The Prime Minister of New Zealand has just confirmed details of the long-awaited changes to the Active Investor Plus resident visa programme (AIP Programme) which is New Zealand’s residency by investment programme. 

The changes follow concerns over the current high investment thresholds of the programme and its focus on riskier investments, which has led to a significant decline in applicants as compared to the previous Investor 1 and Investor 2 resident visa programmes.

The Government’s changes aim to make the AIP Programme more accessible, while still encouraging meaningful investments in New Zealand's economy.

Under the revised AIP Programme, there will be two categories for applicants:

1. Growth Category: Applicants must invest NZD 5 million in approved managed funds and/or direct investments and must spend at least 21 days in New Zealand over a 3-year period.
2. Balanced Category: Applicants must invest NZD 10 million in acceptable investments (see below) and spend at least 105 days in New Zealand over a 5-year period.

Businesses wanting approved direct investment or managed fund status will continue to be required to apply to New Zealand Trade & Enterprise for this status.

Acceptable investments for the purposes of the Balanced Category include:

1. Bonds (government, local government, and corporate);
2. Listed equities;
3. Philanthropy;
4. Property development new residential and/or new/existing commercial and industrial); and
5. Growth Category acceptable investments (approved managed funds and direct investments).

Applicants under the Balanced Category will be eligible for a reduction in the number of days they must spend in New Zealand during the 5 year investment period if they invest additional funds into acceptable direct investments and/or managed funds. Applicants who invest:

1. NZD 1 million (a total investment of NZD 11 million) receive a 14 day reduction;
2. NZD 2 million (a total investment of NZD 12 million) receive a 28 day reduction; and
3. NZD 3 million (a total investment of NZD 13 million) receive a 42 day reduction.

The Government will also remove the current English language requirement for applicants.

These changes are designed to offer greater flexibility and lower the financial commitment for investors in the Growth category, while still encouraging significant investments in New Zealand's business ecosystem. The Growth category rewards applicants willing to take a greater investment risk with a lower investment threshold, lower days in-country requirement, and shorter investment period, while the Balanced category provides a less risky alternative.

With the new structure, the Government is hoping to attract a larger pool of investors to invest and live in New Zealand, benefiting both the local economy and prospective residents.

The new AIP Programme will open for applications on 1 April 2025.

We welcome these changes. In our experience, the 2022 changes to the AIP Programme led to a significant decline in applicants. New Zealand needs the capital, talent, and connections that overseas investors can contribute to the country, and we consider that making the AIP Programme more accessible will have a positive impact on New Zealand’s economy and society.

The Government is also considering other changes that will make New Zealand more appealing for overseas investors and migrants.

The Government is reviewing the Foreign Investment Fund rules

The current Foreign Investment Fund (FIF) tax rules are a significant barrier to overseas investors becoming tax resident in New Zealand. The FIF rules effectively impose a capital gains tax on unrealised gains derived in respect of overseas shares, which may never actually be realised.

When someone becomes tax resident in New Zealand, he or she is taxed on his or her worldwide income (subject to temporary tax relief from tax on overseas investment income for new migrants and returning New Zealanders). This means that overseas shareholdings held by a new migrant who becomes New Zealand tax resident will eventually be taxed in New Zealand under the FIF rules. As the FIF rules tax gains on an unrealised basis, the taxpayer does not necessarily receive any cash with which to pay the tax.

In our experience, these rules are a significant inhibitor to globally mobile capital and talent (whether new migrants or returning New Zealanders) coming to New Zealand. The rules are complex, time consuming and expensive to comply with. They can result in the double taxation of migrants who become subject to the FIF rules while remaining subject to taxation on their investments in their former country of residence. Often there is no relief available under double tax agreements because of the different ways this type of income is taxed in New Zealand versus the taxpayer’s home country.

The Government has announced plans to review the FIF rules, and on 6 December 2024 the New Zealand Inland Revenue released an official issues paper: Effect of FIF rules on immigration: proposals for amendments (Issues Paper). The Issues Paper proposes a number of options for reforming the FIF rules with the aim of making them less punitive for new migrants and returning New Zealanders.

We submitted on the Issues Paper, confirming that we support a realisation-based FIF taxation method and, in particular, the “revenue account method” proposed by Inland Revenue. The “revenue account method” would only tax dividends received and any gain in the value of investments attributable to New Zealand on disposal of the investments or emigration of the person.

Inland Revenue is currently considering submissions on the Issues Paper, but has noted that the Government has not yet committed to enacting any amendments to the FIF rules. Inland Revenue will use the feedback from the consultation to refine its policy proposal before submitting it to the Government for consideration.

The Government will allow more overseas investors to purchase assets in New Zealand

The Overseas Investment Act 2005 (OIA) imposes significant restrictions on overseas investors buying New Zealand companies and properties. In general overseas investors need consent to purchase assets in New Zealand, and in many cases consent is not available or the conditions that need to be met in order to obtain consent are too burdensome.

Overseas investors are not able to obtain consent to buy a home in New Zealand unless they hold a resident or permanent resident visa (or are Australian or Singapore citizens) and commit to living in and becoming tax resident of New Zealand. Often overseas investors do not want to become tax resident in New Zealand due to the FIF rules.

The Government has recently confirmed it intends to reform the OIA to allow more overseas investors to purchase assets in New Zealand. The Government has not released details of its intended changes but has confirmed that the legislation required to amend the OIA will be passed by the end of 2025.

New Zealand is about to become a more attractive place for overseas investors to live and invest

We welcome the changes to the AIP Programme and expect there to be a significant influx of applicants when applications open. We are hopeful that the reforms to the FIF rules and the OIA will make New Zealand a more appealing place for AIP Programme visa holders to live and invest. Reforms like this take time but we urge the Government to make them a priority to make the most out of current interest in New Zealand as a destination for migrants and investors. The reality is that globally mobile investors have many options for obtaining residency and/or citizenship and these reforms will help New Zealand be a realistic option for them.

This alert was written by Daniel McLaughlin, Special Counsel, and Sarah Wells, Senior Associate, in our Private Wealth team.