2 I plan to bring proposed changes to Investor policies to Cabinet in a separate paper at a later date.

Transcription

1 Office of the Minister of Immigration Cabinet Economic Growth and Infrastructure Committee BUSINESS MIGRATION REVIEW Proposal 1 I seek Cabinet s agreement to introduce a new package of policy changes to maximise the performance of our business migration policies, for introduction in early I plan to bring proposed changes to Investor policies to Cabinet in a separate paper at a later date. Executive summary 3 Business migration policies (providing temporary or permanent residence) bring us people with new ideas, entrepreneurial flair, business experience and overseas networks. These policies currently attract over 500 migrants annually, who seek to gain residence in New Zealand through establishing or expanding a business. These policies have the potential to better contribute to New Zealand s economic development and support the Business Growth Agenda. 4 Business migration policies, for people seeking to establish a business, have not been extensively reviewed since Current data indicate they are not working particularly well. Almost 40 percent of the businesses created under these policies are in either the retail or hospitality sectors. These are low productivity sectors with limited export growth potential. Data further indicate that, on average, business migrants derive only 34 percent of their incomes from their business, suggesting these businesses are providing a limited financial return. 5 This paper proposes new policies to actively choose, through a points system, business migrants who can create high growth and innovative businesses with export potential. It prioritises the establishment or expansion of businesses in regional areas, and facilitates new business in the science and Information and Communications Technology (ICT) sectors. To simplify policy, it disestablishes the current Entrepreneur Plus category and replaces it with a fast track to permanent residence for applicants who have successfully established a business and run it for six months, invested at least $0.5 million in it, and created fulltime employment for at least three New Zealanders. 6 Cabinet is also asked to agree that the Minister of Immigration can, as appropriate and in consultation with interested Ministers (Economic Development and Small Business), amend bonus points for business applications. This would enable, for example, specific regions to be targeted. 7 As knowledge of this review is widespread within the immigration adviser community, Cabinet is asked to agree to closing the current Long Term Business Visa category five days after the new policies have been announced, to prevent further surges in low quality applications being made in the run up to the new policies implementation. (Application numbers are already running high, due to knowledge of the review which has led to this paper.) Immigration advisers and applicants will be provided with information to help them understand the requirements of the new Entrepreneur Work

2 Visa, to support the submission of high quality applications when the new policies open in March Finally, arising from feedback during this review, the paper also recommends a small tweak to the definition of acceptable investment in the Investor Category instructions, to enable foreign nationals to more easily invest in Venture Capital vehicles. Background Why do we have business policies? 9 New Zealand is a small and isolated economy and has few markets in close proximity. International connections allow New Zealand to access resources that can increase productivity, develop areas of comparative advantage, and stimulate innovation and greater competition to improve our competitive advantage. 10 New Zealand s business policies are designed to contribute to economic growth by enabling experienced business people to buy or establish businesses in New Zealand and thereby gain residence. Many countries have similar business policies, and all aim to attract people who can and will contribute their entrepreneurial experience and talents, invest in and grow local firms, and support exports through their existing international networks. 11 If policy settings are right, they will establish a high, but reasonable, bar for migrants to meet, while incentivising the establishment of productive businesses. However, if the settings are wrong, policies may not perform well. On the one hand, raising the bar too high may mean lower than optimal interest from prospective migrants. On the other hand, having the bar too low means risks of granting residence to people who pay little or no tax, whose investments do not add useful capital, who establish barely viable businesses, who do not increase New Zealand s linkages, or whose families use government-funded services (education and health) that outweigh the direct and indirect value to New Zealand of the investment or business. 12 New Zealand is seeking talented, entrepreneurial migrants who can invest capital and create dynamic, high growth and (preferably) export-focused businesses that are profitable and, in time, provide good quality job opportunities for New Zealanders. This review aims to maximise the performance of business migration policies and, in particular, to supply an increase in export-oriented innovative businesses. What are the current policies in the business suite? 13 The current suite of business migration policies consists of the following: the Long Term Business Visa (LTBV) the Entrepreneur and Entrepreneur Plus categories. 14 Appendix One sets out recent numbers of applicants and approvals. The Long Term Business Visa (LTBV) is a temporary residence policy 15 The LTBV is a three year temporary visa that provides people with the opportunity to set up a business in New Zealand. This policy is about New Zealand acquiring human capital and entrepreneurial ability, and applicants must also meet health, character and English language requirements. Businesses are expected to benefit New Zealand. Successful applicants are granted an initial nine-month visa, the LTBV Interim Visa, which enables them to come to, and remain in, New Zealand to establish and run their business. On providing proof that they are operating their business, they are granted a

