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Land title system
New Zealand utilises a land title system based
on the Torrens system which is used in a number of other countries
including Australia, the United Kingdom and Singapore. The primary
advantage of the Torrens system is that it enables a purchaser
of land to rely on the title as it is recorded in the public
register of land. Furthermore, the Crown guarantees that the
details of the register are true and complete.
Legal title to land ownership in New Zealand
is a matter of public record. Almost all land in private ownership
is held under the land registration and transfer system as enacted
in the Land Transfer Act 1952.
Environmental law
Environmental law in New Zealand has undergone
significant development in recent years. The principal environmental
legislation in New Zealand is the Resource Management Act 1991.
The Resource Management Act is internationally recognised as
a progressive piece of legislation.
The purpose of the Resource Management Act is
to promote the sustainable management of natural and physical
resources. Rather than a prescriptive approach to the use of
resources the legislation adopts an approach which may be broadly
described as permissive.
The Resource Management Act is administered by
a hierarchical structure of national, regional and local policy
statements and plans. All resource use and related consent requirements
are subject to a uniform regime throughout the country. Depending
upon the nature of an activity and its effect on the environment,
a resource consent may be required. The consent may be granted
with or without conditions. A number of resource consents may
be required depending on the nature of the proposed activity.
The Resource Management Act also imposes liability
for environmental offences.
Land Information and Statutory Compliance
As in many other jurisdictions, sometimes critical
information relating to land issues will be held by local authorities.
This information can be searched. A number of other general
compliance statutes also create landowner or occupier liabilities.
Agreements for sale and purchase of land
An agreement for sale and purchase of land in
New Zealand, and certain other dispositions of land, must be
in writing and signed by the parties to the transaction or their
lawful representatives. An agreement for sale and purchase is
generally prepared by the vendor's real estate agent or solicitor
and generally a purchaser pays a deposit to the vendor's agent,
which is released to the vendor when the agreement becomes unconditional.
A prudent purchaser will either make a full investigation
of the property employing professional advisers where appropriate
before entering into an agreement or (more commonly) make any
agreement subject to conditions which allow that investigation
to occur subsequently. Common conditions relate to title investigation,
building inspection, resource management issues, arranging finance
and (in respect of leased commercial or industrial buildings)
investigation of leases.
Overseas Investment Act 1973
New regime
The Overseas Investment Act 1973, as amended
in 1995, (Overseas Investment Act) is the statute which controls
foreign investment in New Zealand. New regulations (the Overseas
Investment Regulations 1995) have also been passed which specify
the qualifying transactions in more detail and procedures for
applying for consent.
Under the Regulations an "overseas person"
must obtain consent to acquire or take "control" of
25 percent or more of New Zealand:
- Businesses or property worth more than $50
million;
- Land over five hectares and/or worth more
than $10 million;
- Land on most off-shore islands; and
- "Sensitive" land over 0.4
hectares (e.g. on specified islands, containing or next to
reserves, historic or heritage areas, the foreshore or lakes).
Non-Land transactions
For non-land investments an overseas person must
obtain consent under the Regulations to:
- establish a new business where the total expenditure
to be incurred in setting up the business exceeds $50 million;
- acquire 25 percent or more ownership or control
of a New Zealand company where the consideration for the transfer
or the value of the New Zealand company's assets exceeds $50
million;
- increase their proportion of ownership or
control of a New Zealand company where the overseas person
already had 25 percent or more ownership of control and the
consideration for the acquisition of the extra securities
or the value of the New Zealand company's and any subsidiaries
assets or the value of the extra securities exceeds $50 million;
and
- Acquire property used in carrying on
a business where the cost of the acquisition exceeds $50 million.
it is possible to obtain a blanket transaction
clearance. There are two types of blanket transaction clearance
exemptions possible, one relating to portfolio investors and the
other to certain companies which are New Zealand owned and controlled
even though they have more than 25 percent overseas ownership.
Land transactions
For land investments an overseas person must
obtain consent under the Regulations to:
- Acquire any land or any estate or interest
in land regardless of the land's value.
- Acquire securities in any person that
owns or controls any land or any estate or interest in land,
regardless of the dollar value involved, that will result
in:
- the land owning person becoming an overseas
person;
- the overseas person acquiring 25 percent
or more of the ownership or control of the owning person
or increase their ownership or control if the overseas
person already has 25 percent or more ownership or control.
Land is defined as:
Land over 5 hectares - Any land that,
together with any associated land exceeds 5 hectares in area.
Islands - Any land that or that forms
part of an island other than listed exceptions orany land
that, together with any associated land, exceeds 0.4 hectares
in area and forms part of a number of specified islands.
