Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 Contents

1 About Chapman Tripp 19 Taxation within New Zealand 37 Financial services in New Zealand

2 New Zealand at a glance 22 New Zealand’s cross- border tax regime 42 Investing in New Zealand’s capital markets 4 Overseas investment in New Zealand 25 Contract law in New Zealand 44 Fundraising in New Zealand 7 Establishing a business 26 Consumer protections in New Zealand in New Zealand 46 Insolvency in New Zealand

9 Buying and developing real 29 Employment and health and 48 Resolving disputes estate in New Zealand safety law in New Zealand in New Zealand

14 Environment and 32 Anti-trust, competition 50 Emigrating to New Zealand resource management law in New Zealand law in New Zealand

34 Intellectual property 17 New Zealand Māori and in New Zealand the Treaty of Waitangi

We make every effort to ensure the accuracy of the information provided but it should not be relied upon as a basis for making business decisions as circumstances, business conditions, government policy and interpretation of the law may change. About Chapman Tripp

Chapman Tripp, New Zealand’s leading law firm, can offer you a national, full service team. Our advice is clear and Established in 1876, we have a reputation for excellence and a long track record of delivering commercial.“ We help innovative, commercial solutions which respond to the individual needs of our clients. you mitigate risk and maximise your investment Our advice is clear and commercial. Chapman Tripp has an international This guide is designed to provide We help you mitigate risk and maximise client base and has been involved in the prospective investor with an through all phases of your your investment through all phases of some of the most high profile Overseas introduction to New Zealand’s legal business venture.” your business venture – from evaluating Investment Office applications of framework. The information is accurate potential investment opportunities recent times. We play a key role in at the time of publication but is and acting on acquisitions through to mergers and acquisitions, banking, necessarily high level and generic so advising on the most efficient way to financing, insolvency, restructuring, should not be relied upon as a basis for structure your business, the day-to- procurement processes, large decision-making. Large Law Firm day operational issues you need to be scale infrastructure projects and of the Year aware of and, should it eventuate, how dispute resolution. We recommend you speak to us about New Zealand Law Awards 2019 to achieve a successful exit strategy. your investment requirements before We have more than 60 partners and making any decisions so that we can We also help you to make sense of the around 200 legal staff with offices provide you with advice that is specific New Zealand Dealmaker New Zealand regulatory and cultural in Auckland (the economic centre of to your needs. of the Year environment. We will represent your New Zealand and home to more than a Australasian Law Awards 2019 business interests to relevant regulatory third of the population), Wellington (the You can read more about Chapman bodies, including the Overseas seat of government) and Christchurch Tripp at chapmantripp.com Investment Office, and will guide you (the South Island’s commercial hub). New Zealand Contentious through the resource management Firm of the Year consent process and the best approach Managing IP Asia-Pacific Awards 2019 for dealing with Māori law.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 1 New Zealand Geography Culture Economy New Zealand is situated in the South New Zealand culture values fairness, New Zealand is a safe place to invest Pacific Ocean, with a land area ingenuity, practicality, modesty, and do business. It is currently ranked at a glance equivalent to Japan or Britain. We have restraint and informality. English is first of 189 countries by the World Bank one of the largest exclusive economic the everyday language but Māori and for ease of doing business, starting a zones in the world at 4.1 million sign language are also recognised as new business and getting credit, second square kilometres. official languages. for protecting minority investors, and third for registering a property. New Zealand consists of two main We aspire to be a multi-cultural society islands – the North Island and the South but accord a special significance to Major exports include dairy products, Island. It has a temperate climate and Māori culture, reflecting that Māori are meat, timber and minerals. We offers a high quality of life with clean air the indigenous people of this land. also have developing industries in and easy access to nature. export education, boat building, IT, Political and legal system horticulture, wine and film. Population Our stock exchange is the first in the New Zealand is consistently rated in the world to open trading each day – two The resident population is just over top four by Transparency International hours ahead of Sydney, three hours 5 million people, one third of whom live for freedom from corruption. We ahead of Tokyo, four hours ahead of in Auckland. have a common law legal system Beijing, 12 hours ahead of London and based on the British model, with an 17 hours ahead of New York. New Zealand is a nation of migrants, independent judiciary. with one of the most ethnically diverse The currency is based on the populations in the world and a large New Zealand has a stable parliamentary New Zealand dollar, which is freely “ex-pat” community which provides democracy with a proportional voting floated against all major currencies. important international linkages. system which tends to produce coalition governments. The two major parties, which would generally lead a coalition government, are National at the conservative end of the spectrum and Labour at the liberal end. The British sovereign is the titular Head of State and is represented in New Zealand by a Governor-General.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 2 Free trade agreements ALERT Want to know more? New Zealand supports trade Go to: liberalisation and is party to a large number of free trade agreements, newzealand.com or including with Australia, China, newzealandnow.govt.nz/investing- Hong Kong, Chinese Taipei, South in-nz or nzte.govt.nz/en/invest/ Korea, ASEAN, Singapore, Thailand, Malaysia, Brunei and Chile. We are also signatories to the Comprehensive and Progressive Trans-Pacific Partnership and to the Regional Comprehensive Economic Partnership (RCEP).

Information on New Zealand’s international trading agreements can be found on the Ministry of Foreign Affairs and Trade website: mfat.govt.nz

New Zealand currently rates number two “by Transparency International for freedom from corruption.”

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME Key points When is consent ALERT Overseas required? The definition of sensitive land is • New Zealand recognises the positive very detailed and requires careful economic and social contribution checking and analysis from qualified Overseas Investment Office (OIO) investment in foreign investment brings to advisers. In particular, land may consent may be required if the target New Zealanders. be “sensitive” if it adjoins certain business possesses any of the following: types of land, or is “associated” with New Zealand • New Zealand consistently ranks other land already controlled by an highly as an attractive investment • significant business assets – where overseas person. destination, with various studies the cost of a business acquisition, identifying the ease of doing or the value of the applicable business, low level of corruption, New Zealand assets, exceeds high quality of regulations NZ$100 million. Non-government adherence to the rule of law, investors from all Comprehensive significant investor protections, and Progressive Trans-Pacific and protection of personal Partnership (CPTPP Agreement) freedoms accorded to investors countries have a higher threshold in New Zealand. and Australia has a special arrangement under the CER • Not all overseas investments into Investment Protocol) New Zealand require consent. Like most other countries, however, • an interest in sensitive land, or New Zealand does require overseas • fishing quota. persons to obtain consent for certain types of investments.

• Due to the economic impact of COVID-19, a temporary emergency notification regime has been introduced which requires transactions that may not otherwise need consent to be notified and vetted for any national interest concerns.

Tessa Baker – Partner T: +64 9 357 9502 M: +64 27 622 3161 E: [email protected]

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 4 Residential land Consent criteria Sensitive land To obtain consent, the overseas investor will need to demonstrate that the purchase will bring benefits additional to those which would accrue from The sale of residential property, In general, all applicants (including continued New Zealand ownership. These benefits are assessed against a variety of economic, social and conservation factors. All residential land, including lifestyle blocks and unit titles, persons with control of the applicant if including “lifestyle,” is now included in the sensitive land category. is restricted to: the applicant is an entity) are required to meet the investor criteria of business Rural land For non-urban land larger than five hectares, the overseas investor • New Zealand citizens and persons experience and acumen, financial will need to show that the benefits to New Zealand arising from the “ordinarily resident in New Zealand” commitment and good character. investment are “substantial and identifiable”, with particular focus on economic benefits including employment, new technology and (which, in this context, means Legislation to replace the “good business skills, increased exports and processing of primary products holding a permanent resident visa, character” component with a bright and local oversight and participation. The type and level of benefits having resided in New Zealand for at line test comprising a closed list of required mean it is difficult for an overseas investor to obtain consent least a year and having been present specific considerations (serious default, to buy rural land without substantial enhancements proposed. in New Zealand for at least 183 days convictions, breaches of tax law, civil Special land Special land includes the foreshore, seabed, riverbed or lakebed that in the past year), contraventions and allegations) has forms part of sensitive land. been passed and is expected to come • individuals who obtain consent on Special land transfers are subject to stricter conditions and the into effect in early 2021. the basis that they are acquiring part of the sensitive land that is special land must be offered to the New Zealand Government as a part of the OIO consent a home to live in and have made Investors must also not be ineligible application process. a commitment to reside in individuals under the Immigration Act. New Zealand, and Farm land Farm land must be offered on the open market before a sale to an overseas person can be completed. investors who can demonstrate A new national interest assessment may • Exemptions from this requirement can be obtained, but only in special through obtaining OIO consent be applied to transactions involving circumstances and at the discretion of the relevant Minister. that they will be developing the strategically important businesses, land and adding to New Zealand’s an overseas government investor or Residential For transactions involving residential land (which is not otherwise land sensitive), the overseas investor will need either to satisfy the benefit housing supply, or using the land an area of specific national interest. to New Zealand criteria or one of four alternative tests: a commitment for a non-residential use or for a This assessment only applies to some to reside in New Zealand, increased housing supply, non-residential residential use that is incidental to transactions, and is intended to be used use or incidental residential use. the investor’s core business. rarely. The assessment will make sure that overseas investments in sensitive Forest land Overseas investors wanting to buy forest land – being land over five hectares devoted principally to forestry – will need to satisfy either the benefit to Exemptions are available for and high-risk assets are not contrary to New Zealand criteria or one of two alternative streamlined tests: the Australians and Singaporeans under New Zealand’s national interests. special forestry test or the modified benefits test, both of which also involve New Zealand’s treaty obligations with replanting after harvest. The Government has extended coverage of the OIA these jurisdictions. Certain investments have additional to include the acquisition of forestry rights over 1000 hectares per annum. criteria that must be met for consent to Strategically Transactions involving a strategically important business (such as be granted (see the following table). We important military or dual-use technology, ports or airports, electricity, water, recommend you check with a qualified infrastructure telecommunications, and financial market infrastructure) will be subject to adviser on these requirements. a national interest assessment taking into account a range of factors, the importance of which can vary depending on the investment.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 5 Off-shore transactions We recommend that potential investors Class exemptions Temporary emergency engage New Zealand legal counsel early notification requirement Transactions occurring outside The requirements for consent do not in the investment process to assess New Zealand may still require OIO apply to certain situations covered by Due to the impact of COVID, the whether consent is needed and to consent if the target business has class exemptions including: Government has introduced a ensure that there are no unnecessary interests in land or other assets in temporary requirement to notify the delays. An application for consent can New Zealand. OIO implications for off- • transfers within 95% wholly owned OIO of transactions which would not require preparing a large amount of shore transactions should be assessed groups otherwise require consent. Overseas information on the investor and the early in the transaction process to investors must notify the OIO before plans for the investment. • where there is no increase in ensure that OIO timeframes do not undertaking an investment, regardless ultimate overseas ownership and cause unnecessary delays. of value, that would result in: Target processing times can be found at control linz.govt.nz. Consent application process • acquisition of redeemable • more than 25% overseas ownership preference shares of a New Zealand business or its The consent application process is assets, or administered by the OIO and governed ALERT • security arrangements in the by the Overseas Investment Act 2005 Complex applications can take ordinary course of business that • an increase to an existing holding (the Act) and accompanying regulations. longer than the OIO targets. We secure payment or performance of beyond 50% or 75% or up to 100%. can advise you of likely application an obligation, and The overall consent decision rests processing times when preparing • underwriting of an issue of securities Notification process with the relevant Ministers. The OIO specific applications. in the ordinary course of business, assesses the consent applications, An online form must be completed provided that the position is held and makes recommendations to the and submitted to notify the OIO of a for less than six months and voting Ministers. For certain applications the Consent conditions transaction. The OIO completes an rights are not exercised. OIO itself makes consent decisions initial assessment for national interest Consent will be granted subject to under delegated authority from the concerns within 10 working days. various conditions with which the Ministers. Most transactions proceed after the applicant must comply and report initial assessment. A small number of against. Often the conditions will reflect transactions may require more time and the nature of the benefits claimed a more thorough assessment. to support the transaction in the consent application. The Government is undertaking a review of the Act aimed at making the regime easier to use and more facilitative of productive investment that supports New Zealand’s wellbeing. Legislative changes are expected in 2021, coming into force in 2022.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 6 Establishing Key points Establishing a ALERT New Zealand We can assist and put you in touch • Overseas persons can own with providers of professional a business in assets and operate businesses in subsidiary company director and registered office New Zealand. services in New Zealand. A New Zealand company is a separate • It is relatively easy and free of New Zealand legal entity responsible for its own restrictions to set up a company in assets and liabilities. There is no New Zealand. Establishing a limited restriction on the size of a company’s partnership • Overseas entities will need to share capital. There are no residency obtain a New Zealand tax number restrictions on shareholders. The rules governing limited partnerships in and, depending on the volume of New Zealand are similar to those applying business, may be required to register Key points to note in other jurisdictions, including Delaware, for the Goods and Services Tax. • Every New Zealand company Australia and the Channel Islands. • Overseas companies and limited requires at least one New Zealand The distinctive feature of the limited partnerships which intend to resident director or one Australian partnership model is that it is a separate carry on business directly in resident director who is also a legal entity but provides the protections New Zealand need to register with director of an Australian company. of limited liability to its members. the New Zealand Companies Office. As long as this requirement is fulfilled, a New Zealand company A limited partnership must have at may have any number of least one general partner and one ALERT overseas directors. limited partner, who cannot be the Unlike other countries, the same person. A general partner may • There is no requirement for a company Companies Register maintained be an overseas company registered in to have a company secretary. by the New Zealand Companies New Zealand with at least one director Office is publicly available, • The Companies Office may require who lives in New Zealand or who lives including information regarding a certified proof of identity (e.g. in Australia and is a director of an directors and shareholders, such passport) and a certified proof of Australian company. A general partner as their residential address and full residential address (e.g. utilities is jointly and severally liable with the legal name. bill) for overseas directors when limited partnership and any other registering a company. general partners for the unpaid debts and liabilities of the limited partnership. • Every New Zealand company requires a New Zealand registered A limited partner has the protection of Tim Tubman – Partner office address/address for service. T: +64 9 357 9076 limited liability, but must not take any M: +64 27 344 2178 part in the management of the limited E: [email protected] partnership. A limited partner can be an overseas person. Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 7 Entering a joint venture/ Branch, subsidiary or limited partnership? general partnership There are advantages to each of the three options, depending on the circumstances. Joint ventures in New Zealand are arrangements entered into by two or Branch Subsidiary Limited partnership more parties to invest in a particular project. They can be carried out by Liability Because the branch is legally the A special purpose subsidiary may The general partner (which may overseas company, there is no help ring-fence liability. But in be a company) manages the a company, a limited partnership sheltering of liability practice, unless the subsidiary is business and can be liable for any or an unincorporated contractual substantial in its own right, any debts and obligations which the joint venture. significant commercial dealings limited partnership itself is unable may need to be guaranteed by the to meet. The limited partners are A general partnership is not a separate overseas parent passive investors and their liability legal person and each partner is jointly is limited to the amount of capital they agree to contribute and severally liable for the debts of the partnership. Responsibilities and Tax The branch will generally be The subsidiary is a New Zealand Limited partners are treated as liabilities can be allocated according considered to be non-resident for tax resident and will be subject holding the assets of the limited to a partnership deed, but partners tax purposes, with the effect that to New Zealand tax on the partnership and personally derive do not enjoy the protection of limited the overseas company will have to subsidiary’s worldwide income. the income and deductions. This liability. For this reason, some investors pay any tax obligations incurred in Losses cannot be offset against enables them to distribute capital New Zealand but may also be able any income of the overseas gains among themselves tax free prefer to pursue joint ventures through to include the branch activities parent and cannot usually be and to pass through tax losses a special purpose vehicle company or in the tax return filed in the home claimed in the parent’s home (although only to the extent of limited partnership. jurisdiction of the head office jurisdiction that limited partner’s exposure to the loss) An investment in a joint venture may be subject to the Overseas Investment Act (see the Investing in New Zealand section for more detail).