3 visa for the remainder of the three year period, the LTBV Balance Visa. LTBV holders who have managed their businesses successfully for a minimum of two years can then apply for residence through the Entrepreneur Category. 16 This policy has not been extensively reviewed or changed since Significant issues have been identified with this policy; in particular, a tendency for lower-end businesses to be established and a high decline rate due to poor quality applications. Entrepreneur Policy gives permanent residence 17 Entrepreneur residence policy provides a pathway to residence for migrants who can demonstrate they have been actively participating in their business and contributing to New Zealand s economic development. The policy is divided into two categories: the Entrepreneur category, for people who have successfully established or expanded a business in New Zealand 1, and who have been self-employed in that business for at least two years the Entrepreneur Plus category, which provides a fast track to residence for those who have successfully established and run a business. Applicants need to possess a LTBV and may apply for residence as soon as they have invested at least $0.5m and have created a minimum of three new fulltime jobs for New Zealand citizens or residents. The Entrepreneur Plus category was added to the Entrepreneur policy in What are the key policy trade-offs? 18 Areas of specific policy interest include: a) Balancing quality with quantity. This issue represents the overarching trade off. Some stakeholders, such as immigration advisers, benefit primarily from the volume of migrants applying to come to New Zealand. For New Zealand as a whole, it is the quality of migration, and of migrants human and financial capital and the businesses they establish, which makes the difference to our economic development. Ambitious settings (such as introducing a points system for business migrants) might raise the quality of business migrants gaining residence in New Zealand, but this could mean fewer aspiring migrants would qualify. b) English language ability. Requirements generally exclude non-english speaking migrants. However, immigration advisers frequently provide feedback that English language requirements make it particularly hard for wealthy migrants from Asia to come to New Zealand. INZ settlement research shows that the successful settlement and productivity of migrants, including business migrants, is highly correlated to English language ability. Feedback from business groups, such as the Venture Capital Association of New Zealand, also suggests that business migrants do need to have good levels of English language knowledge to realise their business potential in New Zealand and to form business networks outside of their cultural group. 19 Proposed solutions need to be assessed against two major factors: minimising complexity (both in policy detail and in numbers of options); and ensuring competitiveness (especially with Australia) in terms of both policy settings and the general value proposition of New Zealand to the target market. 1 Applicants need to demonstrate that their business supports New Zealand and its economic growth. This can include showing the business has introduced new products and services, generates export business, and/or employs New Zealanders (who are not family members).

