Cabinet paper PDF - New Zealand Immigration Service

visa for the remainder of the three year period, the LTBV Balance Visa. LTBV holderswho have managed their businesses successfully for a minimum of two years can thenapply for residence through the Entrepreneur Category.16 This policy has not been extensively reviewed or changed since 1999. Significantissues have been identified with this policy; in particular, a tendency for lower-endbusinesses to be established and a high decline rate due to poor quality applications.Entrepreneur Policy gives permanent residence17 Entrepreneur residence policy provides a pathway to residence for migrants who candemonstrate they have been actively participating in their business and contributing toNew Zealand’s economic development. The policy is divided into two categories:• the Entrepreneur category, for people who have successfully established orexpanded a business in New Zealand 1 , and who have been self-employed in thatbusiness for at least two years• the Entrepreneur Plus category, which provides a fast track to residence for thosewho have successfully established and run a business. Applicants need to possess aLTBV and may apply for residence as soon as they have invested at least $0.5m andhave created a minimum of three new fulltime jobs for New Zealand citizens orresidents. The Entrepreneur Plus category was added to the Entrepreneur policy in2011.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. Somestakeholders, such as immigration advisers, benefit primarily from the volume of migrantsapplying to come to New Zealand. For New Zealand as a whole, it is the quality ofmigration, and of migrants’ human and financial capital and the businesses theyestablish, which makes the difference to our economic development. Ambitious settings(such as introducing a points system for business migrants) might raise the quality ofbusiness migrants gaining residence in New Zealand, but this could mean fewer aspiringmigrants would qualify.b) English language ability. Requirements generally exclude non-English speakingmigrants. However, immigration advisers frequently provide feedback that Englishlanguage requirements make it particularly hard for wealthy migrants from Asia to cometo New Zealand. INZ settlement research shows that the successful settlement andproductivity of migrants, including business migrants, is highly correlated to Englishlanguage ability. Feedback from business groups, such as the Venture CapitalAssociation of New Zealand, also suggests that business migrants do need to have goodlevels of English language knowledge to realise their business potential in New Zealandand to form business networks outside of their cultural group.19 Proposed solutions need to be assessed against two major factors: minimisingcomplexity (both in policy detail and in numbers of options); and ensuringcompetitiveness (especially with Australia) in terms of both policy settings and thegeneral 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 exportbusiness, and/or employs New Zealanders (who are not family members).

CommentThe LTBV policy is not performing well20 Pathways to residence are of interest to many people seeking temporary visas andbusiness migrants are no exception. Most aspire to transition from the LTBV (atemporary visa) to residence via Entrepreneur or Entrepreneur Plus.21 A successful migrant business would have a combination of some or all of thefollowing: is innovative; brings in new technology; employs New Zealanders; supportseffective domestic competition; and has good growth prospects. Ideally, the businesswould also create exportable products and services that do not already exist in ourmarket.22 The Business Migration Branch is currently receiving unprecedented numbers ofapplications for LTBVs. However, in 2010, 40 percent of LTBV businesses wereestablished in the retail and the hospitality sector. Businesses in hospitality and retailhave relatively low productivity, and have limited potential to export (while noting that,for example, accommodation services to international tourists constitute exports). INZdata shows that, in 2010, LTBV holders were, on average, deriving only 34 percent oftheir 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 hasdeclined from a high of 89 percent in 2009/10 to only 71 percent in 2012/13. This is onthe back of a year-on-year increased volume of LTBV applications. Feedback fromadvisers indicates the current process also does not enable applicants to accuratelyassess their likelihood of meeting policy criteria prior to making an application.24 Two trends also highlight growing problems with the quality of LTBV applications. Inthe first, LTBV applicants will purchase a business plan package from an adviser. Thebusiness plans tend to be small scale, low value businesses (such as a takeaway orfranchise operation) and are almost entirely generic. Often little is changed in thebusiness plan except for the name and address of the business and there is noevidence of either research or a unique selling point. In the second case, the initialbusiness plan does show evidence of a potentially valuable business, but shortly afterthe LTBV is approved the applicant makes a Change of Plan application to downgradethe business plan. In both cases migrants are establishing businesses not for theircommercial potential but to conform to minimum immigration requirements. Thesebusinesses are also often onsold to new LTBV applicants once the initial owner hasgained permanent residence.25 This means many business migrants are owning and managing businesses that havelimited growth prospects. Some migrants may be establishing businesses solely forimmigration purposes (making their own jobs), rather than for their long-term businessprospects. The comparatively low numbers of LTBV holders progressing through to theEntrepreneur categories (in particular, to the Entrepreneur Plus category) also point tothe low quality of businesses being established by some business migrants who aremeeting initial policy and being approved LTBVs. Overall, this means that policysettings are not selecting business migrants that will create businesses that go beyondemployment for the migrant and their families.26 Finally, the policy is nationally focused. Given that migrants tend to locate to largecities such as Auckland, there is potential to introduce a mechanism to encouragemigrants with high quality business plans to establish enterprises and reside outside ofAuckland, if it makes business sense to do so.