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 8 Buying and Key points Registered title system Forms of title • All titles in New Zealand are New Zealand uses the Torrens land In New Zealand there are three main developing registered at Land Information registration system under which most forms of title. New Zealand. “Freehold” title is parcels of land have their own titles the most common. Particular care showing dimensions and location, Freehold – this is the most common real estate in needs to be taken when dealing with ownership and other interests affecting (and best) form of title available in “leasehold” or “unit title” properties. the land. The government guarantees New Zealand. New Zealand the accuracy of titles, which can be • When purchasing property in searched by the public for a nominal fee. Leasehold – the purchaser of a New Zealand, it is usual to sign a leasehold property acquires the sale and purchase agreement that Chapman Tripp provides a full title benefit of a lease of the property (as is conditional upon the purchaser searching service. opposed to the freehold). Leasehold carrying out a due diligence title is particularly prevalent within the investigation and being satisfied with The primary attraction of the Torrens Auckland waterfront area. The term and the results of that investigation. system is that dealings can be rental structure of these leases can • Overseas investors need conducted in reliance on a single title, vary significantly. Particular care needs government consent under the rather than on a succession of title to be taken when acquiring leasehold Overseas Investment Act to buy deeds. New Zealand has converted property, especially when the lease “sensitive” land (which includes almost all titles, plans and instruments reserves an annual rent that is subject farm land and residential land) into an electronic format, allowing to review under the terms of the lease. or any other property where the real-time searching and electronic consideration is over $100 million. registration of all land title and See the Investing in New Zealand surveying transactions. section, which also covers the new notification regime, introduced Under New Zealand law, buildings on a temporary basis as part of and other improvements permanently New Zealand’s COVID-19 response. attached to the land form part of the land itself and pass with ownership of the land, unless the seller and buyer agree otherwise.

Dealings with land are registered Mark Nicholson – Partner electronically against the title. T: +64 9 357 9297 M: +64 27 305 9120 E: [email protected]

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 9 Unit Title – unit titles are similar freehold but it is not uncommon to Act 2010, with a particular focus on to provide the purchaser with a pre- to other forms of title save that find leasehold unit titles within the the management and maintenance of contract disclosure statement which they are limited to a defined part Auckland waterfront area. A purchaser common property (such as lobbies contains information on the unit title of a building or property. They are of a unit title property automatically and lifts) and the structural elements being purchased (including the amount the most common form of title for becomes a member of the “body of the building as well as common of the “levies” payable to the body apartment buildings (with each corporate”. The body corporate building services. Before entering corporate to cover the cost of the individual apartment comprising a effectively governs the building into an agreement to purchase a unit insurance of the building as well as its single unit title). Most unit titles are under the terms of the Unit Titles title property, the vendor is obliged management and maintenance).

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS November 2020 HOME 10 Contracts for sale and Where a real estate agent is engaged - the existence of a building warrant Seismic rating of by a seller to effect a sale, commission of fitness which is required for purchase of land is payable by the seller. There is no most buildings other than stand- commercial buildings stamp duty. alone houses (see section below To be enforceable under New Zealand As a result of the Christchurch on building works) law, a contract for the sale and earthquakes of 2010 and 2011, purchase of land must be in writing Due diligence - any relevant records held by the purchasers of commercial buildings will and signed by the parties involved or council regarding the property now usually include the seismic rating their authorised agents. Once signed, Due diligence is a fundamental (for example the existence of those buildings as part of their due an agreement for sale and purchase component of the process of acquiring of any contamination or diligence investigation. becomes legally binding on all parties. property in New Zealand. Depending geotechnical issues or whether on the nature of the property being the building has been identified as All new buildings in New Zealand Sale and purchase agreements can be acquired, due diligence commonly “earthquake prone”) are required to be constructed to made subject to conditions which are entails engaging a lawyer to review: 100% of the current building code - any rates arrears. designed to protect either the seller (often referred to as “New Building or the buyer. Common conditions are • the title to the property and (in the In addition, you will need: Standards” or “NBS”). However, older the buyer raising finance and the buyer case of commercial property) the buildings are unlikely to have been being satisfied with the results of the terms of any leases • a registered valuer to undertake a constructed to 100% of NBS, either due diligence investigation (see below). valuation of the property, and because of the lower building standards • council records for the property in applying at the time the building was the form of a “LIM” report to identify • a building inspector/engineer You should always obtain legal advice constructed or because of poor design the following types of issues: to review the condition of the before entering into a sale and purchase or workmanship. building and identify any defects or agreement. However, particular care - any enforcement action being maintenance issues (see also the needs to be taken before entering into taken by the council for non- comments below about the “seismic an agreement to purchase: compliance with statutory or rating” of commercial buildings). ALERT regulatory requirements An older building with a seismic • a commercial property (which, rating of less than 34% of NBS - any outstanding code compliance depending on size and value, may is classified as “earthquake certificates in respect of any be subject to fairly significant legal prone” and will be subject to building work undertaken at the negotiation), or statutory requirements for seismic property (see section below on strengthening works. Particular care • a residential property that is to be building works) needs to be taken with heritage developed by the vendor (commonly buildings and buildings constructed referred to as buying property “off before 1976, which are more likely to the plans”). be earthquake prone.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 11 Typically, most investors in commercial Residential property The Residential Land Withholding Tax Resource property in New Zealand look for a (RLWT) applies where the seller is an seismic rating of at least 67% of NBS. – tax considerations offshore person and the residential land Management Act A rating of less than 67% can have an is sold within five years of acquisition Gains from the sale of residential The Resource Management Act 1991 is impact on the value of the property (for properties acquired after 29 March properties purchased after 29 March New Zealand’s principal statute relating and also the ability to attract or retain 2018) or within two years of acquisition 2018 and held for less than five years to the use of land, water, minerals, tenants. Most major corporates in (for properties acquired between 1 are taxed at the owner’s standard the coast, air and physical resources. New Zealand will refuse to lease October 2015 and 28 March 2018). income tax rate. Gains from the sale The Act has major implications for property in New Zealand if it has a The RLWT also applies to sales by of residential properties purchased all property developments, be they seismic rating of less than 67%. New Zealand entities that are ultimately between 1 October 2015 and 28 March commercial, industrial or residential more than 25% owned or controlled by 2018 are taxable if sold within two years. in nature, and for infrastructure and There are two main types of report offshore persons. (For more detail, refer The Government may decide to extend utilities. A new development may issued by engineers to assess the to the section on New Zealand’s cross- the “brightline test” holding period require a number of consents under the seismic rating of a building: border tax regime.) beyond two years, although any change Act before it can go ahead. would likely be prospective only. • an “ISA” (or “Initial Seismic Residents must provide an IRD number Controls on property development Assessment”), a very high level as part of the usual Land Information Exemptions will apply if the property is: are administered by local government desktop study that is not always New Zealand transfer process. authorities and are expressed through a accurate and should be treated with Non-residents must also provide a • the seller’s main home range of publicly notified plans. These caution, and New Zealand IRD number as well as a include regional plans, district plans, • inherited from a deceased estate home jurisdiction tax number together and some national level plans. Plans • a “DSE” (or “Detailed Seismic with another form of identification – • sold as part of a set out rules for activities depending Assessment”) which is usually more such as a passport. In order to obtain relationship breakdown. on the nature, scale and location – for accurate but will generally cost an IRD number, a non-resident will most developments above a certain more than an ISA. However, care need a fully functional New Zealand Gain from sale of a property held for size this includes the requirement to still needs to be taken to review the bank account or confirmation from longer than five years may still be taxed obtain resource consent. At the district report to identify any limitations a New Zealand reporting entity that if the Inland Revenue Department (IRD) level, these rules are largely based on the scope of the investigations customer due diligence has been considers that the seller acquired the on the zoning of the relevant land. undertaken by the engineer. completed in accordance with property for a purpose or intention of Parties seeking consent to proceed New Zealand anti-money laundering resale, or if one or more of the specific with a development must follow the If the engineer’s report was obtained (AML) legislation. land taxation provisions applies (for procedures set out in the relevant plan. by the vendor, the purchaser should example, if the seller carried on, or was This may involve public participation in consider requiring either that the associated with someone who carried the resource consent process, through engineer confirm in writing that the on, a business of land dealing, land notification of the consent application. purchaser may rely on the report or development or building at the time of that the report be re-addressed to acquiring the property and sells that the purchaser. property within ten years).

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 12 Privately owned land may also Following completion of any work Allied to the Building Act is the Building Māori land claims be designated in the applicable pursuant to a building consent, a code Code. This sets criteria to ensure district plan as being required by compliance certificate (or “CCC”) buildings are safe, sanitary, have Land claims by Māori, the indigenous the government or other competent should be obtained. When purchasing adequate means of escape and, in the people of New Zealand, are governed designating authority for a public work a building in New Zealand, a key item case of public buildings, have access by the Treaty of Waitangi Act 1975. (including compulsory acquisition that should be checked during the due and facilities for disabled persons. Under the Act, grievances are heard if necessary). The current market diligence investigation is whether there Existing buildings, which are being by the Waitangi Tribunal which can value of the land would be paid as are any outstanding code compliance altered, may require upgrading in the then make recommendations to the compensation. certificates for building work carried course of the alterations in order to government regarding the resolution of out at the property. This can be verified comply with these criteria as nearly those grievances. For more detail on the Resource by engaging a lawyer to review an up to as is reasonably practicable. Buildings Management Act 1991, refer to date “LIM” report for the property. considered earthquake prone may also Recommendations for the return of the Environment and resource be required to be upgraded. land to Māori are generally applicable management law section. Most types of property (other than only in respect to land owned by stand-alone houses) are also required The Act imposes restrictions upon the government or State-Owned to hold a building warrant of fitness occupation of a building where public Enterprises. Privately owned land is not Building works (or “BWOF”) that is issued annually areas of that building are subject subject to return to Māori ownership confirming that certain building to building works for which a code unless the title to the land has been The Building Act 2004 is designed to systems and services (mostly related compliance certificate has not yet specifically endorsed to that effect regulate and control building work and to life safety, such as sprinklers, lifts been issued. (and, even then, current policy is not to the use of buildings. Every new building and fire alarms) comply with certain exercise that right). If it was exercised, and most substantial alterations or Building Act criteria. The existence the current market value would be paid. additions to existing buildings will of a BWOF should be checked during require a building consent. Multiple-use the due diligence investigation by For more information on Māori approvals are available for group home reviewing an up to date “LIM” report for rights under the Treaty, refer to our builders who build homes throughout the property. New Zealand Māori and the Treaty of New Zealand using the same or Waitangi section. similar plans.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 13 Key points The Resource Applications for resource consent are Environment Management Act generally made to the relevant local • The Resource Management Act 1991 authority. Depending on the type (RMA) is the primary instrument of activity, the application may be The RMA regulates all uses of land, and resource of environmental regulation in heard without public notification, on a water and air, out to the edge of the 12 New Zealand. publicly notified basis, or with limited nautical mile coastal limit. It is largely notification to affected parties only. management administered by local government • The Exclusive Economic Zone and through resource consents granted, or Continental Shelf (Environmental Applicants must provide a withheld, under statutory and publicly law in Effects) Act extends a variant of the comprehensive assessment of the notified district and regional plans, and RMA into the sea and seabed 12 to environmental impact of the proposal some national level documents. New Zealand 200 nautical miles offshore from or use. Rights of appeal can generally New Zealand. be exercised by the applicant, or by District plans control the use of land. anyone who has made a submission Regional plans control the use of water, • New Zealand’s climate change on the application to the Environment coastal matters and the discharge response is delivered through an Court. (Special processes apply in of contaminants. Emissions Trading Scheme. some cases, such as for nationally significant projects). These plans classify activities as: The RMA has a range of penalty and • permitted (not requiring enforcement provisions. Directors resource consent) and senior managers can be found • controlled, discretionary or non- personally liable for any acts or complying (a resource consent omissions by the company. is required and, where granted, will often be subject to specific Central government can also provide conditions designed to mitigate any national direction through National adverse environmental effects), or Policy Statements, National Planning Standards and National Environmental • prohibited (will not be consented). Standards.