4 Comment The LTBV policy is not performing well 20 Pathways to residence are of interest to many people seeking temporary visas and business migrants are no exception. Most aspire to transition from the LTBV (a temporary visa) to residence via Entrepreneur or Entrepreneur Plus. 21 A successful migrant business would have a combination of some or all of the following: is innovative; brings in new technology; employs New Zealanders; supports effective domestic competition; and has good growth prospects. Ideally, the business would also create exportable products and services that do not already exist in our market. 22 The Business Migration Branch is currently receiving unprecedented numbers of applications for LTBVs. However, in 2010, 40 percent of LTBV businesses were established in the retail and the hospitality sector. Businesses in hospitality and retail have relatively low productivity, and have limited potential to export (while noting that, for example, accommodation services to international tourists constitute exports). INZ data shows that, in 2010, LTBV holders were, on average, deriving only 34 percent of their income from their business. Employment created is also likely to be low. 23 Over the last three financial years, INZ data shows that the overall approval rate has declined from a high of 89 percent in 2009/10 to only 71 percent in 2012/13. This is on the back of a year-on-year increased volume of LTBV applications. Feedback from advisers indicates the current process also does not enable applicants to accurately assess their likelihood of meeting policy criteria prior to making an application. 24 Two trends also highlight growing problems with the quality of LTBV applications. In the first, LTBV applicants will purchase a business plan package from an adviser. The business plans tend to be small scale, low value businesses (such as a takeaway or franchise operation) and are almost entirely generic. Often little is changed in the business plan except for the name and address of the business and there is no evidence of either research or a unique selling point. In the second case, the initial business plan does show evidence of a potentially valuable business, but shortly after the LTBV is approved the applicant makes a Change of Plan application to downgrade the business plan. In both cases migrants are establishing businesses not for their commercial potential but to conform to minimum immigration requirements. These businesses are also often onsold to new LTBV applicants once the initial owner has gained permanent residence. 25 This means many business migrants are owning and managing businesses that have limited growth prospects. Some migrants may be establishing businesses solely for immigration purposes (making their own jobs), rather than for their long-term business prospects. The comparatively low numbers of LTBV holders progressing through to the Entrepreneur categories (in particular, to the Entrepreneur Plus category) also point to the low quality of businesses being established by some business migrants who are meeting initial policy and being approved LTBVs. Overall, this means that policy settings are not selecting business migrants that will create businesses that go beyond employment for the migrant and their families. 26 Finally, the policy is nationally focused. Given that migrants tend to locate to large cities such as Auckland, there is potential to introduce a mechanism to encourage migrants with high quality business plans to establish enterprises and reside outside of Auckland, if it makes business sense to do so.

5 Changes are proposed to business migration policy 27 I wish to ensure that the suite of business policies is packaged and designed to reflect that there is a pathway in place to those coming to New Zealand to set up a productive business. I propose some minor changes to simplify policy to reinforce the existence of this residence pathway. 28 In response to the issues above, I propose changes to significantly raise the ambitions of business migration policy and, in particular, to proactively select migrants based on their age and business experience, and features of their proposed business, including level of capital investment, exporting and employment potential, location outside of Auckland, and the level of innovation 2. A points system for the policy is proposed as a mechanism to assess applicants and ensure that policy criteria are clear and transparent. It would have a pass mark and would be non-contestable. This means that applicants meeting the pass mark and other immigration requirements (such as health and character) would qualify. The proposed points system is attached as Appendix Two. 29 Officials have assessed that approximately percent of current LTBV applicants on hand would not qualify under the proposed new points criteria, as their business cases are not sufficiently ambitious. Given the current 71 percent approval rate, this means that only percent of current applicants would be approved under the proposed policy. The expectation for the future is that the new points system would encourage applicants not to drop out, but to improve the quality and sophistication of their proposals. 30 INZ would also develop an online eligibility calculator on its website to enable prospective applicants to assess their likelihood of success prior to committing to an application. This would be rolled out to support the new policy package. 31 To underpin these changes, I am also recommending the imposition of a $100,000 minimum capital requirement on all applicants, to support the objective of raising the ambitions of the policy. The Business Migration Branch of INZ reports that approximately 24 percent of current applicants are proposing to invest less than $100,000 in their business. I have been advised by officials that a negligible number of these businesses are in the high value sectors of science and ICT. 32 However, to ensure that the imposition of this minimum capital requirement does not shut out any high-value, innovative business propositions that require high intellectual but low financial capital, I propose that INZ be given the discretion to waive this requirement for applicants proposing a business plan where it displays a high level of innovation or has credible short-term high growth prospects. 33 In addition, I am proposing to: amend policy so that migrants would only be able to resubmit a business proposal once after any lodgement round up the current duration of the initial LTBV from nine months to 12 months rename the Long Term Business Visa to the Entrepreneur Work Visa rename the Entrepreneur Visa to the Entrepreneur Residence Visa 2 Based on the Statistics New Zealand definition of innovation, which is introducing new or significantly improved goods, services, processes or marketing methods.

