This publication outlines some of the more important regulatory requirements for a foreign person investing in Australia.
Investments in Australia by foreign persons must be notified to the Foreign Investments Review Board (FIRB) where the proposal meets the relevant thresholds.
Who is a ‘foreign person’
The term ‘foreign person’ is broadly defined to include foreign governments and their related entities (which include state owned enterprises), foreign controlled corporations and trusts, and individuals not ordinarily resident in Australia.
FIRB notification thresholds
All foreign persons must notify the Australian government (via FIRB) prior to proceeding with any of the following proposals:
Non US and New Zealand investors
- An acquisition by a single foreign person (and its associates) of 15% or more of the ownership of any corporation, business or trust, where the total assets of the target are valued at or above $248 million in 2014.
- An acquisition by two or more foreign persons (and their associates) of 40% or more, in the aggregate, of the ownership of any corporation, business or trust, where the total assets of the target are valued at or above $248 million in 2014.
US and New Zealand investors
- An acquisition by a single foreign person (and its associates) of 15% or more of the ownership of any corporation, business or trust, where the total assets of the target are valued at or above $1,078 million in 2014.
- An acquisition by two or more foreign persons (and their associates) of 40% or more, in the aggregate, of the ownership of any corporation, business or trust, where the total assets of the target are valued at or above $1,078 million in 2014.
- An acquisition of any corporation, business or trust which operates in a prescribed ‘sensitive sector’ (such as media, defence, telecommunications or transport), where the total assets of the target are valued at or above $248 million in 2014.
- An acquisition of certain types of Australian real estate (including shares or units in an Australian urban land corporation or trust, unless a regulatory exemption applies).
- Any direct investment (that is, where the investor will have more than 10% ownership in, or special influence or control over, the target) by foreign governments and their related entities.
All monetary thresholds are indexed annually on 1 January.
Before a foreign person makes an acquisition that is subject to Australia’s foreign investments regime, they must notify FIRB. Failure to do so may result in substantial fines or imprisonment for the acquirer (and in the case of a corporate acquirer – its directors) and, where the un-approved acquisition is deemed to be contrary to the Australian national interest, a divestiture order being issued to the acquirer.
Unless the proposed acquisition is contrary to Australia’s national interest or is in a prescribed sensitive sector, FIRB is likely to approve the acquisition.
Upon receipt of a notification, FIRB will have 30 days in which to decide whether or not to prohibit the acquisition, the only grounds for prohibition being that the acquisition is considered to be contrary to Australia’s national interest. The 30 day period can be extended by up to 90 days if additional time for review is required.
In reviewing an application, FIRB may consult other Australian government agencies and departments, including the Australian Securities & Investments Commission, Australian Competition and Consumer Commission and Australian Taxation Office.
FIRB may give it’s consent to an acquisition with or without conditions (eg construction on acquired urban land to commence within 24 months). A FIRB decision cannot be reviewed or appealed.
The “National Interest” test
In assessing what is in the national interest, FIRB seeks to weigh potential national sensitivities against the benefits of foreign investment. Because national sensitivities change and evolve over time, what is or isn’t within Australia’s national interest (or rather, how FIRB will view that interest) at any point in time is not always easy to predict.
The Policy does however set out a list of factors which FIRB will consider when assessing each foreign investment proposal.
These national interest factors include:
- National security – the extent to which investments affect Australia’s ability to protect its strategic and security interests.
- Competition – whether diversity of ownership within Australian industries and sectors and competition will be affected. Of particular concern is whether a proposed investment may result in an investor gaining control over market pricing and production of a good or service in Australia or globally.
- Other Australian Government policies – the effect a foreign investment proposal may have on Australian tax revenues or the Australian Government’s objectives in relation to matters such as the environment.
- Impact on the economy and the community – the impact of the proposed investment on the general economy, including impacts that might flow from any plans to restructure the target enterprise following the acquisition, the level of Australian participation in the enterprise after the foreign investment occurs, and the interests of employees, creditors and other stakeholders. The Policy also states that FIRB will consider the extent to which the foreign investor will ensure a fair return for the Australian people and ensuring that Australia remains a reliable supplier to all customers in the future.
- Character of the investor – the extent to which the investor operates on a transparent commercial basis, is subject to adequate and transparent regulation and supervision and has good corporate governance practices. Further, in the case of fund managers (such as sovereign wealth funds), FIRB will look at the fund’s investment policy and how it proposes to use its voting power once it has made its investment.
How the “National Interest” test is applied will depend upon the facts of each proposal and the Australian policy environment at the time.
Any proposed investment in Australia must take into account the timeframes required to comply with Australia’s foreign investment regime. Hall & Wilcox has experience in acquisition planning and structuring to ensure FIRB approval is promptly obtained.