My blog last week gave a first taste of the new “AI+” Resident Visa scheme, and the types of New Zealand investments which qualify. What follows are some specific pieces of insight about how to work with the policy and to avoid some potential traps.
Holding Investments and Acceptable Investments
The public statement about this Investor policy is, in my view, somewhat misleading by saying:
This system will improve flexibility for investors by allowing them to invest over a three-year period.
In fact, investors must bring all the funds they wish to invest into New Zealand at the outset. Once someone’s application is vetted and they receive an Approval in Principle (“AIP”) letter, they have 6 months to transfer the full sum that they intend to invest into New Zealand. By the end of that 6 months, the funds must be placed in a mix of either Holding Investments or Acceptable Investments. That time can be extended to 12 months, but only if the applicant can prove that they honestly tried but failed to do the transfer in time; or else they have had to top-up their nominated funds because the assets they originally identified have lost value in the meantime. The rules are a bit vague about how this is meant to work in practice.
Acceptable Investments are the final investment targets which I discussed last week. In that 6-month window, investors must at first place a minimum sum in at least one of these categories – $1 million in Listed Equities or Philanthropy, $500,000 into Managed Funds, or $100,000 into Direct Investments.
Think of Holding Investments as the safe haven where nominated funds can sit until they are finally converted into Acceptable Investments. They can be savings accounts or term deposits with a NZ bank, or government bonds.
The point is that all the investment funds must be on NZ shores within that 6 months. Once that has happened, the 4-year “investment period” begins and the investor and their family get their Resident Visas. After that, the investor can choose, over the next 3 years, where they want to settle the Holding Investments, in order to completely invest in Direct Investments, Managed Funds or Listed Equities by the time that 3 years is up. They must then keep that investment in place to the end of Year 4 before the conditions on their Resident Visas are lifted.
Of course, an applicant could decide to land all their funds on their chosen mix of Acceptable Investments right away, and not bother about leaving sums in Holding Investments until later. The mechanism I have described does give more flexibility, in that sense, than the previous Investor 1 and 2 policies which were phased out in July. It is important to appreciate, though, that once an application is AIP’d, the applicant needs to move quickly to move all their funds into NZ one way or another. They have only 6 months, and not 3 years, to do that.
Applicants might decide at the outset what types of investments they wish to get into. The more “active” or higher-risk investments have weighted values so that people don’t have to put in as much capital in order to get a visa. But what if they change their minds?
Remember from last time that the applicant must invest NZ$15 million or the weighted equivalent. Say someone decides to put all their money into Direct Investments – unlisted NZ companies. They only have to show they have NZ$5 million in nominated funds, because with a 3x weighted average this equals $15 million – so far so good. They identify $5 million worth of assets back home in their application. However, by the time they come to actually invest, which might be a year or two down the track, conditions are such that they would prefer to put 50% into NZ companies, and 50% into safer managed funds.
Trouble is, they can’t. They can only invest from the nominated assets up to the value of $5 million. Their attempt to split the investment ends up with:
- $2.5 million in Active Investments – 3 x weighting = $7.5 million
- $2.5 million in Managed Funds – 2 x weighting = $5 million
Instead of reaching the magic $15 million, their investment is only valued at $12.5 million. They do not meet the conditions of their Resident Visa. What is worse, they become liable for deportation for non-compliance. There is a right of appeal against deportation, and we are familiar with what is involved. However, this is not something anyone wants to get into when it could be avoided at the outset.
The solution is to nominate and transfer assets of a significantly greater value than you actually intend to invest. Our $5 million all-out Active Investor should aim for $10 million. Someone going for $7.5 million of Managed Funds should nominate and transfer $11 or $12 million. The other benefit of this is that it gives one the ability to respond if an Active Investment suddenly loses a lot of its value – because of economic conditions, failure of one of the companies where the funds have been invested, etc.. The rules are not clear about whether that would put the Resident Visa at risk, and it may be that this will be refined as applications start to come through.
Notice that I mentioned “transfer” just now. This is because any sums that the applicant wants to rely upon for flexibility in their investment options must be in NZ when the official 4-year investment period begins. They can’t top up their pool of funds from offshore down the track.
A Note on English Language
Under the old Investor 1 and 2 rules, the main applicant had to show an English ability of IELTS 4 or equivalent. The AI+ Instructions require IELTS 5.
This insistence on a moderately high level of English has been questioned and criticised recently. On one view, it does seem to be aimed at shutting out applicants from non-English speaking or non-European countries. It also ignores the fact that the real high-net-worth people we seek to attract can afford to rely on aides to interpret for them in business discussions, or are likely to move in circles where English is no longer the lingua franca (so to speak).
There is bound to be more to talk about as we test this policy in practice, find what works and find what needs fixing. Subscribe to our blog and to the Investor Newsletter to keep up with us on this.