Foreshore, lakes and reserves - Any
land together with any associated land, exceeding 0.4 hectares
in area and that includes or adjoins the foreshore or any
lake (where the lake bed exceeds 8 hectares in area) or any
land that exceeds 0.4 hectares in area and is provided as
a reserve, held for conservation purposes or deemed a heritage
or historic area.
Other land - Any land, other then the
land specified above. If the consideration for the "unimproved"
land exceeds $10 million.
It is possible to obtain a blanket transaction
clearance. There are two types of blanket transaction clearance
exemptions possible, one relating to portfolio investors and
the other to certain companies which are New Zealand owned and
controlled even though they have more than 25 percent overseas
ownership.
Overseas persons
Central to the application of the Overseas Investment
Regulations is the definition of an "overseas person".
Overseas persons include:
- any individual who is not a New Zealand citizen
and who is not ordinarily resident in New Zealand
- any company or body corporate that is incorporated
overseas
- any New Zealand company with 25 percent or
more of its specified securities or voting power held by overseas
persons
- a trust where 25 percent or more
- of the trustees are overseas persons
- of the persons having power or control
- of the trustees are overseas persons
- of the trust property is held for the benefit
of overseas persons
- a partnership or joint venture where 25 percent
or more of the partners or members are overseas persons or
where overseas persons control 25 percent or more of the voting
power
- a unit trust where the manager or trustee
is an overseas person or where overseas persons hold 25 percent
or more of the beneficial interests
- any other entity owned or controlled
more than 25 percent by an overseas person.
Consent criteria
The Overseas Investment Act establishes the criteria
for assessing applications for foreign investment in New Zealand.
These criteria do not determine the commercial viability of
an investment - this assessment is left to the individual investor.
The Overseas Investment Act recognises that foreign investment
benefits the New Zealand economy. Accordingly, the investment
criteria are designed to encourage foreign investment.
General criteria - overseas investor test
The first criterion relates to the suitability
of the investor. Investment applications will be granted if
either the Ministers and/or the Commission are satisfied that
the overseas person fulfils the following criteria:
- the overseas person has business experience
and acumen relevant to the investment
- the overseas person has demonstrated a financial
commitment to the investment
- where the overseas person has a minimum 25
percent beneficial interest in the overseas investment, the
overseas person is of good character and is eligible for a
residence permit or a temporary permit under the Immigration
Act 1987
- the overseas investment would be in
New Zealand's national interest.
Land investments - national interest test
The second criterion relates to a national interest
test which applies to land investments only. Before an investment
application may be approved, either the Ministers and/or the
Overseas Investment Commission must be satisfied that a proposed
land purchase is in New Zealand's national interest. A range
of criteria exists in relation to this national interest test.
New Zealand's tax system
The majority of tax revenue in New Zealand comes
from income tax and a goods and services tax.
The major tax regimes which are relevant to investment
in New Zealand are:
- Income tax
- Goods and services tax (GST)
Liability for income tax
Residents of New Zealand are liable to New Zealand
income tax on their worldwide income. Non-residents of New Zealand
are liable to income tax on any income derived from a New Zealand
source. Income derived by a non-resident from a source outside
New Zealand is not subject to income tax in New Zealand.
The top income tax rate for the 2000/2001 (and
subsequent) income years for individuals is:
- On income upto $38,000 - 19.5%.
- On income between $38,000 - $60,000 - 33%.
- On income over $60,000 - 39%.
The Tax rate for companies is 33%
Tax residency of individuals
An individual is resident in New Zealand for
tax purposes if she or he is personally present in New Zealand
for more than 183 days within any 12 month period, or if that
person has a "permanent place of abode" in New Zealand
(whether or not that person also maintains a permanent place
of abode overseas). The permanent place of abode test is somewhat
nebulous and overrides the day-count test.
Tax residency of companies
A company is deemed to be a New Zealand resident
for taxation purposes if:
- the company is incorporated in New Zealand
- the company's head office is in New Zealand
- the company's centre of management is in New
Zealand, or
- the company's directors exercise control
of the company in New Zealand (whether or not some decisions
are made overseas).
Any body corporate or other legal entity which
has a legal personality separate from that of its members is
treated as a company, as are unit trusts and certain group investment
funds.
Double tax agreements
Where a taxpayer has tax liabilities arising
in more than one jurisdiction, New Zealand's network of double
tax agreements may operate to ameliorate double taxation, and
resolve dual residency issues.
Employee tax payments
Tax payable by employees on employment income
is deducted at source by the employer in a system known as "pay
as you earn" ("PAYE"). PAYE is deducted when
the employee is paid. Legislative reforms have removed the need
for most employees paying PAYE to file a tax return. However,
certain individuals are still required to file a return such
as non-residents, provisional taxpayers and recipients of withholding
payments.
Fringe benefit tax
Fringe benefits are certain non-cash entitlements
provided by an employer, such as the private use of motor vehicles
and telephones. Fringe benefit tax is usually an allowable deduction
against the employer's gross income. Taxing the employer rather
than the employee is intended to encourage a shift to remuneration
being paid in cash rather than in kind.