Catherine Somerville-Frost – Partner T: +64 9 358 9813 M: +64 27 486 3309 E: [email protected]

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 14 Under the RMA, polluters who The Exclusive The Emissions The ETS currently covers forestry, contaminate land can be liable. But electricity production, industrial owners or occupiers of contaminated Economic Zone and Trading Scheme processes, liquid fossil fuels, synthetic land can also face enforcement action gases and waste. Although it was Continental Shelf The Emissions Trading Scheme for that contamination (even if it is designed as an “all gases, all sectors” (ETS) is the key delivery mechanism historic contamination caused by a The Exclusive Economic Zone and scheme, agriculture will not come fully for New Zealand’s commitments to previous polluter). Continental Shelf (Environmental into the scheme until 2025. emission reduction, legislated for Effects) Act (EEZ Act) extends a variant through the Climate Change Response When the RMA was enacted in of the RMA to the EEZ and applies to A recent series of amendments will: (Zero Carbon) Amendment Act 2020. 1991, it placed a very high value on activities such as seismic surveying local decision-making and public and cable laying, seabed mining and • phase out free allocations to high- The Zero Carbon Act: consultation. It still reflects those the construction and installation of emitting trade-exposed industries, founding values but has been much oil and gas rigs. It also anticipates beginning in 2021 and gathering • establishes a net zero emissions amended over its history and most of possible future uses, including deep speed from 2030 target (allowing for forestry offsets) those amendments have been designed sea aquaculture, carbon capture and by 2050 for all greenhouse gases, • create a cost containment reserve to streamline RMA processes and storage, and marine energy generation. except biogenic methane which is to which establishes a price floor of to permit more central government be brought within a range of 24% to $20 per unit and an effective price intervention with a view to speeding The permitting authority is the 47% below 2017 levels by 2050, and ceiling of $50 (each to be increased up development. Environmental Protection Authority (EPA), by 2% a year to provide for inflation) which must issue a decision on publicly • creates an independent Climate A comprehensive review of the RMA notified applications within six months of Change Commission which will • improve the auctioning system is currently underway, with changes receiving the application, or within 60 days be responsible for preparing five for units. expected to be legislated for within the of receiving a non-notified application. year emissions budgets (the first of 2020 to 2023 Parliamentary term. which will be delivered on 31 May For more information, go to: The EEZ Act identifies various factors 2021) and advising the Minister on climatechange.govt.nz/emissions- which should drive the EPA’s decision- the quantity of emissions which trading-scheme making. Several of these reflect will be permitted within each environmental or biodiversity values but budget period. they also include the economic benefit to New Zealand and the efficient use and development of New Zealand’s mineral resource.

Appeal rights are to the High Court and are limited to points of law. The maximum penalty for breach of a marine consent is $10 million.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 15 Minerals regime The Government is allowing existing The annual Block Offer process is now Return to the government is through permits for oil and gas exploration to limited to onshore Taranaki. a royalty regime, although there is Access and rights to prospect, explore run their course but will not issue any provision in the Act for the government and mine New Zealand’s extensive new offshore permits and will issue new Evaluation criteria for oil and gas also to participate in any given permit petroleum and mineral estate are onshore permits only in the Taranaki exploration under the allocation and thus derive a fair financial return governed by the Crown Minerals Act region. The National Party has promised system must meet health, safety through that avenue. The current policy 1991 and by the Minerals Programme that it will reverse this ban when next and environmental requirements is not to exercise this right. and the Minerals Programme for in office. and the applicants must engage with Petroleum issued under it. indigenous communities. Permits can All transfers of, or other dealings with, All petroleum, gold, silver and be granted for up to 15 years and give a permit interest require the consent of Acquisition of permits is through an uranium deposits (including under the holder exclusive rights to explore New Zealand Petroleum & Minerals. annual Block Offer process, although the sea) are the property of the in the designated area. An exploration this is currently tightly restricted. Crown (Government). No person permit does not automatically confer For more information, go to: may prospect, explore for, or mine, mining rights. These must be applied nzpam.govt.nz government-owned minerals without an for separately. appropriate permit.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 16 Key points • These settlements have helped to To address the ambiguities between New Zealand finance the creation of iwi corporations the two versions, the courts of New • Māori are the indigenous people of and the “Māori economy”, which is Zealand do not seek to enforce the New Zealand. valued at $50 billion. actual wording of the Treaty. Instead, in Māori and a landmark case in 1987 (New Zealand • New Zealand has no written • Iwi corporations often look to Māori Council v Attorney-General), constitution, but the Treaty of maximise returns from settlement the Court of Appeal established the the Treaty Waitangi 1840 (the Treaty) is a assets through joint venture (JV) principles of the Treaty of Waitangi: part of the foundational law of arrangements with overseas investors. the Treaty imposes a duty on both the the country, as recognised in a of Waitangi Crown and Māori to act in the spirit of number of New Zealand statutes, partnership envisaged by the original court decisions and common The Treaty of Waitangi signatories, and both Treaty partners law principles. The Treaty of Waitangi was signed on must act reasonably, honestly and in the • The Treaty is, in essence, an 6 February 1840 by representatives of utmost good faith. agreement between the British the British Crown and some, but not all, Crown and Māori chiefs, and Māori iwi. Waitangi Day, observed on 6 Settlement of historical claims for establishes a partnership based on February each year, is a public holiday breaches of the Treaty must be mutual duties to act reasonably, to honour the signing of the Treaty. negotiated with the government of honestly and in the utmost the day. Some iwi and hapū groups good faith. The Treaty has always been the subject choose to go straight into negotiation of debate as there are two versions – with the Crown. Others choose to • The British Crown did not honour an English version and a Māori version first go through a Waitangi Tribunal the Treaty, with the result that – and there are some significant hearing process. Māori collectives (called iwi or differences between them. In particular, hapū) have legitimate grievances. there are interpretation issues around The Waitangi Tribunal conducts A political process was developed precisely what is meant by three comprehensive inquiries into Māori in the 1990s to negotiate and settle key Māori concepts – kāwanatanga claims and can make non-binding these grievances. The settlement (governorship), rangatiratanga recommendations to the government. packages include cultural and (chieftainship) and taonga (treasures). The Waitangi Tribunal can make binding commercial redress. The Treaty also guaranteed to Māori recommendations in very limited “exclusive and undisturbed possession circumstances, relating to Crown owned of their lands, forests, fisheries and forest land and certain lands previously other properties”. owned by State-Owned Enterprises.

Te Aopare Dewes – Partner T: +64 9 358 9839 M: +64 27 209 0810 E: [email protected] 1 The Waitangi Tribunal can make binding recommendations in very limited circumstances, relating to Crown owned forest land and certain lands previously owned by State-Owned Enterprises.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 17 Reports produced by the Tribunal Māori land claims Treaty settlement process The Māori economy are then used by claimants as a basis for their direct negotiations with Land claims by Māori are governed Iwi receive settlement of their historic The Māori economy is broadly defined the Crown for settlement of their by the Treaty of Waitangi Act 1975 grievances with the Crown in the as those privately or collectively owned historical Treaty breach claims. The and are heard by the Waitangi form of cultural and commercial businesses which have links to Māori Tribunal also has jurisdiction to inquire Tribunal which can then make non- redress. Commercial redress is usually ancestors. It represents $50 billion into ‘contemporary’ breaches of binding recommendations to the determined by the negotiation of a in assets, which is approximately 6% the Treaty. government regarding the resolution quantum amount, followed by iwi or of New Zealand’s total asset base. of those grievances. hapū purchasing Crown lands with New Zealand Trade and Enterprise The Treaty is not enforceable as that money. expects that this proportion will rise as an international treaty or a matter Generally, the Tribunal cannot Māori enterprises accelerate their rate of statute law, but its principles recommend the return of privately It may also include valuable rights of growth. became much more relevant in the owned land to Māori, and cannot of first refusal for between 50 to contemporary context in the 1980s, recommend the Crown to acquire 170 years (in some cases, longer) As at 2017, Māori control 50% of in part because the government privately-owned land. However, there over surplus Crown lands within the New Zealand’s fishing quota, and legislated in 1985 to enable the are some exceptions to this. traditional area of the iwi or hapū. own 40% of forestry. Some of these Tribunal to investigate breaches dating holdings were established through back to 1840 and after the insertion Privately owned land which has a Some iwi and hapū have used the ‘Sealords Deal’ in 1992 (the Treaty into the State Owned Enterprises “section 27B” memorial noted on the settlement monies to create large, of Waitangi settlement relating to Act 1986 of a provision preventing title is land that was previously owned asset rich Māori corporates, the Māori fishing rights) and the ‘Treelords the Crown from acting in a manner by a State-Owned Enterprise. This three largest of which are now Deal’ in 2007 (the Treaty of Waitangi inconsistent with the Treaty. memorial notes that the Tribunal can valued at over $1 billion each. These settlement under which the Kaingaroa make a binding recommendation to the are now significant players in the Forest was transferred from the Crown Many pieces of legislation also create Crown that it purchase the land and New Zealand economy. to central North Island iwi). Māori a statutory requirement to consult return it to Māori ownership as a way also own 30% of lamb, sheep and Māori, including the Local Government of settling a claim, a process known beef production and 10% of dairy and Act 2002 and the Resource as resumption. kiwifruit production. Management Act 1991. If the Waitangi Tribunal did make such Iwi and hapū corporations have a recommendation, the owner would sought to maximise the returns be compensated by the government from their asset base through joint of the day. To date, the Waitangi ventures and other partnerships Tribunal has only ever made one binding with investors who can bring capital, recommendation for resumption of land value-added processing, employment and in that case, the Māori claimants opportunities, and market access. and the Crown negotiated a settlement. China has been a particular focus for these activities.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS November 2020 HOME 18 Key points Individuals are regarded as resident Income tax is imposed at 28% on Taxation for income tax purposes if they have companies and unit trusts (which are • New Zealand has a broad-based a permanent place of abode in New treated as companies under New income and consumption tax Zealand or are present in New Zealand Zealand tax law). Individuals (both within system. This includes withholding for more than 183 days within any resident and non-resident) are taxed taxes on many cross border 12-month period. New migrants and, in progressively at between 10.5% and New Zealand payments and a robust general anti- certain cases, returning New Zealanders 33%. A new 39% tax rate will apply to avoidance rule. who have not been resident for tax an individual’s taxable income over purposes in New Zealand for at least $180,000 from 1 April 2021. As noted • The primary revenue sources ten years, can qualify for temporary above, non-residents are taxed only on are: income/company tax, a transitional residence status. A their New Zealand-sourced income. consumption tax on goods transitional resident is exempt from New and services (GST) and local Zealand income tax on their foreign- For individuals, assessable income authority rates. sourced income other than income includes (among other items) salary • Capital gains tax, stamp duty, gift from employment or the supply of and wages, bonuses, other employment duty and death duties are not services for a period of four years after benefits or remuneration, partnership payable in New Zealand. they meet the test for New Zealand income and investment income. tax residency. For salary and wage earners, tax is deducted at source by the employer Income tax A company is regarded as resident in through the Pay As You Earn (PAYE) New Zealand if it: system. The amount of tax deducted For individuals and companies defined will depend on the gross salary or as “resident” in New Zealand, income • is incorporated in New Zealand wage paid to the employee. Non-cash tax is generally imposed on worldwide benefits provided to employees are income. Non-resident individuals • has its head office in New Zealand subject to fringe benefit tax which is and companies are taxed only on • has its “centre of management” in payable by the employer. New Zealand-sourced income, and New Zealand, or their tax liability may be reduced by For companies, net taxable income the provisions of an applicable Double • is controlled by its directors in generally corresponds with accounting Tax Agreement. New Zealand. profit or loss. However, adjustments are commonly required in relation to:

Bevan Miles – Partner T: +64 9 357 8986 M: +64 21 240 7387 E: [email protected]

