Investing on behalf of an overseas person

Find out about the need to apply for consent if you are a New Zealand citizen or are ordinarily resident in New Zealand, and are investing on behalf of an overseas person. These rules are called the ‘associate provisions’.

What are the associate provisions?

The associate provisions stop overseas people getting around the rules by using a third party like an agent, trustee, or nominee, or by making some other arrangement or understanding with a New Zealand citizen or resident.

Overseas person definition 

Who the rules apply to

The associate provisions apply to both formal associations (such as agents and representatives, trusts or business relationships) and informal associations (such as secret deals, unwritten agreements or understandings).

You can be an associate because of your direct relationship with the overseas person, or through a relationship with another associate of an overseas person.

There is no statutory limit on the number of intermediaries between an associate and the overseas person.

When these rules apply

Subject to control or direction

You are considered an associate if you are under the control of an overseas person, or subject to their direction. Situations of control or direction may or may not be clearly documented. They include:

  • management agreements
  • business relationships
  • social obligations
  • threats.

Example

Situation:

  • N, a New Zealand citizen, is the trustee of T.
  • M is the manager of the trust assets.
  • The trust deed obliges N to follow the instructions of M.
  • M is an overseas person.

Result:

  • N and T are associates of M.
  • An acquisition of sensitive land by T is an overseas investment and requires consent.

Acting on behalf of

You are considered an associate if you are acting on behalf of an overseas person, either:

  • as their agent, trustee or representative, or
  • because you are subject to the overseas person's direction, control or influence in some other way.

Example

Situation:

  • O, an overseas person, wishes to acquire sensitive land and bypass the consent process.
  • N, a New Zealand citizen, informally agrees to purchase and hold the property on behalf of O.
  • O is to fund the purchase through an unsecured, undocumented loan.

Result:

  • N will hold the property as a bare trustee for O and would likely follow the instructions or requests of O.
  • N is an associate of O.

The acquisition of sensitive land by N is an overseas investment and requires consent.

Note that this scenario may also breach section 43 of the Overseas Investment Act, which makes it an offence to defeat, evade or circumvent the Act.

Acting jointly

You are acting jointly with an overseas person when you have a joint purpose or plan, agreement, partnership or other close relationship in which you could be described as ‘partners’ or ‘associates’.

Examples include:

  • partners
  • joint venture participants
  • parties to a contract, where those parties have the same or similar interest.

Arrangement or understanding

An ‘arrangement’ is something less than a formal contract. It involves an agreement between 2 or more people, where there is an expectation that at least one person will act as agreed by the parties.

An ‘understanding’ is like an arrangement, but less formal.

Examples of arrangements or understandings include handshake agreements and promises.

Whether an understanding or arrangement exists needs to be determined in each case. Evidence of dealings between the parties is considered, but if direct evidence is not available, inferences may need to be made from circumstantial evidence.

The courts may make inferences if there are other factors present, for example:

  • people being unable or unwilling to explain why something happened
  • conduct consistent with an associate relationship, plus meetings or correspondence
  • an unusual pattern of behaviour that cannot be explained without ‘influence’ or an ‘arrangement’.

Example

Situation:

  • O, an overseas person, lends $1 million to N, a New Zealand citizen, for the purpose of buying a holiday home.
  • O and N have an understanding that O will not charge N interest if N allows O to use the holiday home.

Result:

  • N may be an associate of O.

On its face, the understanding would appear to be a mechanism by which O can effectively own the holiday home without obtaining consent.

Legislation

The meaning of ‘associates’ is defined in Overseas Investment Act, s8

Relevant case law