Changes are proposed to business migration policy27 I wish to ensure that the suite of business policies is packaged and designed to reflectthat there is a pathway in place to those coming to New Zealand to set up a productivebusiness. I propose some minor changes to simplify policy to reinforce the existence ofthis residence pathway.28 In response to the issues above, I propose changes to significantly raise the ambitionsof business migration policy and, in particular, to proactively select migrants based ontheir age and business experience, and features of their proposed business, includinglevel of capital investment, exporting and employment potential, location outside ofAuckland, and the level of innovation 2 . A points system for the policy is proposed as amechanism to assess applicants and ensure that policy criteria are clear andtransparent. It would have a pass mark and would be non-contestable. This meansthat applicants meeting the pass mark and other immigration requirements (such ashealth and character) would qualify. The proposed points system is attached asAppendix Two.29 Officials have assessed that approximately 10-20 percent of current LTBV applicantson hand would not qualify under the proposed new points criteria, as their businesscases are not sufficiently ambitious. Given the current 71 percent approval rate, thismeans that only 55-65 percent of current applicants would be approved under theproposed policy. The expectation for the future is that the new points system wouldencourage applicants not to ‘drop out’, but to improve the quality and sophistication oftheir proposals.30 INZ would also develop an online eligibility calculator on its website to enableprospective applicants to assess their likelihood of success prior to committing to anapplication. This would be rolled out to support the new policy package.31 To underpin these changes, I am also recommending the imposition of a $100,000minimum capital requirement on all applicants, to support the objective of raising theambitions of the policy. The Business Migration Branch of INZ reports thatapproximately 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 ofthese businesses are in the high value sectors of science and ICT.32 However, to ensure that the imposition of this minimum capital requirement does notshut out any high-value, innovative business propositions that require high intellectualbut low financial capital, I propose that INZ be given the discretion to waive thisrequirement for applicants proposing a business plan where it displays a high level ofinnovation 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 proposalonce 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 Visa2 Based on the Statistics New Zealand definition of innovation, which is introducing new or significantlyimproved goods, services, processes or marketing methods.

34 I also propose to disestablish the existing Entrepreneur Plus category and create a fasttrackprovision within the Entrepreneur category that will be based on the sameconditions as the current Entrepreneur Plus category. This will simplify policy. It willmean that applicants can gain residence on the basis of either:• gaining residence after two years, having run a business successfully in New Zealandfor at least two years, or• gaining residence after having successfully run their business for six months, investedat least $0.5m in their business and created at least three fulltime jobs for NewZealanders. (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 fortwo years.)35 All other existing policies for the LTBV (including English language requirements), andthe 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 policyProposed changes Specific details Benefits/risksActively choose migrantswho can create highgrowth and innovativebusinesses through anew selection mechanismA new selection mechanism which identifies andprioritises business migrants who intend toestablish innovative businesses (or enhance anexisting business). Enhancing an existing businessmeans increasing the numbers of non-familymembers employed, introducing new technology,generating exports, or considerably increasing itsvalue to New Zealand.This mechanism would be a points-system basedon:• age• level of capital• level of turnover• business experience• intentions to export• job creation• level of innovation.This mechanism would be non-contestable anduncapped and an unlimited number of successfulapplicants would be able to obtain this visa if theymeet the required number of points.Migrants would also be able to obtain points forhaving a plan to establish a business in an areaoutside of Auckland. Those migrants would also berequired to live outside of Auckland.An overall pass mark of 120 points would beestablished that all applicants would need to meet.The Minister of Immigration (in consultation with theMinisters of Economic Development, and SmallBusiness) would have the discretion to change thecriteria for bonus points.Migrants would need to invest a minimum of$100,000 in their business, which would excludeworking capital. INZ has the discretion to waive thisminimum requirement where the business proposalThis would lead to activeselection and the potentialfor migrants to establishlong-term, sustainable andhigh value businesses.This would also establishclear and transparentcriteria that INZ could useto assess applications, andapplicants knew they mustmeet.A points system requiressome trade-off betweenquality and quantity.Based on trials of an earlypoints system proposalofficials have developed,approximately 10-20percent of applicationscurrently on hand wouldnot be approved.A points system is animportant aspect ofincreasing the promotionof the residence pathwaysavailable to businessmigrants as it elevates thequality of those wishing toprogress through thispathway.

