OIO law: Forestry update

Wednesday 29 Aug 2018

Overseas Investment Amendment Bill – forestry update - On15 August, the Overseas Investment Amendment Bill (Amendment Bill) was passed by Parliament. The new laws are expected to come into force by mid-October 2018.

As well as bringing “residential land” within the Overseas Investment Act, the Amendment Bill brings in changes for the forestry and horticulture sectors, and enhances the enforcement and information gathering powers of the Overseas Investment Office (OIO).

A general overview of the new residential land provisions is contained in our separate update: New OIO laws bring changes for residential land, forestry and horticulture. This update contains more detail on how the changes will impact on the forestry sector.

The Amendment Bill introduces three key changes for forestry investors:

1. Forestry rights, which were previously not captured by the Overseas Investment Act, have been brought into the OIO regime by removing the general exclusion for profits à prendre (rights to take).

The acquisition of forestry rights will not require OIO consent where the total area covered by forestry rights acquired in any calendar year (including acquisitions by related parties) is less than 1,000 hectares. This calculation excludes any forestry rights held before the new laws come into force.

2. All forestry investors can take advantage of two new tests, where the land “will be or is likely to be used exclusively or nearly exclusively, for forestry activities” (maintaining, harvesting or establishing a crop of trees) and there is a commitment to replant following harvest:
    a. A new “counterfactual” test that only requires the OIO to compare the proposed use against the current use (not what an alternate investor might do); and

    b. A new “benefit to New Zealand test”– the details of this new test will be set out in Regulations. Initial draft Regulations indicate this test could be met provided that any existing arrangements for supply of logs to New Zealand processors are continued, any existing environmental protections are maintained, and there is a commitment to replanting (this requirement can be waived in some circumstances). The overseas person would not be required to show any “added benefit” resulting directly from their investment.

These tests can be used regardless of the nature of the forestry investment (e.g. bare land purchase, purchase of existing forest, lease, forestry right, or investment in a forestry business). If the relevant land includes any existing homes on residential titles, those homes can either be retained for staff accommodation or removed for the purposes of the forestry business.

Now that it has been extended to cover all types of forestry investments, the new “benefit to New Zealand” is likely to be the most widely used. The new counterfactual test will provide an alternate option where all the requirements of the new benefit to New Zealand test cannot be satisfied (e.g. there are environmental protections that need to be modified for the forestry investment).

3. Forestry investors relying on the new “benefit to New Zealand” test can apply for “standing consents” that do not relate to a specific parcel of land. Investors can then make investments in reliance on that standing consent without requiring further OIO approval, allowing them to remain competitive in the market when making new land acquisitions.

Transitional provisions - Although most provisions of the Amendment Bill will not apply to contracts entered before the new laws come into force, overseas persons can take advantage of the new forestry tests immediately, even where the contract is already in place.

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Source: Duncan Cotterill

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