-procurement-policy 

Although isolated instances of bribery and corruption have occurred in the UK, U.S. investors have not identified corruption of public officials as a factor in doing business in the UK.

The Bribery Act 2010 came into force on July 1, 2011.  It amends and reforms the UK criminal law and provides a modern legal framework to combat bribery in the UK and internationally.  The scope of the law is extra-territorial. Under the Bribery Act, a relevant person or company can be prosecuted for bribery if the crime is committed abroad.  The Act applies to UK citizens, residents and companies established under UK law. In addition, non-UK companies can be held liable for a failure to prevent bribery if they do business in the UK.

Section 9 of the Act requires the UK Government to publish guidance on procedures that commercial organizations can put in place to prevent bribery on their behalf.  It creates the following offenses: active bribery, described as promising or giving a financial or other advantage, passive bribery, described as agreeing to receive or accepting a financial or other advantage; bribery of foreign public officials; and the failure of commercial organizations to prevent bribery by an associated person (corporate offense).  This corporate criminal offense places a burden of proof on companies to show they have adequate procedures  in place to prevent bribery (http://www.transparency.org.uk/our-work/business-integrity/bribery-act/adequate-procedures-guidance/ ).  To avoid corporate liability for bribery, companies must make sure that they have strong, up-to-date and effective anti-bribery policies and systems.  The first prosecution under the Act (a domestic case) went forward in 2011. A UK administrative clerk faced charges under Section 2 of the Act for requesting and receiving a bribe intending to improperly perform his functions as a result.

The Bribery Act creates a corporate criminal offense making illegal the failure to prevent bribery by an associated person.  The briber must be “associated” with the commercial organization, a term which will apply to, amongst others, the organization’s agents, employees, and subsidiaries. A foreign corporation which “carries on a business, or part of a business” in the UK may therefore be guilty of the UK offense even if, for example, the relevant acts were performed by the corporation’s agent outside the UK. The Act does not extend to political parties and it is unclear whether it extends to family members of public officials.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

The UK formally ratified the OECD Convention on Combating Bribery in December 1998.  The UK also signed the UN Convention Against Corruption in December 2003 and ratified it in 2006.  The UK has launched a number of initiatives to reduce corruption overseas. However, the OECD Working Group on Bribery (WGB) has expressed concerns with the UK’s implementation of the Anti-Bribery Convention.  In 2007, the UK Law Commission began a consultation process to draft a Bribery Bill that met OECD standards. The new Bill was published in draft in March 2009 and adopted by Parliament with cross-party support as the 2010 Bribery Act.

Resources to Report Corruption

UK law provides criminal penalties for corruption by officials, and the government routinely implements these laws effectively.  The Serious Fraud Office (SFO) is an independent government department, operating under the superintendence of the Attorney General with jurisdiction in England, Wales, and Northern Ireland.  It investigates and prosecutes those who commit serious or complex fraud, bribery, and corruption, and pursues them and others for the proceeds of their crime.

The SFO is the UK’s lead agency to which all allegations of bribery of foreign public officials by British nationals or companies incorporated in the United Kingdom should be reported – even in relation to conduct that occurred overseas.  Some of these allegations, where they involve serious or complex fraud and corruption, may fall to the SFO to investigate. Some may be more appropriate for other agencies to investigate, such as the Overseas Anti-Corruption Unit of the City of London Police (OACU) or the International Corruption Unit of the National Crime Agency.  When the SFO receives a report of possible corruption, its intelligence team makes an assessment and decides if the matter is best dealt with by the SFO or passed to a law enforcement partner organization. Allegations can be reported in confidence using the SFO’s secure online reporting form: https://www.sfo.gov.uk/contact-us/reporting-serious-fraud-bribery-corruption/ .

Details can also be sent to the SFO in writing:

SFO Confidential
Serious Fraud Office
2-4 Cockspur Street
London, SW1Y 5BS
United Kingdom

The UK is politically stable but shares with the rest of the world an increased threat of terrorist incidents.  2017 saw an uptick in the number of terrorist incidents in the UK, with deaths from attacks in Westminster, Manchester, London Bridge, and Finsbury Park totaling 36.  The latest official figure, from December 2017, states that nine Islamist plots had been foiled since March 2017, and 22 since 2013, when the Islamic State group emerged in Syria.  The current threat level for international terrorism in the UK is “Severe.”

Environmental advocacy groups in the UK have been involved with numerous protests against a variety of business activities, including:  airport expansion, bypass roads, offshore structures, wind farms, civilian nuclear power plants, and petrochemical facilities. These protests tend not to be violent but can be disruptive, with the aim of obtaining maximum media exposure.

Brexit remains a key source of political instability.  The June 2016 EU referendum campaign was characterized by significant polarization and widely varying perspectives across the country.  Differing views about what should be the terms of the future UK-EU relationship continue to polarize political opinion across the UK.  The people of Scotland voted to remain in the EU and Scottish political leaders have indicated that the UK leaving the EU may provide justification to pursue another Referendum on Scotland leaving the UK.  In addition, Brexit may be a factor contributing to the inability to reconstitute devolved government in Northern Ireland.

The process of Brexit itself has been politically fraught.  The UK was originally due to leave the EU on March 29, 2019, but Prime Minister (PM) Theresa May twice had to request a delay as she remained unable to form a majority in the House of Commons to ratify the Withdrawal Agreement setting out the terms of the UK’s departure from the bloc.  The UK and the EU27 endorsed the draft Withdrawal Agreement at a special meeting of the European Council on November 25, 2018.  The draft deal makes provisions for an extendable 21-month status quo transition period through at least December 31, 2020 – during which the UK would effectively remain a member of the EU without voting rights, while continuing talks on its long-term future economic and security arrangements with the bloc. 