6 34 I also propose to disestablish the existing Entrepreneur Plus category and create a fasttrack provision within the Entrepreneur category that will be based on the same conditions as the current Entrepreneur Plus category. This will simplify policy. It will mean that applicants can gain residence on the basis of either: gaining residence after two years, having run a business successfully in New Zealand for at least two years, or gaining residence after having successfully run their business for six months, invested at least $0.5m in their business and created at least three fulltime jobs for New Zealanders. (Applicants would, as now, be subject to conditions under section 49(1) of the Immigration Act 2009, which would require them to have run their business for two years.) 35 All other existing policies for the LTBV (including English language requirements), and the Entrepreneur suite of policies will continue to apply. 36 Further details of these proposals are provided in Table One below. Table One: Summary of policy proposals for business migration policy Proposed changes Specific details Benefits/risks Actively choose migrants who can create high growth and innovative businesses through a new selection mechanism A new selection mechanism which identifies and prioritises business migrants who intend to establish innovative businesses (or enhance an existing business). Enhancing an existing business means increasing the numbers of non-family members employed, introducing new technology, generating exports, or considerably increasing its value to New Zealand. This mechanism would be a points-system based on: age level of capital level of turnover business experience intentions to export job creation level of innovation. This mechanism would be non-contestable and uncapped and an unlimited number of successful applicants would be able to obtain this visa if they meet the required number of points. Migrants would also be able to obtain points for having a plan to establish a business in an area outside of Auckland. Those migrants would also be required to live outside of Auckland. An overall pass mark of 120 points would be established that all applicants would need to meet. The Minister of Immigration (in consultation with the Ministers of Economic Development, and Small Business) would have the discretion to change the criteria for bonus points. Migrants would need to invest a minimum of $100,000 in their business, which would exclude working capital. INZ has the discretion to waive this minimum requirement where the business proposal This would lead to active selection and the potential for migrants to establish long-term, sustainable and high value businesses. This would also establish clear and transparent criteria that INZ could use to assess applications, and applicants knew they must meet. A points system requires some trade-off between quality and quantity. Based on trials of an early points system proposal officials have developed, approximately percent of applications currently on hand would not be approved. A points system is an important aspect of increasing the promotion of the residence pathways available to business migrants as it elevates the quality of those wishing to progress through this pathway.

7 Proposed changes Specific details Benefits/risks Increase the initial nine month visa period for the current LTBV to 12 months. Rename the Long Term Business Visa to the Entrepreneur Work Visa, rename the Entrepreneur Visa to the Entrepreneur Residence Visa Disestablish the Entrepreneur Plus Visa. Amend policy to state that the the Entrepreneur Residence Visa enables migrants to be granted residence through either successfully running a business for at least two years, or having invested at least $0.5m and having created at least three jobs for New Zealanders. The Minister of Immigration, in consultation with the interested Ministers (the Ministers of Economic Development and Small Business) can amend bonus points in the Entrepreneur suite. Further incidental proposal can demonstrate a high level of innovation,or is export-oriented and has high, short-term growth prospects. An Expression of Interest process would not be used but potential applicants would be strongly encouraged to use a web-based tool, to be developed for the INZ website, to test their eligibility and likelihood of achieving the pass mark. Business plans would only be able to be changed once after visa lodgement and plans cannot be downgraded. This change rounds the initial period up to one year. Name changes would require a minor change to immigration regulations. Small changes (e.g. prioritising or deprioritising specific regions) could be made to adjust the balance of points without seeking agreement from Cabinet. No risks identified. It simplifies the policy and enables more time for applicants to demonstrate that their business plan is on track. These name changes would provide an opportunity to refresh and relaunch these visas. Policy amendments would simplify policy. They would underline the clear residence pathway for business migrants. An appropriate communications strategy would be prepared. Minor changes would not require Cabinet decisions. Joint Ministers would consider any changes before finalisation, mitigating any risks of unbalancing the points. 37 During consultation on this review, one issue related to the definition of acceptable investment for the purposes of Investor policy was raised which I consider should be addressed. Money proposed for investment as venture capital under current policy must all be invested in the venture capital investment; funds that are not immediately needed and are awaiting call-up to the Investment Fund do not qualify as acceptable investments. I propose a change that will enable investors with committed contracts to