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 19 • the timing of income and Exemptions will apply if the property is: Residents must provide an IRD number In response to COVID-19, the expenditure recognition as part of the usual Land Information Government also introduced a • the seller’s main home New Zealand transfer process. temporary loss carry-back scheme to • bad debts Non-residents must also provide a allow losses incurred in the 2019-20 • inherited from a deceased estate • capital receipts and depreciation New Zealand IRD number as well as a or 2020-21 income year to be carried rates, and • sold as part of a relationship home jurisdiction tax number together back to offset profits in the immediately break down. with another form of identification – preceding income year. The • various provisions and reserves. such as a passport. In order to obtain Government is expected to introduce Gain from sale of a property held for an IRD number, a non-resident will a permanent loss carry-back regime to New Zealand does not currently have a longer than five years may still be taxed need a fully functional New Zealand apply in subsequent income years. broad based capital gains tax. In certain if the Inland Revenue Department (IRD) bank account or confirmation from circumstances, however, capital gains considers that the seller acquired the a New Zealand reporting entity that Individuals and trusts can also carry are taxed. In particular, the proceeds property for a purpose or intention of customer due diligence has been forward tax losses, but these losses from the sale of real or personal resale, or if one or more of the specific completed in accordance with cannot be shared with other entities. property (including shares) may be land taxation provisions applies (for New Zealand anti-money laundering The temporary tax loss carry-back subject to income tax (for example, example, if the seller carried on, or was (AML) legislation. regime in effect for the 2019-20 and where the dominant purpose of the associated with someone who carried 2020-21 income years is also available initial purchase was to resell the asset on, a business of land dealing, land Treatment of tax losses to individuals and trusts. From the at a profit). development or building at the time of start of the 2019-20 income year, new If a resident company or a New Zealand acquiring the property and sells that rules apply to “ring-fence” losses from Special provisions apply to residential branch of a non-resident company property within ten years). residential property, which will only be properties other than the person’s incurs a tax loss, that loss can generally available to offset future income from main home. be carried forward indefinitely to offset The Residential Land Withholding Tax residential property (including a taxable future New Zealand net income and (RLWT) applies where the seller is an gain on sale). The rule is designed to Gains from the sale of residential shared between group companies, offshore person and the residential land prevent property investors from using properties purchased after 29 March provided a certain level of shareholder is sold within five years of acquisition excess deductions to reduce tax on 2018 and held for less than five years continuity (or in the case of group (for properties acquired after 29 March other income. are taxed at the owner’s standard companies, common ownership) is 2018), or within two years of acquisition income tax rate. Gains from the sale maintained. The Government has (for properties acquired between of residential properties purchased indicated its intention to relax the 1 October 2015 and 28 March 2018). between 1 October 2015 and 28 March requirement that a certain level of The RLWT also applies to sales by 2018 are taxable if sold within two years. shareholder continuity be maintained New Zealand entities that are ultimately The Government may decide to extend to carry forward losses by introducing more than 25% owned or controlled by the “brightline test” holding period an alternative “same or similar business” offshore persons. (For more detail, refer beyond two years, although any change test, intended to apply to the 2020-21 to the section on New Zealand’s cross- would likely be prospective only. and later income years. border tax regime.)

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 20 Taxation of dividends paid by From 1 April 2021, individuals who pay Non-resident investors in certain PIEs Foreign suppliers of goods valued resident companies to residents tax at the top 39% marginal tax rate will bear no New Zealand tax on foreign- at NZ$1,000 or less are required be required to personally account for sourced income. to register for New Zealand GST if Dividends paid by resident companies an additional 6% tax on fully imputed total sales to New Zealand residents to resident shareholders are, in most dividends (this tax will not be collected (excluding GST-registered businesses) instances, taxable to the shareholder. through the withholding tax system). Goods and Services exceeds the NZ$60,000 threshold. However, dividends paid between Electronic marketplaces are required New Zealand resident companies that Tax (GST) Portfolio Investments Entities (PIEs) to register for GST (rather than the are part of the same wholly-owned GST is a value-added tax charged at actual supplier) if the applicable goods group are generally exempt (subject to Investment entities which are tax 15% on the supply of most goods and are supplied through the marketplace certain other requirements). resident in New Zealand can take services in New Zealand. to New Zealand customers. advantage of New Zealand’s PIE tax To avoid the double payment of regime. Broadly speaking, to qualify New Zealand suppliers of goods and Certain supplies of goods and services tax on the same income (i.e. by the as a PIE, they must be widely held (or services are required to register for can be either exempt from GST (e.g. company and the shareholder when the owned by widely held vehicles) with no GST if they carry on a taxable activity financial services) or zero-rated company’s income is distributed as a investor holding more than 20% of any through which they will make taxable (e.g. certain “exported” services and dividend), imputation credits may be investor class, and the PIE not holding supplies of more than NZ$60,000 per supplies wholly or partly consisting attached to dividends paid by resident more than 20% of any company or unit year. A person carrying on a taxable of land). companies (to both residents and non- trust it invests into (subject to some activity can voluntarily register for GST residents). Imputation credits received exceptions). even if under this NZ$60,000 threshold. by resident shareholders (companies Local government rates and individuals) are offset against any A PIE is exempt from tax on gains from Foreign suppliers may also be required tax payable on their income, including the sale of shares in New Zealand resident Rates are the main source of to register for GST if they make tax on dividends received. companies, and in Australian companies local government revenue. These supplies of services to New Zealand that are listed on certain approved indices are calculated as a percentage residents (excluding GST-registered A dividend paid by a resident company of the Australian stock exchange. of the value of land and/or businesses) which exceed NZ$60,000 to a resident is generally subject to a capital improvements. per year. 33% withholding tax. If the dividend is PIEs are not taxed like companies. fully imputed (i.e. imputation credits Instead their income is taxed only once are attached at the maximum rate) – either to the PIE if the investor is an only a residual 5% withholding tax will individual or trustee (other than a trustee be imposed (i.e. the 33% tax liability is of a unit trust or charitable trust) or to reduced to 5% by the 28% tax paid by the investor (if the investor is a company the company). or another PIE). For individuals, the PIE pays tax at more or less the investor’s marginal tax rate, with a cap of 28%.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS November 2020 HOME 21 Key points Taxation of overseas FIF New Zealand’s investments by The New Zealand resident shareholder • New Zealand’s cross border tax will be taxed each income year on regime seeks to ensure that tax New Zealand residents income attributed from a FIF, calculated cross-border on income which is taxable in using one of five calculation methods. New Zealand is paid in New Zealand The taxation of equity investments These methods are: tax regime while avoiding situations where by New Zealand residents in income is subject to double taxation. non-New Zealand companies is • fair dividend rate method governed by the Controlled Foreign • The regime is orthodox in Company (CFC) and Foreign Investment • cost method international terms. Fund (FIF) regimes. • comparative value method • New Zealand is party to 40 tax treaties or double tax agreements (DTAs). Subject to certain exceptions, a • deemed rate of return, and New Zealand resident investor is taxed • attributable FIF income method. on income attributed from a CFC or DTAs FIF, even though that income may Income from FIFs is generally calculated not be received by the New Zealand New Zealand has entered into 40 DTAs either using the fair dividend rate resident investor. to reduce the incidence of double method or the comparative value taxation and to provide more certainty method. The fair dividend rate method CFC for taxpayers operating in more than one taxes the shareholder each income jurisdiction. New Zealand is a signatory to Subject to a number of exceptions, year on deemed income of 5% of the the Multilateral Convention to Implement the New Zealand investor will be taxed value of the investment at the start Tax Treaty Related Measures to Prevent each income year on its proportionate of the year. The comparative value BEPS (the MLI) which modifies the terms attributed share of all net passive method taxes appreciation during of many New Zealand DTAs (with varied income of the CFC in that year. Net the year plus distributions. There are impacts, depending on the DTA). For the passive CFC income broadly comprises exemptions from both the CFC and full list of DTAs, refer http://taxpolicy.ird. rent, royalties, certain income related to FIF regimes for investment in certain govt.nz/tax-treaties. telecommunications services, income Australian companies. from offshore insurance businesses, life Foreign tax credits are generally insurance policies, disposals of revenue available to New Zealand residents for account property, base company foreign income tax on income derived services income, certain dividends from countries or territories outside and interest, less related expenses. David Patterson – Partner New Zealand. The availability and Attributed CFC income does not T: +64 4 498 6330 quantum of the foreign tax credit is include “active” income. No attribution M: +64 27 610 2031 subject to certain limitations, but does of passive income is required if the E: [email protected] not depend on New Zealand having CFC’s passive income is less than 5% of entered into a DTA with the particular its total income. Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS country or territory concerned. December 2020 HOME 22 Taxation of payments to non-residents In the case of interest paid to non- In respect of interest payments made associated persons, dividends, and by an approved New Zealand borrower Payments of dividends, interest and royalties to individuals or companies not certain royalty payments, NRWT is (Approved Issuer) to a non-associated resident in New Zealand are generally subject to non-resident withholding tax generally a final tax for New Zealand non-resident lender, the NRWT rate (NRWT). The rate of NRWT imposed depends upon the type of payment and tax purposes. can be reduced to 0%, provided certain whether a double tax agreement is in place: conditions and registration formalities The Foreign Investor Tax Credit (FITC) are satisfied. Approved Issuers must regime supplements the NRWT regime. generally pay a levy (Approved Issuer It effectively eliminates the monetary Levy or AIL) equivalent to 2% of the ​ Double tax agreement Other countries​ effect of NRWT on imputed dividends interest payment. countries​ paid to a non-resident shareholder who holds a direct voting interest in a Interest paid on certain qualifying Dividends​* 0-15%​ 0-30% New Zealand company of less than 10% widely held bonds may be eligible for Interest​** 10-15%​ 15%*** where the post-treaty tax rate (the rate a 0% rate of NRWT without the payer after taking into account any applicable having to pay AIL. Royalties​ 5-15%​ 15%​ DTA) for the initial dividend is 15% or more. Withholding payments are deducted *A 0% rate of NRWT applies to fully imputed dividends paid to a non-resident shareholder holding a at the rate of 15% from non-resident 10% or more direct voting interest in a New Zealand company or holding less than 10% but whose post- The FITC regime achieves this contractors for certain work or treaty rate is less than 15%. A 0% rate of NRWT also applies to a fully imputed non-cash dividend. To the extent the dividend is not fully imputed, NRWT will be required to be withheld at 30% (reduced to 15% by providing a tax credit to the services performed in New Zealand for countries New Zealand has a double tax agreement with; and to lower rates under some treaties for New Zealand resident company, which (this rate increases to 20% where the substantial shareholdings). the resident company must use to fund non-resident contractor is a company **In some cases, NRWT applies at the rate of 0%. See discussion below. an additional “supplementary dividend” and does not provide a prescribed ***Where interest is paid to a non-resident and a resident (jointly) the applicable rate of NRWT will be to the non-resident (which is equal to withholding declaration to the payer higher than 15%. the NRWT payable where the dividend prior to the payment being made). An is fully imputed). This ensures that the exemption certificate removing the non-resident shareholder is in a no less need for the withholding deduction beneficial position than a New Zealand can be granted by the IRD in certain resident shareholder receiving the same circumstances. This is not considered dividend. a minimum or final tax. It is credited against any final income tax liability the non-resident contractor may have in New Zealand, and is refundable to the extent of any excess.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 23 Residential Land Transfer pricing and Import duties OECD BEPS Project

Withholding Tax thin capitalisation Import licensing, once a common New Zealand has followed many of the means of sheltering New Zealand recommendations resulting from the The sale of residential property New Zealand’s transfer pricing regime producers, no longer exists in OECD’s Base Erosion and Profit Shifting in New Zealand acquired after 29 seeks to protect the New Zealand tax New Zealand, with tariffs now the (BEPS) work. This includes ratifying March 2018 by offshore persons, or base by ensuring that cross-border principal form of protection. the OECD multilateral instrument by New Zealand entities ultimately transactions are priced (at least for (MLI) and changes made or proposed more than 25% owned or controlled tax purposes) on an arm’s length Over recent years, there has been to New Zealand’s DTAs and domestic by offshore persons, is subject to basis. Recently enacted rules can a steady reduction of tariff rates for tax law (including rules dealing with Residential Land Withholding Tax require adjustments to credit ratings goods imported into New Zealand. transfer pricing, thin capitalisation, (RLWT) if sold within five years of when determining pricing of related Tariff rates vary from item to item and permanent establishments and hybrid acquisition, or within two years of party lending. depend upon the country of origin, instruments/entities). acquisition where the residential with preferential rates being applied to property was acquired between New Zealand also has thin capitalisation Australia, Canada, “least-developed The OECD and the Government have 1 October 2015 and 28 March 2018. rules which, broadly speaking; disallow countries”, “less-developed countries” sought public comment on a number certain interest deductions for a and Pacific Forum countries. Items of alternative proposals to address RLWT is generally withheld by the foreign owned New Zealand group (if that are outside the scope of local the growing challenges of taxing the seller’s conveyancing agent on the their debt to asset ratio exceeds 60%) manufacturing are generally duty free, digital economy. In particular, work is lower of 33% of the seller’s gain (28% or for New Zealand residents with or may qualify for a duty concession. underway seeking global consensus on where the seller is a company) or 10% an income interest in a CFC or who fundamental changes to profit allocation of the total purchase price. From 1 April control a resident company with such Where New Zealand is party to a free and nexus rules to expand taxing rights 2021, RLWT will be withheld on the an interest (if their debt to asset ratio trade agreement (FTA), the FTA will to jurisdictions where digital services lower of 39% of the seller’s gain (28% exceeds 75%). address in detail the tariffs applicable are consumed. where the seller is a company) or 10% of between the two countries. the total purchase price. The Government is closely watching GST is also charged on any goods that these OECD developments and has RLWT is not a final tax – the seller are imported into New Zealand. An signalled its intention to implement a is required to file a New Zealand input tax credit can be claimed for this unilateral digital services tax (DST) if tax return and can claim a credit for GST (meaning no net cost arises) where progress on a multilateral solution is not RLWT withheld against tax payable. the importer is GST-registered and is forthcoming. Given the Government’s Certificates of exemption are available acquiring the imported goods for the comprehensive implementation of the for developers, dealers and builders purpose of making supplies which are OECD’s BEPS recommendations and and for sellers who have used the subject to GST. general public sentiment, we expect property as their main home for the changes to New Zealand’s rules are on majority of the ownership period. (Refer the horizon. also to the section on Buying and developing real estate in New Zealand.)

