Learn about the powers of discretionary exemption available to Ministers.
Under section 61D of the Overseas Investment Act 2005, the relevant Ministers may exempt any:
The Overseas Investment Act 2005 (Act) is broad in its effect and can be prescriptive. A discretionary exemption power provides for unexpected or unusual circumstances that may not otherwise be provided for.
The power to grant exemptions is a limited power and in many instances an application for consent under the Act will be more appropriate. Anyone wishing to apply for an exemption should contact the OIO prior to submitting an application.
Section 61D does not allow decision makers to grant class exemptions. These can only be provided for by regulations (see the class exemptions provided in Part 2 of the Overseas Investment Regulations 2005).
Section 61E provides the criteria for both discretionary and class exemptions. The decision maker (either the relevant Ministers or the Regulator acting under delegation) can only grant an exemption if they consider that:
- there are circumstances that mean that it is necessary, appropriate, or desirable to provide an exemption for any of the matters referred to in section 61B(a) to (c); and
- the extent of the exemption is not broader than reasonably necessary to address those circumstances.
In considering whether these criteria are met, section 61E requires the decision maker to have regard to the purpose of the Act and sets out other matters the decision maker may have regard to.
Section 61B sets out the purposes for which exemptions may be considered. An exemption may only be granted if it fits within one or more of these purposes. This section was amended by the Overseas Investment (Urgent Measures) Amendment Act 2020. The purposes for which exemptions may be considered are –
- provide flexibility where compliance with the Act is impractical, inefficient, unduly costly, or unduly burdensome, taking into account the sensitivity of the sensitive assets and the nature of the overseas investment transaction; or
- allow for exemptions that are minor or technical; or
- allow for exemptions in respect of nine further specified purposes (including use of land for diplomatic or consular purposes, network utility services, security arrangements entered in the ordinary course of business and exemptions for fundamentally New Zealand entities
Exemptions may only be granted after having regard to the purpose of the Act. The purpose of the Act is set out in section 3:
The purpose of this Act is to acknowledge that it is a privilege for overseas persons to own or control sensitive New Zealand assets by:
- requiring overseas investments in those assets, before being made, to meet criteria for consent; and
- imposing conditions on those overseas investments.
The Act also has the purpose of managing certain risks, such as national security and public order risks associated with transactions by overseas persons.
This makes it clear that the exemption power is not intended to facilitate the avoidance of the Act, or to support a transaction structure or particular commercial outcome or benefit that is not consistent with the purpose of the Act.
The decision maker may also consider other matters set out in section 61E(2)(b). In general, these relate to matters such as how ownership and control of the relevant assets will be affected and for how long. The considerations listed are:
- the extent to which effective ownership or control is changed by the overseas investment or remains with persons who are not overseas persons:
- the extent to which a sensitive asset is already held in overseas ownership or control:
- the extent to which the acquisition is the result of the operation of other legislation or an event outside the control of the overseas person:
- the extent of time an overseas person is likely to have ownership or control of a right or an interest, for what purpose, and the likely impact on the sensitive asset of that overseas ownership or control:
- any other factors that seem to the Minister to be relevant to the circumstances.
The Overseas Investment (Urgent Measures) Amendment Act 2020 (Urgent Measures Act) introduced a new ‘purpose’ for exemptions to section 61B(c)(viii). This purpose is to allow for exemptions in respect of ‘persons, transactions, rights, interests, or assets that the Minister considers to be fundamentally New Zealand owned or controlled or to have a strong connection to New Zealand’.
This new purpose is primarily intended to allow for New Zealand incorporated non-listed companies and managed investment schemes to apply for a discretionary exemption. When considering applications for an exemption of this type, the decision-maker will consider why the relevant entity is an overseas person.
Clause 31 of Schedule 1AA of the Act provides for ‘automatic standing consents’ for New Zealand listed issuers and managed investment schemes that are listed issuers. The ownership and control thresholds in clause 31 are likely to be relevant to whether a discretionary exemption for a ‘fundamentally New Zealand owned or controlled’ person should be granted. In particular, an exemption is unlikely to be granted where the ownership and control limits in clause 31 are exceeded.
We will also consider other factors as required by section 61E(2) of the Act. Matters likely to be relevant under section 61E(2)(v) include the extent of ownership by a foreign government or its associates, and the applicant’s record of compliance with the law.
The OIO is required to publish all exemptions granted under section 61D on its website including a statement of the reasons for each exemption.
A statement of reasons is also required for exemptions made by way of regulation.
See the Discretionary exemptions register for all exemptions granted under section 61D.
For more information on the application of sections 61B-61G, or to enquire about a potential exemption, please contact the OIO by email (firstname.lastname@example.org).
This website provides general information only. The OIO and LINZ do not assume any responsibility for giving legal or other professional advice and disclaim any liability arising from the use of the information. If you require legal or other expert advice you should seek assistance from a professional adviser.