The roadblocks to attracting overseas investors to New Zealand

The Prime Minister was quoted, prior to last years’ election, as saying “The world is awash with savings, yet New Zealand does not provide a gateway that makes it easy for that capital to enter the country” – how true this is!

Foreign Direct Investment (FDI) provides one of the most obvious opportunities available to New Zealand to inject the much-needed capital, and economic stimulus, to turn our struggling economy around and to provide a catalyst for future growth. And yet New Zealand is in the bottom third of OECD economies based on inward FDI as a % of GDP and is currently rated as having the most restrictive FDI policies in the OECD FDI Regulatory Restrictiveness Index.

A recent report from the NZIER, titled “The place where talent does not want to live” highlights how New Zealand’s international tax regime significantly disadvantages foreign investors and, at the same time, actively discourages successful Kiwis from returning home. The Foreign Investment Fund (FIF) regime was introduced almost 40 years ago and, in a nutshell, is a tax on unrealised assets. Many successful entrepreneurs will have acquired, or have been rewarded with, equity in the ventures they have built or contributed to, while many tech workers would also have stock options as part of their remuneration package - and it is these assets which are caught by the FIF regime. There is a transitionary period of 4 years, following a persons’ move to New Zealand, before the FIF rules take effect. Most OECD countries, including Australia, do not have this same tax regime.

As well as a disadvantageous tax regime New Zealand also has a ban on most foreigners buying homes in New Zealand. It is understandable that high net worth individuals contemplating a significant investment in New Zealand would be “put-off” by the fact they cannot buy a home to live in while they are here.

Recently I was in San Francisco as part of the New Zealand Trade & Industry delegation, which included New Zealand banks, lawyers, tax advisers, immigration professionals, wealth and venture capital fund managers. The event, staged in conjunction with the Sail GP finals, focussed on re-connecting with existing USA-based New Zealand businesspeople and investor clients, and on promoting New Zealand’s Active Investor Plus (AIP) resident visa category to prospective migrant investors. The AIP is another significant hurdle which overseas investors must overcome if they wish to migrate to New Zealand. The AIP category requires an investment of between $5m and $11.25m which is progressively invested over a 4-year term. It is a complex and administratively challenging category with highly restrictive, directed and potentially risky investment requirements. The fact that only around 20 AIP resident visas have been issued, in the almost 2 years since the category opened, confirms that the category settings are yet another obstruction to attracting investors to New Zealand.

It has been reported that almost 130,000 high net worth individuals throughout the world will be seeking alternative countries for residence or citizenship in the next year. New Zealand desperately needs to attract its share of this international investment, and of this global talent pool, to stimulate our economy, and to realise the potential of our homegrown talent. This will simply not happen while we have the current regulatory roadblocks in place – something the Prime Minister is now in a position to fix…