Reforms to strengthen and streamline the Foreign Investment Framework

The Foreign Investment Review Board (FIRB) has released an update to the Foreign Investment Policy, outlining several planned reforms to Australia’s foreign investment review regime aimed at addressing the intensifying geopolitical competition and growing risk to Australia’s national interest from foreign investments.

Key takeaways

• Foreign investors seeking to invest in non-sensitive sectors can expect a more streamlined application process with shorter processing times and rebates on failed investment applications due to competitive bidding.
• Investors looking at more sensitive sectors can expect a thorough review of their applications, with tighter enforcement for non-compliance with investment conditions.
• Foreign investors will need to consider the impact these changes have on current and future investments.

Summary of the reforms

Changes to the assessment of investment proposals

Treasury aims to streamline the consultation and assessment processes for FIRB applications to allow low-risk capital to flow quickly into the Australian economy. The review process is to follow a risk-based approach informed by consideration of who the investor is, what the target of their investment is, and the structure of the transaction.

The Federal Treasurer has proposed adopting a new target of processing ’50 percent of investment proposals within the 30-day statutory period’. As a result, passive institutional investors with a strong track record of compliance investing in non-sensitive sectors are to receive decisions faster.

FIRB is also set to start refunding fees for foreign investment applications where the transaction did not proceed because the applicant was unsuccessful in the bidding processes. This seeks to incentivise early applications and encourage participation by investors in competitive bid processes.

Stronger security of foreign investment in sensitive sectors

In response to technological changes increasing the risk around investors’ access to sensitive organisations and assets, the government has pledged to dedicate greater resources and apply more scrutiny in terms of evaluating and balancing the economic benefits and security risks present in investment proposals targeting sensitive sectors such as critical infrastructure, critical minerals, critical technology, sensitive data sets, and investments in close proximity to defence sites.

Stricter conditions will also apply to the way investments are implemented to ensure they will not be contrary to Australia’s national interest or national security. This change reflects changes made by Australia’s international counterparts, who have also applied tighter security to their sensitive sectors of investment.

Strengthening and monitoring enforcement activity through increasing scrutiny of tax arrangements

There are also set to be changes to the Australian Government’s approach to enforcement, with a strengthening of monitoring and enforcement activity through the provision of greater resources to assure compliance with conditions imposed on high-risk foreign investment. This will include an increase in the scrutiny of tax arrangements that are considered to pose a risk to revenue in order to ensure multinational companies are adhering to Australia’s taxation laws.

Steps to encourage investment and reduce the regulatory burden

The proposed reforms are also seeking to attract foreign investment through:

• allowing foreign investors to buy established Build to Rent developments and applying lower application fees to this type of investment, which is hoped to encourage investment in Build to Rent developments and ultimately contribute to Australia’s housing stock.
• an exemption for passive or low-risk interfunding transactions from mandatory notification requirements and fees under the foreign investment framework. This will simplify routine transactions for large institutional investors and reduce the regulatory burden they face.
• clarifying that in rural and regional areas, where labour supply is tight, Pacific Australia Labour Mobility (PALM) employers are able to buy established residential properties for their PALM workers. This will support Australia’s agricultural workforce.

Hall & Wilcox’s FIRB app has been designed to help foreign investors, investees and advisors determine whether FIRB approval is required before a proposed transaction or acquisition is implemented.

The app is updated whenever the FIRB rules and requirements change.

This article was written with the assistance of Alicia Goldsworthy, Law Graduate.