The transition period is, however, conditional upon the successful ratification of the Withdrawal Agreement.  At time of writing, the House of Commons has three times rejected the draft Withdrawal Agreement, largely over concerns with a controversial “backstop” plan to avoid the return to a hard border between Northern Ireland and the Republic of Ireland by keeping the former in a closer economic relationship with the EU – potentially setting up additional regulatory barriers between Northern Ireland and the rest of the UK.  The House of Commons has also voted to reject an exit from the EU without a Withdrawal Agreement in place, a so-called “no deal” Brexit scenario.  Facing the prospect of a no-deal exit on April 12, PM May agreed with her EU27 counterparts to a further extension of the Article 50 negotiating process until October 31, 2019.

Both main political parties (Conservative “Tories” and Labour) have recently tacked in a less business-friendly direction.  The Conservative Party, traditionally the UK’s pro-business party, is focused on implementing Brexit, a process many international businesses oppose because they expect it to make trade in goods, services, and capital with the UK’s largest trading partners more problematic and costly, at least in the short term.  The Conservative Party also intends to limit and reduce international immigration, an issue that was a main driver of the UK’s vote to leave the EU.  The Conservative Party capitalized on this anti-immigrant sentiment as a part of their overall campaign strategy to win the 2017 General Election.  The opposition Labour Party, led by Jeremy Corbyn MP and Chancellor John McDonnell MP, have also promoted polices opposed by business groups including laws that would give employees and shareholders the right to a binding vote on executive remuneration, make trade union rights stronger and more expansive, increase corporate taxes, and renationalize utility companies.  If the Labour Party were to prevail, such a shift to the economic left at a time when the Conservatives have made large, relatively unfunded public spending commitments, could potentially lead to higher levels of taxation and borrowing, crowding out private investment.

The UK’s labor force is the second largest in the European Union, at just over 41 million people. For the period between November 2018 and January 2019, the employment rate was 76.1 percent, with 31.4 million workers employed – the highest employment rate since 1971. Unemployment also hit a 43-year low with 1.32 million unemployed workers, or just 4 percent (down from 4.4 percent a year earlier).  For the same period, the unemployment rate for 18 to 24 year olds was 10.4 percent, lower than for a year earlier (10.5 percent).

The most serious issue facing British employers is a skills gap derived from a high-skill, high-tech economy outpacing the educational system’s ability to deliver work-ready graduates.  The government has placed a strong emphasis on improving the British educational system in terms of greater emphasis on science, research and development, and entrepreneurial skills. The UK’s skills base stands just below the OECD average.

As of 2017, approximately 23.2 percent of UK employees belonged to a union.  Public-sector workers have a much higher share of union members, at 51.8 percent, while the private sector is just under 14 percent.  Manufacturing, transport, and distribution trades are highly unionized. Unionization of the workforce in the UK is prohibited only in the armed forces, public-sector security services, and police forces.  Union membership has been relatively stable in the past few years, although the trend has been slightly downward over the past decade.

Once-common militant unionism is less frequent, but occasional bouts of industrial action, or threatened industrial action, can still be expected.  Recent strike action was motivated in part by the Coalition Government’s deficit reduction impacts on highly unionized sectors. In the 2017, there were 276,000 working days lost from 79 official labor disputes.  Privatization of traditional government entities has exacerbated frictions. The Trades Union Congress (TUC), the British nation-wide labor federation, encourages union-management cooperation as do most of the unions likely to be encountered by a U.S. investor.

In 2017 some cabin crew members of British Airways went on strike; 2018 saw significant strikes at the university level.  In February of 2018, university lecturers launched a widespread strike with staff and students taking collective action across 64 different universities.  Estimates show over a million students were affected and 575,000 teaching hours were lost.

On April 1, 2019, the UK raised the minimum wage to USD 10.71 (GBP 8.21) an hour for workers ages 25 and over.  The increased wage impacts about 2 million workers across Britain. The government plans to raise the National Living Wage to USD 11.75 an hour (GBP 9) by 2020.

The UK decision to leave the EU has introduced uncertainty into the labor market, with questions surrounding the rights of workers from other EU countries currently in the UK, the future rights of employers to hire workers from EU countries, and the extent to which the UK will maintain EU rules on workers’ rights.  

The 2006 Employment Equality (Age) Regulations make it unlawful to discriminate against workers, employees, job seekers, and trainees because of age, whether young or old.  The regulations cover recruitment, terms and conditions, promotions, transfers, dismissals, and training. They do not cover the provision of goods and services. The regulations also removed the upper age limits on unfair dismissal and redundancy.  It sets a national default retirement age of 65, making compulsory retirement below that age unlawful unless objectively justified. Employees have the right to request to work beyond retirement age and the employer has a duty to consider such requests.

OPIC does not operate in the UK.  However, the U.S. Export-Import Bank (Ex-Im Bank) financing is available to support major investment projects in the UK.  A Memorandum of Understanding (MOU) signed by Ex-Im Bank and its UK equivalent, the Export Credits Guarantee Department (ECGD), enables bilateral U.S.-UK consortia intending to invest in third countries to seek investment funding support from the country of the larger partner.  This removes the need for each of the two parties to seek financing from their respective credit guarantee organizations.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Notes:

The UK Department for International Trade Core Statistics Book denominates these figures in GBP. Due to a volatile GBP/USD exchange rate in 2018, Post has decided to leave the numbers in their denominated currency as to maintain the highest accuracy.

The current fourth ranking for Inward Direct Investment is the UK offshore island of Jersey, a self-governing dependency of the United Kingdom. However, we have chosen to focus here on country-to-country FDI only.

Table 4: Sources of Portfolio Investment

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