Capital gains tax
New Zealand does not have a separate capital
gains tax regime. However, in limited circumstances, income
tax may be imposed on any amount derived from the sale or other
disposition of capital assets, including real and personal property.
If an asset is acquired by a person who deals in those assets,
or for the purpose of resale, or as part of an undertaking or
scheme entered into for a profit-making purpose, any amount
derived on the sale of that asset may be subject to income tax
at normal rates. The accrual rules make all gains on financial
arrangements (generally, debt securities) assessable.
Accruals regime
New Zealand has a timing regime, which operates
to recognise income and expenditure on financial arrangements
on an accrual rather than a cash/receipts basis. Under the accrual
rules a receipt is treated as derived when it becomes due, as
opposed to receipts accounted for on a cash basis which are
treated as derived when received. The accrual rules are generally
intended to spread income and expenditure on a yield to maturity
basis over the term of a financial arrangement in a symmetrical
manner as between the various parties to the arrangement.
Imputation credits
New Zealand has a full imputation system. Resident
companies may attach imputation credits to dividends paid to
shareholders. The credits represent income tax that has been
paid by the company on its profits. The credits can be used
by shareholders to offset any tax payable in respect of their
taxable income. There are continuity rules which affect the
ability of a company to carry forward its imputation credits.
Imputation credits are not available to non-residents.
However, under the foreign investor tax credit (FITC) regime,
a resident company paying a dividend to a non-resident shareholder
can receive a tax credit for the amount of imputation credits
attached to the dividend. This tax credit can be passed to the
non-resident shareholder as a "supplementary dividend".
To the extent that the dividend is fully imputed, the supplementary
dividend offsets the non-resident withholding tax liability
(discussed below) in respect of that dividend.
Resident withholding tax
Interest and dividends paid to residents (including
non-residents with permanent establishments in New Zealand)
are subject to resident withholding tax. For dividends the rate
is 33 percent gross. For interest, if the taxpayer so elects,
the rate is reduced if the payer is given the IRD number of
the recipient. A 39% non-declaration rate applies when a taxpayers
IRD number is not supplied and no deduction rate has been elected.
Exemption certificates are available for banks, financial intermediaries
and large taxpayers. The exemption applies to interest and dividends
paid to holders of certificates.
Non-resident withholding tax
Non-residents deriving fully imputed dividends
from New Zealand are subject to non-resident withholding tax
("NRWT") of 15 percent. Where the dividend is not
fully imputed the rate is increased to 30 percent, which may
be reduced to 15 percent where a double tax treaty applies.
Where dividends are fully imputed the non-resident withholding
tax deduction may be offset by a supplementary dividend paid
under the FITC regime described above.
Non-residents deriving royalties or interest
from New Zealand will be subject to NRWT at a rate of 15 percent,
which may be reduced to 10 percent where a double tax treaty
applies. Non-resident withholding tax on interest may be reduced
to 0 percent if the "approved issuer levy" is paid.
Thin capitalisation rules
Thin capitalisation rules, aimed at ensuring
that New Zealand entities do not deduct disproportionately high
amounts of their worldwide group's interest payments, apply
in New Zealand. The rules apply to all New Zealand resident
entities controlled by a single non-resident. To the extent
that a New Zealand entity's "group debt percentage"
exceeds the specified thresholds the entity will be disallowed
a deduction for any interest payments.
Transfer pricing
New Zealand has comprehensive transfer pricing
rules. The rules apply to all cross-border transactions involving
the supply and acquisition of goods, services, money, other
intangible property, or anything else, between associated persons.
All cross-border transactions between associated persons must
take place at "arm's-length" prices and according
to an accepted pricing methodology.
Goods and services tax
Goods and services tax ("GST") is a
broadly based consumption tax levied at 12.5 percent on the
supply of most goods and services in New Zealand. Any person
who within a 12 month period makes total supplies in New Zealand
in excess of $40,000 in the course of all "taxable activities"
is liable to be registered for GST. Registered persons must
generally file a GST return once every two months. Some supplies
are taxed at the rate of zero per cent. A person registered
for GST who makes supplies (including zero-rated supplies) can
claim an input tax credit. Other specified supplies are exempt
from GST.
Disclaimer
The above commentary is intended to provide an
outline of a selection of key aspects of New Zealand law which
a potential investor in New Zealand will need to consider. The
above is not a complete description of all relevant legislation.
Whilst the summaries above are believed to be correct, no liability
can be accepted for any inaccuracies or omissions. Readers should
not act or rely on this general information without first seeking
specific professional advice on the detailed aspects of the
laws of New Zealand.
For more information please contact Buddle
Findlay or visit our website at www.budfin.co.nz.
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