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 24 Key points Contract and Commercial • the courts may grant relief, Contract Law Act 2017 including to cancel the contract, • New Zealand contract law is light vary the contract or make orders The Contract and Commercial Law Act handed, allowing contracting for compensation in limited 2017 (CCLA) provides that: law in parties to contract on commercially circumstances where a party can agreed terms. establish it entered into the contract • various terms are read into contracts as a result of a genuine mistake New Zealand • Most contracts can be concluded for the sale of commercial goods of fact. orally. Contracts involving land, unless the parties clearly intended mortgages, guarantees, extended otherwise, including terms relating New Zealand does not have any consumer warranties, credit to when title and risk will pass, and separate laws or regulations contract disclosures or employment implied guarantees of fitness for for contracts involving foreign- agreements must be written. purposes and merchantability owned entities. • contracts with a person under Relevant laws the age of 18 cannot be enforced The CCLA also gives electronic against that person, subject to signatures the same status as paper While New Zealand’s contract law certain specific exceptions and the signatures, provided the technology is primarily based on common court’s discretion used to produce the signature meets law principles, various statutory certain statutory criteria as to reliability, • a party may cancel a contract overlays apply. traceability and tamper-detection. for breach, repudiation or pre- Powers of Attorney, wills and other contractual misrepresentations (if Consumer protection legislation testamentary instruments, negotiable prescribed criteria are satisfied), instruments and bills of lading cannot If one party to a contract is a consumer, and/or recover damages. The courts be made or signed electronically. certain consumer protections will apply also have the power to grant other regardless of the terms of the contract types of relief under the CCLA (see the Consumer Protections in • contracts which are illegal at New Zealand section for details). law or equity will be of no effect and the courts have the power Credit contracts with consumers to make a variety of orders, are subject to the Credit Contracts including amending the contract. and Consumer Finance Act 2003 Unreasonable restraints of trade (see the Consumer Protections in and penalties are examples of illegal New Zealand section). contracts at law. This is broadly Kelly McFadzien – Partner consistent with other jurisdictions T: +64 9 357 9278 M: +64 27 473 2230 that share an English common law E: [email protected] heritage, and

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 25 The principal pieces of consumer These prohibitions apply whether the Breaching the Fair Trading Act can Consumer legislation are: activity is intentional or not. attract both civil and criminal penalties. Penalties include: • Fair Trading Act 1986 The Fair Trading Act sets information protections in and safety standards for some types of • fines of up to $200,000 per offence • Consumer Guarantees Act 1993 products, including children’s nightwear, for an individual and $600,000 per New Zealand • Credit Contracts and Consumer baby walkers and bicycles. It also offence for a company Finance Act 2003, and deals with miscellaneous consumer • orders for payment of the equivalent protection matters such as layby sales, • Privacy Act 1993. revenue or commercial gain earned direct (door-to-door or telephone) from certain offending sales, extended warranty agreements, Fair Trading Act 1986 auctions, and product recalls. It • corrective advertising orders prohibits various types of unethical • contract rectification, and The Fair Trading Act applies to anyone commercial behaviour including “in trade”. It prohibits: falsely applying trade marks, falsely • compensation payments to offering prizes, bait advertising, and affected parties. • engaging in conduct that is likely to pyramid selling. mislead or deceive The Fair Trading Act is enforced by Consumer Guarantees • engaging in conduct that is the Commerce Commission and gives liable to mislead as to the Act 1993 consumers and businesses direct nature, manufacturing process, rights of action. Suppliers of goods The Consumer Guarantees Act: characteristics, suitability for and services to consumers cannot purpose, or quantity of goods or contract out of the Fair Trading Act, • provides consumers with certain services and business-to-business contracts minimum guarantees in relation to • engaging in misleading conduct in can only exclude the Fair Trading Act in the quality, suitability and other relation to employment that is or specific circumstances. aspects of goods and services, may be offered to a person and a basic guarantee as to title to goods • making false, misleading or unsubstantiated representations in • where goods or services fail to respect of goods or services, and comply with one or more of those guarantees, gives consumer • including or enforcing any terms in remedies against suppliers and a standard form consumer contract (in the case of goods) against the Kelly McFadzien – Partner that have been declared unfair by a T: +64 9 357 9278 original manufacturer. M: +64 27 473 2230 court, in accordance with the Fair E: [email protected] Trading Act.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 26 The Act defines a consumer as a The Consumer Guarantees Act does not Privacy Act • when collecting personal person who “acquires goods or contain offence provisions. However, information, unless defined services of a kind ordinarily acquired it is an offence under s13(i) of the Fair The Privacy Act 2020 governs the exceptions apply, an agency must for personal, domestic or household Trading Act for suppliers of goods and collection, use, storage and disclosure collect the information directly use or consumption” and who does not services to attempt to contract out of of “personal information”, which from the individual, and must take hold him or herself out as acquiring the the Consumer Guarantees Act. includes any kind of information about reasonable steps to ensure the goods or service for the purpose of an identifiable individual. Personal individual is made aware of the resupplying them in trade, using them information is not limited to information collection and provided with certain in a manufacturing process or repairing Credit Contracts that is inherently private or sensitive, details about who is collecting the the goods in trade. and Consumer such as health or financial information. information and for what purpose • an agency must not collect personal This means that in many cases the Act Finance Act 2003 The Act applies to individuals, public information by unlawful means, or may apply to business-to-business agencies and private enterprises alike who Providing credit at the consumer level by means that are unfair or intrude transactions involving consumer are resident in New Zealand, present in through credit contracts and hire to an unreasonable extent upon goods and services. Contracting out New Zealand when collecting or holding purchase agreements is regulated by personal affairs is permitted for business-to-business the information, or where information is the Credit Contracts and Consumer transactions, but only where certain held or collected in the course of carrying • an agency holding personal Finance Act (CCCFA). The CCCFA statutory criteria are met. on business in New Zealand. information must ensure that sets out disclosure requirements for the information is protected by contracts, allows debtors to have Breach of the statutory guarantees The Act does not use the same reasonable security safeguards the terms of a contract changed for in the Act may give rise to a right to definition of “carrying on business” as against loss, unauthorised access/ hardship reasons and allows the courts damages, including for consequential the Companies Act, and the Privacy use/modification/disclosure, and to re-open and vary “oppressive” losses sustained as a result of the Commissioner will likely take a broad other misuse contracts. The CCCFA requires breach of guarantee, and the right to view as to whom the Act applies. The repossession agents to be licensed and • individuals have certain rights to know cancel a contract and be refunded any Act refers to all entities or persons prohibits lenders taking security over what personal information an agency amounts paid. subject to the Act as “agencies”. certain “essential” goods or particular holds about them, and to request types of documents. correction of that information A consumer must first request the The Act centres on a set of “Information supplier or manufacturer to rectify any Privacy Principles”, which are similar • before using personal information, breach of the statutory guarantees. to those in equivalent Australian an agency must take reasonable If the supplier or manufacturer does ALERT legislation. Summarising broadly, key steps to ensure the information is Lenders are required to exercise not satisfactorily remedy the defect, principles include that: accurate, up to date, complete, care, diligence and skill in dealing the consumer may bring a claim to the relevant, and not misleading with consumers and to comply Disputes Tribunal, or the High Court or • an agency must not collect personal with certain specific lender • an agency must not keep personal District Court, depending on the value information except for a lawful responsibilities. The responsible information for longer than is of the claim. purpose, and then only where lending code provides guidance on required for the purposes for which necessary for that purpose how lenders can comply with these the information may lawfully be used principles. Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 27 • an agency must not use or disclose • the Privacy Commissioner has Retail regulation Other regulations personal information except on issued an enforcement notice the specific grounds defined in the against an agency, the agency has Many other laws and regulations New Zealand law regulates a number Act, for example, where the use or failed to comply with that notice and affect the operation of retail of other activities, goods and services disclosure is one of the purposes the Privacy Commissioner enforces businesses, including: available to the public including: for which the information was that notice through the Human collected, or where the agency Rights Review Tribunal (in which • smoke free legislation • gambling, prize draws and believes on reasonable grounds that case failure to comply is a criminal promotions, which must be • restrictions on the sale of alcohol the individual has given his or her offence and an agency is liable for a authorised by the Gambling Act authorisation, and fine of up to $10,000 as well as costs • restrictions on shop trading days 2003. You should seek specialist or other orders), or advice if you plan to provide any • an agency must not disclose • weights and measures standards kind of gambling activity or games of personal information outside of • the complainant or the Privacy • food safety and labelling legislation, chance as a primary or ancillary part New Zealand unless the information Commissioner takes the complaint and of your proposed business or where will be subject to broadly to the Human Rights Review you offer prizes in exchange for the comparable protections as the Act, Tribunal, the breach constitutes • restrictions on sending commercial purchase of goods or services. or, where this is not the case, the an “interference with privacy” or advertising/promotional person has been so advised and has and the Tribunal awards costs or messages by email, text (SMS), fax consented to the disclosure. makes orders. or other electronic means.

The Act requires agencies to report Complaints are investigated in the first privacy breaches to the Privacy instance by the Privacy Commissioner, Commissioner and to affected individuals and may be referred to the Director where it is reasonable to believe the of Human Rights Proceedings if the breach has or may cause serious harm to Commissioner is unable to facilitate affected individuals. Failure to report a a settlement. An individual may bring notifiable privacy breach to the Privacy proceedings in the Tribunal in his or her Commissioner without reasonable excuse own name only if the Commissioner has is a criminal offence punishable by a fine considered the matter and declined to of up to $10,000. pursue it further.

A breach of the Information Privacy Principles does not automatically give rise to a right to damages or other mandatory or injunctive remedies. These remedies are available only where:

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 28 Key points Agreements under the Employment Sale of a business/contracting out Relations Act must be in writing, Employment When engaging in a sale, merger or • The Employment Relations Act and may be individual (between an contracting out arrangement, as well 2000 is the primary piece of individual employee and the employer) as complying with the good faith/ and health legislation regulating the workplace or collective (between one or more consultation requirements described in New Zealand. unions and one or more employers). above, an employer must negotiate with Employers must hold a signed copy of and safety • Fewer than 20% of employees the proposed purchaser/new employer employment agreements. belong to unions. Unionism is in relation to the employees. Such strongest in the public sector, the negotiations must include discussion law in Union membership is not compulsory meat industry and the waterfront. about who will be offered employment but all collective agreements must be Strike action is not common and with the new employer, and on what New Zealand negotiated and concluded with a union. tends to be localised. terms and conditions.

• New Zealand has 11 public holidays Good faith The Act also provides that “vulnerable and employees are entitled to four The parties to an employment employees” (primarily cleaning and food weeks’ paid annual leave a year, relationship must not do anything to catering workers) are entitled to transfer after 12 months’ employment. mislead or deceive each other. They to the new employer as of right and to must be “active and constructive” and bargain for redundancy payments with The Employment “responsive and communicative” in their the new employer if their services are Relations Act dealings with each other. not required. Bargaining must be conducted in good Termination All employment relationships are faith. Employers and employees/ governed by the Employment Relations Most individual employment unions must, at a minimum, come to the Act 2000 (including senior and agreements are indefinite (i.e. they bargaining table, listen and respond to executive employee relationships). continue until terminated) but the law what the other party puts forward. Independent contractors are not also recognises casual and fixed term governed by the Act, but the Courts employment arrangements. Fixed term Employers proposing to act in a way and the Inland Revenue Department agreements are lawful, but subject to that may have an “adverse effect” on can examine the “true nature” of the certain restrictions. their employees, such as a proposal to relationship to determine whether the disestablish the employee’s role, must person is a contractor or an employee. provide information about the decision and consult with their employees in Marie Wisker – Partner good faith before the decision is made T: +64 9 358 9845 (subject to genuine although strict M: +64 27 559 8571 confidentiality exceptions). E: [email protected]

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 29 The employee can end an indefinite Dispute resolution Unions • The Holidays Act 2003 provides all employment arrangement by giving the employees with up to 11 statutory The Act encourages mediation as the Only a small proportion of New Zealand specified notice period. However, an holidays a year (if the day is primary means of settling employment businesses have a union presence. employer can terminate an employee’s otherwise a working day for the disputes. If mediation is unsuccessful, However, unions may try to recruit employment only after following a employee), time and a half for the parties may have their dispute members at work and are entitled to prescribed legal process and only working on a public holiday, four decided by the Employment Relations enter workplaces for union-related for genuine substantive reasons weeks’ paid annual leave after 12 Authority, an investigative body. If purposes. such as redundancy, misconduct, months employment and, after six still unsatisfied, parties have a right of poor performance, abandonment or months’ employment, five days’ sick appeal to the Employment Court. Where there is a collective agreement incapacity. An employee has 90 days leave per year, bereavement leave in place, or collective bargaining has following any termination to raise of three days for a miscarriage or Very often, employment disputes are been initiated, the union does not need a personal grievance claim against still birth and on the death of close solved in mediation and do not proceed to seek the employer’s consent before the employer. relatives, one day on the death of to litigation entering the worksite. Unions must any other person, and 10 days family exercise these access rights reasonably, An exception to these termination violence leave. Strikes and lockouts and employers cannot unreasonably provisions is available for businesses refuse entry. with fewer than 20 employees. They can The only lawful strikes or lockouts are • Sick leave entitlement will be take new employees on for a 90 day those that relate either to bargaining for extended from five days a year to 10 trial period, provided this is agreed in a collective agreement or to health and Working conditions from mid-2021 and the Government writing between the parties at the time safety issues. will legislate this term to create a of hiring. There are strict requirements Every employee in New Zealand is new public holiday - Matariki – to regarding trial period clauses (for When a strike occurs, an employer can entitled to a number of basic rights. celebrate the Māori New Year, with example, agreements with trial clauses only use existing employees to perform effect from 2022. must be signed before the employee the work of the striking employees, • The Minimum Wage Act 1983 starts work). and then only if the existing employees prescribes statutory minimum wages • The Parental Leave and Employment agree to perform the work. External for adult employees, employees who Protection Act 1987 provides for There is no statutory right to workers may only be employed when are starting out (under 20 years of both parents to take specified redundancy compensation in the work is necessary for public health age and meeting specific criteria) periods of parental leave (unpaid) New Zealand and, other than in very and safety reasons. and employees who are training (20 on the birth or adoption of a child. limited circumstances, compensation is years and over and attending an Primary caregivers are entitled to only payable if it is provided for in the approved training course). These up to 26 weeks’ government-funded employment agreement. rates are reviewed annually. paid parental leave to a maximum amount (which is reviewed regularly) or to 100% of the parent’s previous weekly earnings, whichever is the lower. The scheme allows the