8 invest in venture capital to have those funds recognised for the purpose of Investor policy, providing that the funds are stored in a recognised account. Implementation 38 New policies (and the change to the definition of acceptable investment ) would be implemented by the end of March As knowledge of this review is widespread within the immigration adviser community, and numbers of low quality business applications have increased sharply in recent months, Cabinet is asked to agree to the LTBV being closed five days after the policies have announced. This has been done before (most recently when Parent policies were amended in 2012) and is intended to prevent a surge in low quality applications being made in the run up to the new policies implementation. Applicants who have already lodged an application under old policy will continue to be processed under that policy. 39 Proposals have been developed to require minimal systems change, given that INZ is currently undertaking a major ICT systems change programme and it is important to ensure minimal disruption to the increasingly fragile legacy Application Management System. Proposals will require INZ to develop new definitions for immigration instructions (including outside of Auckland, and innovation ) to ensure that new policies can be implemented as smoothly as possible. Communications 40 The office of the Minister of Immigration will prepare a communications strategy, in consultation with other Ministers offices as appropriate, to announce the new policies. Immigration advisers and applicants will be provided with information to help them understand the requirements of the new policies, and in particular the new Entrepreneur Work Visa, to support the submission of high quality applications when the new policies open in March Consultation 41 The following government agencies have been consulted and their views reflected in its development: the Treasury, the Ministry of Foreign Affairs and Trade; New Zealand Trade and Enterprise; the Inland Revenue Department; the Department of Internal Affairs; the Office of Ethnic Affairs. The Department of the Prime Minister and Cabinet was informed. 42 The following private sector organisations have been consulted during the review process: the ANZ Bank; First NZ Capital; Business New Zealand; the Economic Development Association of New Zealand; New Zealand Association for Migration and Investment; New Zealand Association of Migration Professionals; the Greater Auckland Council; Chambers of Commerce. Human rights 43 The proposed changes appear to be consistent with the New Zealand Bill of Rights Act 1990 and the Human Rights Act Financial implications 44 Implementation costs will be met within existing Ministry of Business, Innovation and Employment baselines. Immigration decision making is fully funded through the fees charged to applicants. The Ministry is undertaking a review of immigration fees during the first half of 2014 and the fees for the business visa categories will be examined as part of this review.

9 Legislative implications 45 Regulatory changes would be needed to rename the current Long Term Business Visa to the Entrepreneur Work Visa, and the Entrepreneur Visa to the Entrepreneur Residence Visa, and to disestablish the Entrepreneur Plus category. Regulatory Impact Analysis 46 The Treasury has confirmed that a Regulatory Impact Analysis (RIS) is not required for this paper. Recommendations 47 It is recommended that the Cabinet Economic Growth and Infrastructure Committee: 1 note that business migration policies are not however working well and policy changes are required to ensure good performance; 2 agree to a package to maximise the performance of business policies comprising the following initiatives: 2.1 renaming the existing Long Term Business Visa as the Entrepreneur Work Visa; 2.2 renaming the existing Entrepreneur Visa as the Entrepreneur Residence Visa; 2.3 disestablishing the existing Entrepreneur Plus Visa; 2.4 enabling applicants to gain residence under the Entrepreneur Residence Visa category on the basis of either: having run their business successfully in New Zealand for at least two years; or having successfully run their business for six months, invested at least $0.5m in their business and created at least three fulltime jobs for New Zealanders (noting that applicants would, as now, be subject to conditions under section 49(1) of the Immigration Act 2009, which would require them to run their business for two years); 2.5 creating a fast track provision within the Entrepreneur Residence Visa, for applicants who have successfully run their business for six months, invested at least $0.5m in their business, and created at least three new jobs for New Zealanders; 2.6 establishing a new points-based system (including a minimum $100,000 capital requirement), to actively assess intending business migrants and to choose those who can create high growth and innovative businesses, which includes points for: business experience; employment creation; export potential; innovation; capital investment; age;

