2019 Investment Climate Statements: New Zealand

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