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 30 mother of the child to claim the paid Payroll tax The PCBU is required to ensure the Compensation for injuries can take the leave or transfer the payment to the health and safety of all who work for it form of payments for loss of earnings, child’s other parent, including same In addition to KiwiSaver contributions or could be put at risk by that work. This health care treatment, rehabilitation, an sex partners. and Accident Compensation requires that it put in place processes independence allowance for disability, Corporation (ACC) levies (see below), to eliminate or – if elimination is not funeral expenses and death benefits • KiwiSaver is the New Zealand employers in New Zealand are required possible – minimise safety risks so far for dependents. The scheme is funded government’s superannuation to deduct “Pay As You Earn” payroll as is reasonably practicable. from a number of sources, including scheme. Employers are required tax (PAYE). Deductions are made on levies on employers (linked to the to contribute 3% of employees’ a payday basis (which may be weekly, All PCBUs have the right to amount of wages paid, with levy rates gross earnings to an employee’s fortnightly, monthly or more often if the appoint workers’ health and safety determined on the basis of injury rates chosen KiwiSaver scheme. All new employer has multiple paydays) and the representatives and/or health and in the relevant industry), levies on employees must be automatically employer has informational reporting safety committees. PCBUs employing employees, taxes on vehicle registration enrolled in KiwiSaver but they can obligations that are typically due within more than 20 employees or with a and taxes on petrol. choose to opt out in the first six two working days of each payday. moderate or higher risk profile are weeks. Existing employees can The PAYE withheld must generally be required to do this at the request of the Another option is the ACC’s accredited choose to join KiwiSaver at any time. remitted to Inland Revenue. Inland workforce. For smaller businesses in low employer programme under which Total remuneration approaches Revenue may also require other risk industries, it is optional. employers can elect to pay a reduced (where employer contributions are deductions such as payments towards levy in return for funding all or a share deducted from the employee’s student loans or child support. of any compensation entitlements salary) are generally permitted. Accident compensation incurred at their workplace. To be accepted for the programme, the The Accident Compensation Act 2001 Discrimination Health and safety employer must satisfy a number of provides a statutory no-fault scheme criteria, including a minimum level of Under the Human Rights Act, The Health and Safety at Work Act under which cover is available to those safety expertise and financial solvency. discrimination in employment on the assigns responsibility for workplace suffering personal injury, and legal basis of an employee’s (or prospective safety to “officers” and employing claims are prohibited. Accident compensation benefits, but employee’s) sex, marital status, religious entities. not earnings-related compensation, beliefs, ethical beliefs, colour, race, Coverage is broad based and includes are available to non-residents who are ethnic or national origin, disability, Officers are directors and very senior most physical injuries, regardless of injured while in New Zealand. age, political opinions, employment managers which, in the majority of whether they occur in the workplace status, family status, sexual orientation cases is likely to be just the Chief or elsewhere. Unless sustained as the or union involvement is subject to Executive. They have a positive duty victim of a crime, pure mental injury is legal sanction. of due diligence to “take all reasonable not covered by the scheme. steps” to ensure that the entity (defined as the Person Conducting a Business or Undertaking, PCBU) is fulfilling its obligations under the law.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 31 Competition and anti-trust law in • taking advantage of a substantial There is also the ability to seek Anti-trust, New Zealand is administered through degree of market power for the authorisation, on public benefit the Commerce Act 1986. This: purpose of restricting entry into grounds, of arrangements that might a market, deterring competitive otherwise be unlawful. competition • prohibits restrictive trade practices conduct, or eliminating a competitor from a market. The Commerce Commission has the • regulates business acquisitions, and law in power to conduct market studies in • allows price controls to be imposed Engaging in a prohibited practice may the public interest – for example, in certain industries. result in a penalty of: where there is reason to suspect New Zealand market failure. • up to NZ$500,000 for individuals, Restrictive trade and practices Business acquisitions • for a body corporate, the greater of Part 3 of the Commerce Act prohibits The Commerce Commission is charged NZ$10 million or either three times the purchase of shares in or assets with administering the Commerce the value of any commercial gain of a business where the acquisition Act. Part 2 of the Commerce Act resulting from the contravention (if it would have (or would be likely to have) prohibits certain restrictive trade can be easily ascertained) or 10% of the effect of substantially lessening practices including: the turnover of the body corporate competition in a market. and all its related bodies corporate. • contracts, arrangements or Parties to an acquisition which may understandings which have the The Commerce (Cartels and Other raise competition concerns may purpose, effect, or likely effect of Matters) Amendment Act 2017 allows seek pre-transaction clearance from substantially lessening competition an exemption for collaborative the Commission, which, if granted, in a market conduct between competitors which is immunises the deal from challenge by reasonably necessary and has not been • price-fixing, restricting output and the Commission or third parties. The entered into with the dominant purpose market-sharing arrangements among clearance regime is voluntary and it is of reducing competition. competitors common for mergers to proceed on a non-notified basis. • resale price maintenance It also provides for a clearance process arrangements by which suppliers of under which an entity can apply to the goods set and enforce sale prices to Commerce Commission to test whether be charged by re-sellers, and the collaborative activity exemption applies. Andy Nicholls – Wellington Managing Partner T: +64 4 498 6319 M: +64 27 491 4892 E: [email protected]

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 32 The Commission aims to decide In assessing whether a merger is likely ALERT Price control clearance applications within 40 to substantially lessen competition, the Before relying on these “indicators”, working days of the application being Commission will analyse the merged it is wise to seek specific advice Part 4 of the Commerce Act contains a registered. However, depending firms’ ability to raise prices and/or and carefully consider the relevant mechanism to impose price control on on the scale and complexity of the reduce product quality or service, market definitions and dynamics. the providers of particular goods and transaction, this timeframe can increase relative to what would have occurred It is also worth noting that they are services in circumstances where there significantly. A recent clearance without the acquisition. Relevant to only a starting point for the analysis is limited competition. There are no application took 11 months from the this enquiry are the market share of and that falling outside them will not restrictions on the industries to which date of registration until the ultimate the merged entity, the market shares of necessarily mean that an acquisition Part 4 may apply. decision was made. other participants, the likelihood of new will be judged to lessen competition. entry, the merged entity’s relationship For example, market shares may be Industries currently subject to Part 4 with suppliers and purchasers, and high but the conditions of entry or regulation are: ALERT whether there are features of the expansion may be benign. Businesses should seek advice market which are suggestive of the • airports, electricity lines services on the likely timing of a clearance potential for collusion and discipline. and the gas industry (under the application process and the Maximum penalties for an acquisition in Commerce Act 1986). potential implications of this The Commission’s guidance is that breach of the Commerce Act are: prior to entering into the formal a merger or acquisition is unlikely to Specific legislation regulating clearance regime. raise Commerce Act concerns if, after • NZ$500,000 for individuals, and/or competition in particular industries the acquisition: applies in the case of: • NZ$5 million for companies. • the three largest firms in the market • An order may also be made requiring • telecommunications (under the have a combined market share of less divestment of specified assets or Telecommunications Act 2001) than 70% and the merged entity has a shares (which can potentially include • dairy (under the Dairy Industry market share of less than 40%, or unwinding the merger). Restructuring Act 2001). • the three largest firms in the market have a combined market share of more than 70% and the merged entity has a market share of less than 20%.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 33 Key points Copyright New Zealand is in the throes of a Intellectual copyright review in which officials are • New Zealand’s intellectual property The Copyright Act grants exclusive considering root and branch reform. laws are derived from English rights to: property in legislation and common law. The copyright term for industrially • copy a work applied three-dimensional works New Zealand • They reflect international norms, the is usually 16 years. Protection for TRIPS Agreement and New Zealand’s • issue copies of the work to the industrially applied “works of artistic World Trade Organisation public craftsmanship” lasts for 25 years. obligations. • play, perform or show certain works The copyright in literary, dramatic, • Principal statutes are the Copyright in public musical and artistic works generally Act 1994, the Patents Act 2013 and lasts for the life of the author plus 50 the Trade Marks Act 2002. • “communicate” the work years. The term for communication works, films, sound recordings and • make an adaptation of the work, and typographical works is 50 years.

• authorise any of these activities. Public performances of various kinds may also be the subject of Works that can be subject to copyright separate protection given in certain include: literary works, computer circumstances to performers (but not in programmes, dramatic works, artistic the performance of sporting activities). works (which may include drawings, In addition, the Copyright Act protects moulds, dyes etc. for utilitarian items “moral rights” which, (depending on the such as machinery or clothing), musical circumstances) may include: a right to works, sound recordings, films and be identified as the author, a right to broadcasts, including over the Internet. object to derogatory treatment of a work, and a right against being falsely To qualify for protection, a work must attributed as the author of a work. be “original”. Under New Zealand law, moral rights In accordance with the Berne are not assignable. They can, however, Convention (to which New Zealand is a be waived. signatory) copyright exists as soon as Matt Sumpter – Partner the work is created. A work does not T: +64 9 357 9075 M: +64 27 531 3919 need to be registered to gain protection E: [email protected] in New Zealand (and we have no Copyright Register). Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 34 Patents Registered designs Trade marks Company names

Protection under the Patents Act 2013 New and original industrial designs are Registration of a trade mark under A company name will not be approved allows the owner of a patented invention registrable under the Designs Act 1953 the Trade Marks Act 2002 gives the if it is identical (or nearly identical) to to prevent others from exploiting – e.g. if their shape, configuration, pattern, or proprietor the exclusive right to use the an existing company name. Registering making, using or selling – it for 20 years ornamentation has visual appeal. The trade mark in relation to the goods and/ a company or reserving a company from the date of the patent. period of protection is for an initial five or services for which it was registered. name gives no right to use the name as years, with rights of renewal for two a trade mark, and provides no defence A patent will be granted where the further five-year periods. The Act permits comparative to infringement of third party trade mark Commissioner of Patents is satisfied advertising involving registered rights. (This is also the case in respect “on the balance of probabilities” Because the Copyright Act protects trademarks, except where the of domain names.) that the application meets the industrially applied artistic works and advertisements are “unfair” to the requirements under the legislation. The useful articles in New Zealand, some reputation of the mark. The Act also most important of these are that the businesses are content to rely on contains “anti-dilution” provisions Domain names invention meets a universal or absolute copyright law only (although there are to prevent unfair use of well-known Regional domain names, such as novelty test and involves an inventive advantages to gaining registration under registered marks in relation to goods “.co.nz” and “.govt.nz”, are registrable step (meaning that it is not “obvious”). the Designs Act). and services which are dissimilar to in New Zealand. New Zealand courts those for which the mark is registered. have protected businesses against Certain things are excluded from Marks involving Māori language or “cybersquatting” in some instances. patentability, including methods of symbols must be referred to a special There is also now a dispute resolution medical treatment of human beings committee for consideration before service operated by the Domain by surgery or therapy, a method of they are eligible for registration. Name Commission, similar to the UK diagnosis practised on human beings, Nominet service. and inventions the commercial The Madrid Protocol allows for a multi- exploitation of which would be contrary country trade mark application process. to public order or morality.

“Embedded software” may be patented. “Swiss-type” patent claims in the pharmaceutical area are possible.

Various procedures are open to third parties wishing to object to or oppose a patent, both before and after grant. These include asking for a re-examination.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 35 Passing off Confidential information

The law of passing off may also be New Zealand law protects confidential invoked to protect business goodwill information relating to trade secrets, and is frequently used for the such as business methods and protection of trade marks (whether or industrial processes. As with passing not registered), names, logos, packaging off, the principles are similar to those designs and shapes. The principles that have been developed in English are similar to those that have been and Australian law. Non-disclosure developed in English and Australian agreements (NDAs) are useful for common law. This law is augmented by providing contractual rights to prevent a consumer protection statute, the Fair disclosure of confidential information Trading Act 1986, which may capture and can be used to supplement misleading conduct in trade involving common law rights. trade marks (see the Consumer Protections in New Zealand section).

