Henry Brandts-Giesen, Partner at Kensington Swan, discusses New Zealand’s immigration by investment programme which aims to boost capital, skills and networks to grow the economy. An unintended consequence of the success of these programmes overseas, is that a large and rapid influx of investment can lead to rising wages and asset valuations, with negative repercussions on the rest of the economy, he writes.
Henry will co-present on the topic, The Practical Side of Phase 2 AML/CFT Compliance and Reporting: Current issues with AML/CFT for lawyers, with Buddle Findlay Partner Neil Russ, at the 6th Annual 10 CPD Hours in One Day in Auckland on Thursday, 14 March.
The exponential growth of private wealth over the last generation has led to a significant increase in global mobility. Other factors contributing to this trend include the relaxation of visa restrictions in certain regions, the pursuit of political and economic safe havens, the avoidance of real or perceived geopolitical risk and a desire for investment diversity.
This has led to global competition in the form of economic residency programmes which allow people with liquid funds to acquire residency rights in addition to those they have in their country of citizenship. In exchange, countries administering these programmes receive a significant financial investment in their domestic economies.
Economic citizenship programmes are offered by a growing number of small states in the Caribbean and Europe. Similarly, economic residency programmes have recently been launched in a number of European countries, including Bulgaria, France, Hungary, Ireland, the Netherlands, Portugal and Spain. Almost half of EU member states now have a dedicated immigrant investor route. In contrast, some advanced economies, such as Canada, the United Kingdom and the United States have had immigrant investor programmes since the late 1980s or early 1990s. Closer to home, Australia has a programme, known as the Significant Investor Visa, which also competes for capital in this global market.
It is a proven way for countries to attract capital, skills and networks to grow the economy. The inflow to countries from these programmes can be substantial, with significant macroeconomic benefits for many sectors of the economy.
One of the ways in which the New Zealand Government encourages foreign investment in New Zealand is through its own residency by investment programme.
Visa categories
The Investor 1 Category is aimed at applicants with NZD 10,000,000 (about USD 6,700,00) to invest in the New Zealand economy for a minimum period of three years. After three years of investment, the individual may apply for a permanent resident visa for themselves and their family.
The Investor 2 Category is an option for investors who wish to gain residency in New Zealand and have the means to invest over NZD 3,000,000 (about USD 2,000,000) in acceptable investments. In addition to these requirements, there are a number of requirements that will be assessed using a points based system. This includes age, business experience, and English language abilities.
Investment criteria
Immigration New Zealand has restrictions around what constitutes an ‘acceptable investment’. Broadly, the investment must be capable of a commercial return under normal circumstances, and able to contribute to the New Zealand economy. Investments may include bonds (of a certain type), equity in New Zealand firms or banks, residential property development(s), philanthropic donations (up to 15% of total investment), and eligible New Zealand venture capital funds.
Fit and proper investors
Preserving the credibility of the programme is perhaps the biggest challenge. A stringent due diligence process is essential to avoid integrity and security issues and the use of investment options as routes for money laundering and criminal financing.
Extensive information and documentation is required to be submitted to Immigration New Zealand and verified as evidence of the applicant’s bone fides and clean source of funds.
Countries of origin
In the 2017-2018 financial year, there appeared to be a trend towards a wider spread of nationalities applying for residency in New Zealand via this pathway. The percentage of Chinese applicants has dropped by 30% since the last financial year. This probably reflects the tightening of Chinese Government controls to prevent the loss of capital from the country.
The percentage of applicants from the United Kingdom has doubled since the previous financial year, increasing from just 4% of the total applicants to 8%. We are also seeing an increase in applicants from Germany, with the percentage leaping from just 3% in the 2016/17 financial year to 7% in the 2017/18 financial year. In addition to these trends, we are seeing an increase in applicants from Malaysia, the Philippines, South Africa, Japan and India.
Benefit to NZ
As a direct result of this residency by investment programme, over NZD 4.7 billion has been invested in the New Zealand economy since 2009, with NZD 1 billion in the 2016-17 year alone. In addition to this, NZD 1.2 billion is pending transfer under the programme. There are of course a number of benefits which are not as easily quantified but of perhaps more significance. These include the intellectual capital, commercial experience, business acumen and professional networks that these migrants bring to New Zealand. There is a multiplier effect which can accelerate all areas of the economy and stimulate all regions of New Zealand, when effectively harnessed. In this regard Immigration New Zealand proactively makes introductions to local residences and businesses to help sides of the trade to benefit from all that New Zealand and the migrants have to offer.
An unintended consequence of the success of these programmes in other countries is that a large and rapid influx of investment can lead to rising wages and asset valuations, with negative repercussions on the rest of the economy. There is no evidence of this yet occurring in New Zealand. This is probably due to the relatively low numbers of applicants who ultimately make it through the process as a proportion of the total population. However, it is something that the Government will be mindful of and may lead to greater emphasis being placed on a broader range of criteria in the future. Such criteria may include measuring the social, environmental and regional impact an applicant might have in New Zealand.
Any changes to the current policy settings will need to considered carefully in light of the global competition of migrant capital and the ability to properly assess any qualitative criteria. Nevertheless some adjustment of current policy settings in this direction would not be inconsistent with New Zealand’s core values and desire to attract people willing to contribute positively to society – rather than merely escape from whence they came.
The challenge will be to maintain an appropriate balance so that New Zealand remains an attractive destination for migrant capital and the substantial public policy benefits of immigration by investment continue for years to come.
Henry Brandts-Giesen heads the KensingtonSwan private wealth team. He is an experienced corporate and commercial lawyer who is an expert in helping individuals and families structure their assets. Henry routinely advises high net worth individuals and families, athletes, entrepreneurs and captains of industry as well as ordinary New Zealanders and their businesses. Henry provides specialist legal advice to wealthy migrants to, and investors in, New Zealand, and helps them to buy assets, such as land and businesses. Henry is an expert in trust law, and can set up and run trusts and other arrangements such as wills and relationship property agreements. He is a strong advocate for proper governance and administration of trusts and companies. Henry is frequently involved in resolving family disputes, the interplay between trusts and relationship dissolution, and applications to court for orders relevant to trusts. He has acted for prominent clients in several reported judgments and settled cases. If you own a business Henry can help with succession planning to ensure a smooth transfer between the generations. If you decide you want to sell the business he can help prepare it for sale, manage the sale process, then help you structure the proceeds of the sale. Henry also assists trustees, financial institutions, accountants and other law firms to manage fiduciary risk and regulatory compliance. He is an expert in FATCA/CRS, AEOI and AML/CFT. Contact Henry at henry.giesen@kensingtonswan.com
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