Proposed changes Specific details Benefits/risksIncrease the initial ninemonth visa period for thecurrent LTBV to 12months.Rename the Long TermBusiness Visa to theEntrepreneur Work Visa,rename the EntrepreneurVisa to the EntrepreneurResidence VisaDisestablish theEntrepreneur Plus Visa.Amend policy to statethat the the EntrepreneurResidence Visa enablesmigrants to be grantedresidence through eithersuccessfully running abusiness for at least twoyears, or having investedat least $0.5m and havingcreated at least three jobsfor New Zealanders.The Minister ofImmigration, inconsultation with theinterested Ministers (theMinisters of EconomicDevelopment and SmallBusiness) can amendbonus points in theEntrepreneur suite.Further incidental proposalcan demonstrate a high level of innovation,or isexport-oriented and has high, short-term growthprospects.An Expression of Interest process would not beused but potential applicants would be stronglyencouraged to use a web-based tool, to bedeveloped for the INZ website, to test their eligibilityand likelihood of achieving the pass mark.Business plans would only be able to be changedonce after visa lodgement and plans cannot bedowngraded.This change rounds the initial period up to oneyear.Name changes would require a minor change toimmigration regulations.Small changes (e.g. prioritising or deprioritisingspecific regions) could be made to adjust thebalance of points without seeking agreement fromCabinet.No risks identified. Itsimplifies the policy andenables more time forapplicants to demonstratethat their business plan ison track.These name changeswould provide anopportunity to refresh andrelaunch these visas.Policy amendments wouldsimplify policy.They would underline theclear residence pathwayfor business migrants.An appropriatecommunications strategywould be prepared.Minor changes would notrequire Cabinet decisions.Joint Ministers wouldconsider any changesbefore finalisation,mitigating any risks ofunbalancing the points.37 During consultation on this review, one issue related to the definition of “acceptableinvestment” for the purposes of Investor policy was raised which I consider should beaddressed. Money proposed for investment as venture capital under current policymust all be invested in the venture capital investment; funds that are not immediatelyneeded and are awaiting call-up to the Investment Fund do not qualify as acceptableinvestments. I propose a change that will enable investors with committed contracts to

invest in venture capital to have those funds recognised for the purpose of Investorpolicy, providing that the funds are stored in a recognised account.Implementation38 New policies (and the change to the definition of “acceptable investment”) would beimplemented by the end of March 2014. As knowledge of this review is widespreadwithin the immigration adviser community, and numbers of low quality businessapplications have increased sharply in recent months, Cabinet is asked to agree to theLTBV being closed five days after the policies have announced. This has been donebefore (most recently when Parent policies were amended in 2012) and is intended toprevent 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 policywill continue to be processed under that policy.39 Proposals have been developed to require minimal systems change, given that INZ iscurrently undertaking a major ICT systems change programme and it is important toensure minimal disruption to the increasingly fragile legacy Application ManagementSystem. Proposals will require INZ to develop new definitions for immigrationinstructions (including “outside of Auckland”, and “innovation”) to ensure that newpolicies can be implemented as smoothly as possible.Communications40 The office of the Minister of Immigration will prepare a communications strategy, inconsultation with other Ministers’ offices as appropriate, to announce the new policies.Immigration advisers and applicants will be provided with information to help themunderstand the requirements of the new policies, and in particular the newEntrepreneur Work Visa, to support the submission of high quality applications whenthe new policies open in March 2014.Consultation41 The following government agencies have been consulted and their views reflected in itsdevelopment: the Treasury, the Ministry of Foreign Affairs and Trade; New ZealandTrade and Enterprise; the Inland Revenue Department; the Department of InternalAffairs; the Office of Ethnic Affairs. The Department of the Prime Minister and Cabinetwas informed.42 The following private sector organisations have been consulted during the reviewprocess: the ANZ Bank; First NZ Capital; Business New Zealand; the EconomicDevelopment Association of New Zealand; New Zealand Association for Migration andInvestment; New Zealand Association of Migration Professionals; the Greater AucklandCouncil; Chambers of Commerce.Human rights43 The proposed changes appear to be consistent with the New Zealand Bill of Rights Act1990 and the Human Rights Act 1993.Financial implications44 Implementation costs will be met within existing Ministry of Business, Innovation andEmployment baselines. Immigration decision making is fully funded through the feescharged to applicants. The Ministry is undertaking a review of immigration fees duringthe first half of 2014 and the fees for the business visa categories will be examined aspart of this review.