Parallel importation

Importers can import lawfully made goods from foreign countries in commercial quantities without infringing the copyright of the “official” distributor in New Zealand, or of the overseas manufacturer. However, the prohibition against importing pirated goods, made without the copyright owner’s consent, remains in force.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2019 HOME 36 Key points ALERT Foreign financial service providers who Financial Financial services providers must provide financial services solely to • New Zealand has a highly developed register on the Financial Service wholesale clients (such as investment financial services regulatory regime, Providers Register. Those who businesses, fund managers, large services in with comprehensive licensing provide retail services need companies, government entities and requirements. to join an approved dispute certain eligible investors) are relieved New Zealand resolution scheme. from registration requirements. • New Zealand is favourably regarded for its “ease of doing business”. A financial institution which is engaged Financial advisers and DIMS providers in certain financial activities in • New Zealand operates an open who provide personalised services New Zealand must comply with the foreign exchange system. to retail clients in relation to more requirements of New Zealand’s anti- complex products (not, for example, money laundering and countering bank deposits) must be authorised. financing of terrorism legislation. Overview of The Financial Services Legislation licensing, registration Amendment Act 2019 (FSLAA) will come into force on a transitional Bank registration and compliance basis from 15 March 2021. FSLAA will Any financial institution that carries require financial advice providers to requirements on any activity directly or indirectly in be licensed, to meet new disclosure New Zealand with a name or title that Licensing is required for registered obligations and to comply with a Code includes “Bank”, “Banker” or “Banking” banks, insurers, non-bank deposit- of Professional Conduct. must be authorised to use that name takers, fund managers and derivatives in New Zealand by the Reserve Bank. issuers (in respect of products offered Fund managers and other financial Overseas banks may use restricted to retail investors), certain supervisor product providers, financial advisers, words when carrying on activities in trustees, discretionary investment DIMS providers, derivatives issuers, New Zealand only if they register as management service (DIMS) providers supervisor trustees, brokers and registered banks or are authorised by who offer retail services on a class custodians must also comply the Reserve Bank (but only to the extent basis, providers of crowd funding with a range of money handling, of the authorisation). The Reserve Bank and peer-to-peer lending services, financial reporting and other has published guidance notes on the operators of financial product conduct obligations. use of restricted words by overseas markets (such as a stock exchange) banks, and a class authorisation for and auditors. overseas banks undertaking banking Penny Sheerin – Partner and lending, financial advisory services, T: +64 9 358 9817 capital and debt market issuances, and M: +64 27 556 6516 foreign exchange and derivative market E: [email protected] activities for wholesale customers.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 37 Registered banks are subject to the Insurers Offering investments Managed/collective full regulatory oversight (including prudential supervision) of the Reserve All insurers and reinsurers carrying on in New Zealand investment schemes Bank. Only financial institutions that insurance business in New Zealand Various obligations apply to how If a managed investment scheme can demonstrate an ability to carry on must be licensed by the Reserve Bank. financial products are created, is offered to retail investors in their business in a prudent manner, and Licence obligations include: promoted and sold to both retail and New Zealand, it will need to be which have appropriate standing and wholesale investors in New Zealand. registered in New Zealand under repute, are permitted to be registered • maintaining solvency and file These include: New Zealand law. Registered managed as banks in New Zealand. The Reserve solvency statements, in accordance investment schemes are highly Bank takes into account both qualitative with standards prescribed by the • disclosure requirements when regulated and must comply with (the applicant’s financial standing and Reserve Bank making a regulated offer (refer to the specific registration, disclosure and ability to manage its business prudently) Investing in New Zealand’s capital governance requirements. The manager and quantitative criteria (key prudential • having an appointed actuary markets section) of the scheme must be licensed and requirements). an independent licensed supervisor • obtaining, publishing and disclosing • fair dealing rules which prohibit (trustee) must be appointed. Overseas banks must have the approval to New Zealand policy holders and disclosure that is likely to mislead or of, and comply with, the prudential the Reserve Bank current financial deceive the public (these apply to If the scheme is marketed solely to requirements of their home supervisor strength ratings (i.e. a credit rating) both retail and wholesale offers) wholesale investors in New Zealand, it to conduct banking business in from an approved rating agency, and will not need to be registered but will New Zealand. • registration and governance still be subject to fair dealing provisions. • establishing and complying with “fit requirements for managed and proper” policies for directors investment schemes, debt The Trans-Tasman mutual recognition Non-bank deposit takers and senior officers. securities, KiwiSaver and regime allows Australian offerors Anyone who takes deposits or offers superannuation schemes to use their Product Disclosure Life insurers must maintain at least debt securities to retail investors Statement (PDS) and prospectuses in one statutory fund that relates and carries on the business of • financial reporting obligations for New Zealand, without requiring that the solely to the insurer’s life insurance borrowing and lending money must issuers, fund managers, registered manager be licensed. business and is available to meet life be licensed as a non-bank deposit banks, insurers and other licensed insurance liabilities. taker by the Reserve Bank. Relief can entities. Each reporting entity must be obtained for overseas banks in prepare audited financial statements Generally, an overseas entity carrying some circumstances. (or group financial statements, if it on business in New Zealand will not be has any subsidiaries) and register able to use a name or title including Non-bank deposit takers must comply these with the New Zealand the words “insurance”, “assurance”, with a range of prudential obligations Companies Office, and “underwriter” or “reinsurance” (or similar under the applicable legislation. words), without an exemption from the • investor money handling rules for Reserve Bank. offers of derivatives to both retail and wholesale investors. Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 38 The Asia Regional Funds Passport Foreign FSPs who reside outside • When it comes into force on a In addition, from 15 March 2021: allows offerors from New Zealand, New Zealand and provide financial transitional basis from 15 March Australia, Japan, Republic of Korea and services in New Zealand will generally 2021, the FSLAA will replace the • FSPs will be required to give specific Thailand to offer products to investors not need to register (provided they FSP test with a requirement that warnings and information in relation in each other’s countries. To qualify, are not offering financial advice in FSPs register only if they are in to their registration, non-compliance various criteria must be met, including New Zealand). the business of providing financial with which requirements will be a that the fund must have US$500 million services to retail clients in New ground for deregistration, and under management and US$1 million Registration on the FSPR is not a Zealand (or provide wholesale of equity, and the offering document licence or an endorsement by the services from New Zealand, or are • the FSPR Registrar will have must be compliant with the laws of the Financial Markets Authority. required to be licensed or registered powers to require the provision home country. Other requirements under any other Act). To prevent of information to assess whether include that the fund manager must be Depending on the nature of the misuse of the FSPR, the new Act the registration requirements are, licensed in their home jurisdiction and financial services offered by the provides that registration will not be and continue to be, met and to comply with New Zealand disclosure registered entity in New Zealand, it may permitted in certain circumstances, deregister FSPs for failure to provide requirements, and the FMA must also need to be authorised or obtain a including merely because the FSP’s that information. provide sign-off to confirm compliance market services licence. financial services are accessible with the passport rules. by (and not provided to) persons in If financial services are provided to New Zealand Financial Service retail clients, the FSP must also join an approved dispute resolution scheme. • if the FSP has wholesale clients only Providers Register and does not have a New Zealand Registered providers can be place of business, or Anyone who carries out financial deregistered if their registration services in New Zealand must be is likely to be misleading as to the • if the services provided to persons registered as a financial services extent financial services are provided in New Zealand are below the provider (FSP) on the Financial Service in New Zealand or from a place of threshold specified in regulations. Providers Register (FSPR). This includes business in New Zealand, the provider financial advisers, banks, securities is regulated by New Zealand law or issuers, fund managers, custodians, the registration would damage the money managers, credit contract integrity or reputation of New Zealand providers, credit card providers, financial markets. travellers cheque providers, currency exchanges, insurers, trustees, listed companies, issuers of derivatives to the public and foreign exchange dealers.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 39 Financial advisers • be a member of an approved • comply with the Code of Foreign exchange market dispute resolution scheme. Professional Conduct for Financial and discretionary Advice Services, which comprises There are no restrictions on the buying investment managers Any person who makes investment of nine standards relating to ethical and selling of foreign currencies. The management decisions on behalf of behaviour, conduct and client New Zealand banking system offers a Any person who advises on financial another under an authority is subject care, and competence, knowledge full range of foreign exchange services products or provides an investment to certain conduct and disclosure and skill. including spot, forwards, futures, planning service is subject to certain obligations, and needs to be licensed if options and the more sophisticated disclosure requirements and conduct the services are non-personalised. Distinctions between types of financial derivative products. Issuers of obligations. products, personalised and class advice derivatives to retail clients must Reduced requirements apply in relation and categories of financial products, be licensed. The requirements apply to FSPs to services provided to wholesale will also be removed. resident overseas, if the service is clients (such as investment businesses, New Zealand operates a very open provided in New Zealand. fund managers, large companies, regime. Borrowers may raise finance government entities and certain eligible Brokers and custodians on and off-shore and in the currency Persons providing services on a investors) or only on a class basis. of choice. Banks are actively engaged Brokers and custodians who carry personalised basis relating to more in the provision of short and medium- on the business of receiving and complex products will generally As a result of the FSLAA, from 15 March to-long term debt to the consumer, holding, paying or transferring client also have to become authorised by 2021, FSPs providing advice to retail commercial and corporate sectors. money or client property must comply the Financial Markets Authority and clients must: Market forces determine the level of with certain broker disclosure and meet certain standards. This requires interest rates. conduct obligations. them to: • obtain a licence from the Financial Markets Authority These obligations apply whether or • meet certain authorisation criteria not the business is the provider’s only and have certain prescribed • comply with new legislative duties business or the provider’s principal qualifications (which generally are and obligations when giving business and regardless of whether the available only in New Zealand) regulated financial advice service is provided from overseas or in New Zealand. • provide certain prescribed • comply with new disclosure disclosures to their clients requirements prescribed in Fewer conduct obligations apply to regulations, and brokers providing broking services • meet certain conduct obligations only to certain wholesale clients than relating to ethical, client care, apply to those providing services to competence, knowledge, skills and retail clients. continuous training standards, and

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 40 Repatriation of funds Anti-money laundering Other regulations

There is no restriction on the legislation New Zealand has also rules regarding: repatriation of capital or earnings of The New Zealand anti-money a New Zealand business to overseas • registration as an overseas company laundering and countering financing of investors. This includes the remitting when a foreign company is carrying terrorism (AML/CFT) regime requires of dividends, profits, interest, royalties, on business in New Zealand overseas entities engaged in certain management fees, etc. In many cases, financial activities in the ordinary however, non-resident withholding • compliance with FATCA (Foreign course of business in New Zealand to: tax will be required to be deducted Account Tax Compliance Act), AEOI from the amount of those payments. (Automatic Exchange of Information) • carry out various levels of customer For more information on New Zealand and Common Reporting Standards monitoring and due diligence, tax, please refer to the section on (CRS) identity verification and suspicious New Zealand’s cross border tax regime. activity reporting in accordance with • registration and establishment of the AML/CFT legislation limited partnerships.

• undertake and prepare a written risk assessment of the risk of money laundering and the financing of ALERT This summary is necessarily terrorism that it may reasonably generalised. There may be expect to face in the course of its exceptions depending on your business, and particular circumstances. We suggest you seek advice before • establish, implement and maintain an proceeding with any proposal. AML/CFT compliance programme under the administration of a dedicated compliance officer.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 41 Key points Capital markets in Takeovers Code and Investing in New Zealand Overseas Investment Act • New Zealand has a stock exchange which comprises two main securities NZX operates the two main capital All listed companies are subject to the New Zealand’s markets – the NZX Main Board and markets in New Zealand: New Zealand Takeovers Code, which the NZX Debt Market operated regulates changes in the voting rights of by NZX. capital • the NZX Main Board, New Zealand’s “code companies”. • The Takeovers Code restricts principal market for equity markets investors and their associates securities, with around 175 issuers, from holding or controlling more which allows investors to trade in ALERT than 20% of the voting rights in a some of New Zealand’s largest and A code company is any New Zealand “code company”, which includes most well-known companies, and company that is listed or which has listed companies. 50 or more shareholders and 50 or • the NZX Debt Market, which more share parcels. • The Overseas Investment Act allows investors to trade in a wide also applies to investments in variety of debt securities, including New Zealand listed companies. New Zealand government bonds.

• There are laws against insider trading NZX also operates the NZX Derivatives and market manipulation, which Market, which includes the Global Dairy are enforced by the New Zealand Futures and Options Market and the Financial Markets Authority. Equity Derivatives Market.

New Zealand’s capital markets are well regulated, with developed and comprehensive rules applying to issuers and market participants. NZX is primarily responsible for regulating the markets and is a member of the World Federation of Exchanges. The New Zealand Financial Markets Authority, the government regulatory agency, also regulates the markets operated by NZX and NZX itself, as the Rachel Dunne – Partner licensed market operator. T: +64 9 357 9626 M: +64 27 553 4924 E: [email protected]

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 42 The Takeovers Code restricts a person, The Takeovers Code permits a person, New Zealand has a general prohibition together with its associates, from together with its associates, to hold Insider trading and against market manipulation, which holding or controlling more than 20% of or control voting rights above the 20% market manipulation captures a range of behaviours such the voting rights in a code company or threshold in certain circumstances, as publishing a false or misleading increasing a holding or control that is including a full or partial takeover New Zealand has insider trading statement that is likely to affect already above 20%. offer. The procedure for undertaking laws that prohibit investors trading trading in quoted securities or doing a takeover offer is detailed in the where they hold information that is something that creates a false or Takeovers Code and includes a number not generally available and which a misleading appearance of trading. of specific timing and disclosure reasonable person would expect to requirements. The Takeovers Panel is have a material effect on the price of A breach of the insider trading or the regulatory body responsible for the quoted securities, regardless of market manipulation laws can result administering the Takeovers Code. the source of that information. in civil or criminal liability for the person responsible, as well as possible In addition, the Overseas Investment Passing on such information to accessory liability for others involved Act may apply to investments in another person or advising a person to in the contravention. New Zealand’s capital markets. See the hold or trade securities while holding Overseas Investment in New Zealand such information, known as “tipping”, section for further details. can also breach New Zealand insider trading laws.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS November 2020 HOME 43 Key points Making an offer in Exclusions and Fundraising in New Zealand exemptions • Issuers are required to prepare and register a “Product Disclosure New Zealand’s securities laws are set There are a number of exclusions New Zealand Statement” in order to offer financial out in the Financial Markets Conduct under the Financial Markets Conduct products unless an exclusion or Act, which is enforced by the Financial Act, including bright line tests that exemption is available (such as for Markets Authority. provide clarity as to when New Zealand offers to wholesale investors). investors are eligible to be offered • Listing on one of the markets Generally, issuers are required to financial products without any disclosure operated by NZX may be prepare and register a Product documentation, or with limited undertaken in conjunction with a Disclosure Statement or “PDS” disclosure – e.g. offers to wholesale fundraising offer, generally using the before offering financial products in investors and dividend reinvestment same document. New Zealand. The PDS sets out key plans (subject to certain conditions). information for retail investors about the financial products on offer and has Another exclusion is for crowdfunding, strict content requirements that depend which allows issuers to raise up to on the type of financial product being $2 million in a 12 month period through offered. For offers of debt securities a crowdfunding offer with reduced and managed investment products, disclosure requirements. These offers external supervisor and licensing have to be made through a licensed obligations also apply. crowdfunding platform, of which there are a number currently operating. Outside the heavily regulated Product Disclosure Statement, the advertising If an investor wishes to make an regime is flexible and does not place offer in New Zealand but is unable any specific content restrictions upon to fit within one of the exclusions advertisements, other than requiring the or class exemptions, it is possible inclusion of certain disclaimers. to apply for a bespoke exemption from the New Zealand Financial Markets Authority.