10 2.6.7 a plan to invest outside of Auckland (migrants would also need to reside outside of Auckland); having undertaken market research, or having the endorsement of a chamber of commerce, an economic development agency, or any other relevant government agency; 2.7 establishing the initial pass mark of 120 points; 2.8 enabling Immigration Instructions to allow for discretion to waive the minimum capital requirement of $100,000, in exceptional cases, for applicants proposing to establish a science or ICT-based business, or other export-oriented sector, where it displays a high level of innovation or has credible short-term high growth prospects; 2.9 enabling bonus points to be amended, as appropriate, by the Minster of Immigration, in consultation with the Minister of Economic Development and the Minister of Small Business; 2.10 amending policy to state that applicants for a visa in the Entrepreneur Work Visa category may only submit a change in the business plan for their business once, and that these changes must be minimal otherwise this will constitute a new application; 3 agree that the definition of an acceptable investment for the purposes of Investor policy be expanded to include investments in venture capital vehicles; 4 note that the new policies will be introduced by the end of March 2014; 5 invite the Minister of Immigration to close the Long Term Business Visa (LTBV) category five days after the new policies are announced; and 6 invite the Minister of Immigration to submit drafting instructions to the Parliamentary Counsel Office to amend the Immigration (Visa, Entry Permission and Related Matters) Regulations 2010 to: 6.1 remove the LTBV from the fees schedule and replace it with the Entrepreneur Work Visa; 6.2 remove the Entrepreneur Visa from the fees schedule and replace it with the Entrepreneur Residence Visa; and 6.3 remove the Entrepreneur Plus Visa from the fees schedule. Hon Michael Woodhouse Minister of Immigration... /... /...

11 Appendix One Summary of applications and approvals under LTBV/Entrepreneur policies LTBV (Interim) Total no. of approvals for the full year 2011/12 Total no. of approvals for the full year 2012/13 Total no. of approvals for FY YTD LTBV (Balance of 3 years) Entrepreneur Total no. of approvals for the full year 2011/12 Total no. of approvals for the full year 2012/13 Total no. of approvals for July Entrepreneur Plus

12 Appendix Two Business Migration - Proposed Points system Points required = 120 Business Experience (max of 1) Relevant self employment: OR 10 years years years + 20 or self employment:or 10 years years years + 5 Or senior management experience 10 years years + 5 Benefit (max of 2) New full time employment creation 10+ new full time positions for NZ citizens or residents 80 5 or more new full time positions for NZ citizens or residents 50 3 or more new full time positions for NZ citizens or residents 30 2 new full time positions for NZ citizens or residents 20 1 new full time position for a NZ citizen or resident. 10 Approved export businesses (based on a credible business plan) $1,000,000 + turn over a year 80 $750,000 + turn over a year 60 $500,000 + turn over a year 40 $400,000 + turn over a year 30 $300,000 + turn over a year 20 $200,000 + turn over a year 10 Unique products or services to New Zealand A credible business proposal that provides new products/ services to New Zealand, or to a particular region, that are currently not being provided by existing businesses in New Zealand. 30 Capital Investment-Minimum of $100,000 investment is required $1,000, $750, $500, $400, $300, $200, under $200,000 0 Age 24 and under and over 0 [continued on second page]

13 Bonus points (Choose 1) Regional bonus points Business and owner based outside Auckland 20 Market research Has obtained local council or Economic Development Agency formal endorsement or chamber of commerce support (new businesses only) Has obtained endorsement or support from New Zealand Trade and Enterprise, or the Ministry of Business, Innovation and Employment 20