Legislative implications45 Regulatory changes would be needed to rename the current Long Term Business Visato the Entrepreneur Work Visa, and the Entrepreneur Visa to the EntrepreneurResidence Visa, and to disestablish the Entrepreneur Plus category.Regulatory Impact Analysis46 The Treasury has confirmed that a Regulatory Impact Analysis (RIS) is not required forthis paper.Recommendations47 It is recommended that the Cabinet Economic Growth and Infrastructure Committee:1 note that business migration policies are not however working well and policychanges are required to ensure good performance;2 agree to a package to maximise the performance of business policies comprisingthe following initiatives:2.1 renaming the existing Long Term Business Visa as the EntrepreneurWork Visa;2.2 renaming the existing Entrepreneur Visa as the Entrepreneur ResidenceVisa;2.3 disestablishing the existing Entrepreneur Plus Visa;2.4 enabling applicants to gain residence under the Entrepreneur ResidenceVisa category on the basis of either:2.4.1 having run their business successfully in New Zealand for at leasttwo years; or2.4.2 having successfully run their business for six months, invested atleast $0.5m in their business and created at least three fulltimejobs for New Zealanders (noting that applicants would, as now, besubject to conditions under section 49(1) of the Immigration Act2009, which would require them to run their business for twoyears);2.5 creating a fast track provision within the Entrepreneur Residence Visa, forapplicants who have successfully run their business for six months,invested at least $0.5m in their business, and created at least three newjobs for New Zealanders;2.6 establishing a new points-based system (including a minimum $100,000capital requirement), to actively assess intending business migrants andto choose those who can create high growth and innovative businesses,which includes points for:2.6.1 business experience;2.6.2 employment creation;2.6.3 export potential;2.6.4 innovation;2.6.5 capital investment;2.6.6 age;

2.6.7 a plan to invest outside of Auckland (migrants would also need toreside outside of Auckland);2.6.8 having undertaken market research, or having the endorsement ofa chamber of commerce, an economic development agency, orany 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 theminimum capital requirement of $100,000, in exceptional cases, forapplicants proposing to establish a science or ICT-based business, orother export-oriented sector, where it displays a high level of innovation orhas credible short-term high growth prospects;2.9 enabling bonus points to be amended, as appropriate, by the Minster ofImmigration, in consultation with the Minister of Economic Developmentand the Minister of Small Business;2.10 amending policy to state that applicants for a visa in the EntrepreneurWork Visa category may only submit a change in the business plan fortheir business once, and that these changes must be minimal otherwisethis will constitute a new application;3 agree that the definition of an “acceptable investment” for the purposes ofInvestor 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; and6 invite the Minister of Immigration to submit drafting instructions to theParliamentary Counsel Office to amend the Immigration (Visa, Entry Permissionand Related Matters) Regulations 2010 to:6.1 remove the LTBV from the fees schedule and replace it with theEntrepreneur Work Visa;6.2 remove the Entrepreneur Visa from the fees schedule and replace it withthe Entrepreneur Residence Visa; and6.3 remove the Entrepreneur Plus Visa from the fees schedule.Hon Michael WoodhouseMinister of Immigration...... / ...... / ......

Appendix OneSummary of applications and approvals under LTBV/Entrepreneur policiesLTBV (Interim)Total no. of approvals forthe full year 2011/12Total no. of approvals forthe full year 2012/13Total no. of approvalsfor FY YTD 2013512 413 79LTBV (Balanceof 3 years)330 318 117EntrepreneurTotal no. ofapprovals for the fullyear 2011/12Total no. of approvals forthe full year 2012/13Total no. of approvals forJuly 2013123 142 21Entrepreneur Plus 11 7 2

Appendix TwoBusiness Migration - Proposed Points systemPoints required = 120Business Experience (max of 1)Relevant self employment: OR10 years + 405 years + 303 years + 20or self employment:OR10 years + 205 years + 153 years + 5Or senior management experience10 years + 105 years + 5Benefit (max of 2)New full time employment creation10+ new full time positions for NZ citizens or residents 805 or more new full time positions for NZ citizens or residents 503 or more new full time positions for NZ citizens or residents 302 new full time positions for NZ citizens or residents 201 new full time position for a NZ citizen or resident. 10Approved 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 10Unique products or services to New ZealandA 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. 30Capital Investment-Minimum of $100,000 investment is required$1,000,000 + 80$750,000 + 60$500,000 + 50$400,000 + 30$300,000 + 20$200,000 + 10under $200,000 0Age24 and under 1525-29 2030-39 2040-49 2050-59 1060 and over 0[continued on second page]

Bonus points (Choose 1)Regional bonus pointsBusiness and owner based outside Auckland 20Market researchHas obtained local council or Economic Development Agency formal endorsement or chamber of commercesupport (new businesses only)Has obtained endorsement or support from New Zealand Trade and Enterprise, or the Ministry of Business,Innovation and Employment20