New Zealand and Australia have a mutual recognition regime for the offering of Rachel Dunne – Partner financial products, which enables an T: +64 9 357 9626 offer made in one country to be easily M: +64 27 553 4924 extended to the other country. E: [email protected]

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 44 Fair dealing and other Listing potential liabilities In conjunction with capital raising, an The key requirements when seeking issuer may wish to list on one of the a listing on the NZX Main Board The Financial Markets Conduct Act markets operated by NZX (see the are to have an anticipated market prohibits issuers and others engaging Investing in New Zealand’s capital capitalisation of at least $10 million in conduct or making statements that markets section for more details). and a spread of at least 20% of are misleading or deceptive in relation Generally, the document used for the class of equity securities to be to financial products. This has a broad fundraising can also be used for listing quoted held by at least 100 persons application, although attracts civil purposes. Otherwise, a separate not affiliated with certain company liability only. compliance listing document can insiders (or an appropriate spread to be prepared. ensure a sufficiently liquid market). Issuers, and their directors, undertaking a regulated fundraising The process to apply for listing There are no spread requirements for offer are subject to potential is relatively straightforward, the NZX Debt Market but the nominal criminal liability for serious although there are certain timetable amount of securities to be quoted misconduct and civil liability for less requirements that must be borne must be at least $10 million. serious misconduct. in mind.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS November 2020 HOME 45 Insolvency in Key points Liquidation Receiverships • Whether you are starting a new A liquidator is usually appointed to a A receiver recovers the company’s business in New Zealand, investing in company by either its shareholders assets in order to repay the secured New Zealand an existing business, or dealing with (usually a 75% majority is needed), creditor. They have power to manage other New Zealand-based parties – or the Court, on the application of the company and deal with its assets. there’s always a risk that an involved a creditor. A receiver owes only limited duties party will become insolvent. to other parties, such as unsecured The principal duty of a liquidator is to creditors. Typically, receivers are • Receiverships, liquidation and take possession of, protect, realise appointed by a creditor with security voluntary administration are the and distribute company assets (or the over all a company’s assets, although most commonly used formal proceeds of from sale of those assets) appointments can be over an individual insolvency procedures for to the company’s creditors. Liquidators asset. A contractual right to appoint companies in New Zealand. in New Zealand have a statutory right to receivers is necessary. Shareholders or • The ability of a creditor to use the claw back preferential payments made directors of a company cannot appoint various insolvency regimes will by the company in the two-year period a receiver, but may ask a secured depend on the nature of the debt preceding liquidation, or payments creditor to appoint a receiver. owing, for instance whether it is at undervalue. The liquidator then secured or unsecured. Broadly, distributes those realisations to the Receivers are not agents of the New Zealand is a secured creditor creditors. Employees and the Inland creditors who appointed them. Rather, friendly jurisdiction. Revenue Department (for some taxes) except in liquidated companies, they are paid before unsecured creditors. are agents of the company. Receivers’ reports are available on-line. Liquidation does not prevent secured creditors from exercising their rights over secured assets, although employees and the Inland Revenue Department are paid before general secured creditors from proceeds of inventory and receivables.

Liquidators’ reports are publicly available through the on-line Companies Register. Michael Arthur – Partner T: +64 9 357 9296 M: +64 27 209 4999 E: [email protected]

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 46 Voluntary administration Compromise A key feature of the PPSA is that its Personal insolvency application is not affected by a secured Voluntary administration provides a In addition to the above formal party having title to the security – bankruptcy mechanism for the administration of procedures, it is routine in New Zealand collateral. A debtor with rights in Bankruptcy proceedings are governed the business, property and affairs of an for companies facing difficulties personal property can grant a security by the Insolvency Act 2006. Bankruptcy insolvent company or a company that to seek to compromise with their interest in that property even though affects an individual’s legal status. Its may become insolvent in the future. The creditors. Those compromises can it has no title to the property (such consequences include; vesting the objective of voluntary administration be informal – i.e. created by a simple as where the property is subject to a bankrupt’s property in the Official is to maximise the chances of the contract – or they may be more formal. retention of title clause or held under Assignee, the bankrupt being limited company, or as much as possible of its The Companies Act has procedures a lease). in the business activities he or she can business, continuing in existence or, by which all creditors can be bound undertake and the Official Assignee where that is not possible, to produce to a compromise if a majority of The PPSA determines the priority being entitled to recover assets that a better return for the company’s creditors vote in favour of it. Again, of any security interest taken over the bankrupt has transferred before creditors and shareholders than would 50% by number and 75% by value (of personal property. In general, a the bankruptcy. A corporation, result from the immediate liquidation of those voting) must vote in favour for perfected security interest has priority association or company incorporated the company. a majority. over an unperfected security interest. or registered under any Act may not be Perfection is usually achieved by adjudicated bankrupt. Voluntary Administration imposes a registration on the Personal Property moratorium period, generally of around Personal Properties Securities Register (an on-line register). five weeks but it can be extended. Securities Act (PPSA) Priority between perfected security Regulation of insolvency During this time, the enforcement interests is determined by which of charges is prevented as are New Zealand’s PPSA regulates all secured party is first to either register, practitioners taking possession of property, court securities interests in personal or take possession of the collateral. Insolvency practitioners must be proceedings, enforcement proceedings property. “Security interests” include There are important exceptions to the licensed by an accredited body under or the making of demands under a traditional securities interests order of priority, however. the Insolvency Practitioners Regulation guarantee. (mortgages, fixed and floating charges, Act 2019 and registered on a public pledges and liens) as well as in- Failure to register a security does not register maintained by the Registrar The moratorium gives the voluntary substance security interests (such as invalidate that security, but it may of Companies. To obtain a licence, administrator an opportunity to develop conditional sale agreements, retention prejudice its priority position. applicants must have the requisite a rescue plan which must then be of title provisions and leases of 12 qualifications and meet a “fit and adopted at a meeting of creditors. A months or more). proper person” test. Licences must be majority of creditors is 50% by number renewed every five years, with renewal and 75% by value (of those voting). dependent upon meeting ongoing competence requirements.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 47 Resolving Key points Legal system Hierarchy of courts • New Zealand has a New Zealand’s common law system The District Court is the court of first common law system and an is similar to that in England and has instance for most criminal prosecutions disputes in independent judiciary. familiarity with most international legal and many civil cases. In criminal structures – especially in the finance cases, whether the District Court has • New Zealand has a hierarchy of and corporate law areas. New Zealand jurisdiction often depends upon the New Zealand courts running from the District has a single legal profession in which nature and seriousness of the alleged Court to the High Court, the Court members commonly hold a practising offence. In civil cases, the District of Appeal and the Supreme Court. certificate as both a barrister Court will have jurisdiction if the amount • Civil disputes are often solved by and solicitor. in dispute is NZ$350,000 or less. negotiation or mediation between Above that amount, the claim must be the parties. Judges are appointed by the Governor- advanced in the High Court. The High General on the advice of the Attorney- Court also has exclusive jurisdiction in General and have a strong tradition certain matters as directed by statute, of judicial independence. Their e.g. under the Companies Act 1993. appointments are open-ended. There is generally one right of appeal – from the District Court to the High Court or from the High Court to the Court of Appeal. Second appeals require the leave of either the court appealed from or the court appealed to. All appeals to the Supreme Court require the leave of that court.

Nicola Swan – Partner T: +64 4 498 6389 M: +64 27 308 6000 E: [email protected]

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 48 The Supreme Court does not entertain Alternative dispute International dispute appeals for the sole purpose of error correction, and will generally not grant resolution for resolution leave unless the appeal involves: civil disputes New Zealand is a strong advocate for free trade and is a signatory to • a matter of general or public Civil disputes are often resolved by a number of trade and investment importance negotiation directly between the parties treaties. Many of those agreements or by mediation. Such resolution may • a substantial miscarriage of justice, or include investor-state dispute occur at any time, whether before or settlement mechanisms, including the • matters of general after judgment in any proceeding, but Comprehensive and Progressive Trans- commercial significance. most often resolution occurs before Pacific Partnership Agreement. trial (or, in some cases, shortly after a The Court of Appeal is therefore the trial has begun). Chapman Tripp advises on all aspects final appellate court for most cases. of international trade and investment It is a requirement for many civil agreements, including resolving Outside the general court structure are a proceedings in the District Court disputes through the architecture range of specialist courts and tribunals. that the parties first attend a judicial provided by those agreements. These include the Employment Relations settlement conference before a trial Authority and the Employment Court, is allocated. In the private sphere, companies the Environment Court and the Taxation increasingly prefer international Review Authority. Civil disputes may also be resolved commercial arbitration as the by private arbitration, pursuant to the mechanism to resolve contractual In New Zealand, Prosecution Guidelines Arbitration Act 1996 (which is based disputes. Chapman Tripp is the only do not permit a prosecutor to initiate or on the Model Law on International New Zealand firm ranked internationally to invite a “plea bargain” in any criminal Commercial Arbitration adopted for its expertise in international proceeding. However, it is permissible by the United Nations Commission arbitration. Our team regularly acts in for a defendant to propose an on International Trade Law). Some international commercial arbitrations arrangement under which a guilty plea contracts provide for arbitration in the and can assist with drafting arbitration will be entered either to some existing event of a dispute, but parties may clauses, urgent applications linked to or amended charges, on the basis also agree to arbitrate after a dispute such arbitrations, and enforcement of that other charges will be withdrawn has arisen. arbitral awards. or reduced.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 49 Opportunities to emigrate to Applicants for any visa must be of good ALERT Emigrating to New Zealand or to obtain a visa are character, have an acceptable standard Only solicitors and licensed currently strictly limited as part of of health and hold a valid passport immigration advisers and legally New Zealand’s response to COVID-19. which expires later than three months able to give immigration advice in New Zealand All arrivals are tested for the virus after your proposed date of departure. New Zealand. It is important that and are required to undergo a 14-day you establish the credentials of managed quarantine or isolation. your adviser as Immigration will not New Zealand residence generally accept applications where New Zealand has a reasonably open the advice has come from someone The main paths to New Zealand door immigration policy, particularly for either unlicensed or not specifically residence are through the skilled migrants and for entrepreneurs exempted from holding a licence. following categories: with the resources and capital to This requirement applies also to contribute to the economy by setting advice given from off-shore. • Skilled Migrant up a business in New Zealand. • Work to Residence Visas • Investor • Entrepreneur, and If you are not a New Zealand or an Australian national, you will need a • Family. visa to work in New Zealand unless you are on a short visa for business meetings only. Citizenship

To qualify for citizenship, the applicant Visa types include: must have been resident for at least five years, be free of any convictions and • Work Visa (temporary) have been present in New Zealand for • Work to Residence Visa at least: • Study to Work Visa • 1,350 days during the five years • Visitor Visa (Business or Tourist) immediately preceding the application, and • Highly Skilled Visa (Silver Fern) • 240 days in each of these five years. • Entrepreneur Work Visa (Business) • Residence Visa For more information go to the Immigration New Zealand website at: • Working Holiday Visa immigration.govt.nz • Student Visa Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS December 2020 HOME 50 Tax residence

Residence for income tax purposes is distinct from, and does not depend on, a person’s immigration status. Once a person becomes “resident” in New Zealand for income tax purposes, income tax is generally imposed on that person’s worldwide income.

Individuals are regarded as tax resident if they have a permanent place of abode in New Zealand or are present in New Zealand for more than 183 days within any 12-month period. Under the day count test, a person will be treated as becoming tax resident on the first day of the 183 days they are present in New Zealand.

New migrants and, in certain cases, returning New Zealanders who have not been resident for tax purposes in New Zealand for at least 10 years, can qualify for temporary transitional residence status. A transitional resident is exempt from New Zealand income tax on their foreign-sourced income, other than income from employment or the supply of services for a period of four years after they meet the test for New Zealand tax residency.

Doing business in New Zealand CHAPMAN TRIPP GUIDE FOR INVESTORS November 2020 HOME 51 AUCKLAND WELLINGTON CHRISTCHURCH Level 34, PwC Tower Level 17 Level 5 15 Customs Street West 10 Customhouse Quay 60 Cashel Street PO Box 2206, Auckland 1140 PO Box 993, Wellington 6140 PO Box 2510, Christchurch 8140 New Zealand New Zealand New Zealand

T: +64 9 357 9000 T: +64 4 499 5999 T: +64 3 353 4130

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