Thinking | 11 February 2020

Guide to regulation of inbound investment in Australia

Introduction

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

Non-land proposals

All foreign persons must notify the Australian government (via FIRB) prior to proceeding with any of the following non-land proposals:

Non-free trade agreement partner investors

(a)    A foreign person makes an acquisition resulting in them holding an interest of 20% or more in an Australian corporation or trust, where the total assets of the target are valued at or above $275 million in 2020.

(b)    The acquisition by a foreign person of a direct interest (which is generally 10% but may be less if the acquirer also has the ability to exert a certain influence or control over the target) in an Australian agribusiness where the total of the consideration for the acquisition together with the total value of the other interests held by the person (and their associates) in the entity or business or previously acquired from the entity or business is more than $60 million in 2020.

Free trade agreement partner investors

(a)    A foreign person from a Free trade agreement partner country[1] makes an acquisition resulting in them holding an interest of 20% or more in an Australian corporation or trust, where the total assets of the target are valued at or above $1,192 million in 2020.

(b)    A foreign person from a Free trade agreement partner country makes an acquisition resulting in them holding an interest of 20% or more in an Australia corporation or trust which operates in a prescribed ‘sensitive sector’ (such as defence, telecommunications or transport), where the total assets of the target are valued at or above $275 million in 2020. Media sector businesses have a notification threshold of $0.

(c)    The acquisition by a foreign person from Chile, New Zealand or the United States of America of a direct interest (which is generally 10% but may be less if the acquirer also has the ability to exert a certain influence or control over the target) in an Australian agribusiness where the total of the consideration for the acquisition together with the total value of the other interests held by the person (and their associates) in the entity or business or previously acquired from the entity or business is more than $1,192 million in 2020.

All monetary thresholds are indexed annually on 1 January.

Land proposals

All foreign persons must notify the Australian government (via FIRB) prior to acquiring an interest in Australian land where the acquisition will exceed the relevant notification threshold.

For the purpose of Australia’s foreign investment regime, Australian land is divided into four separate categories, being:

(a)               Agricultural land: land that is or could reasonably be used for a primary production business;

(b)               Residential land: land on which there is least one dwelling or the number of dwellings that could reasonably be built on land is <10;

(c)               Commercial land: all other land; and

(d)               Mining or production tenements

The relevant notification thresholds are as follows:

foreign gov

Both direct and indirect (shares or units in a landholding entity) acquisitions of an interest in land need to be notified to FIRB.

Foreign government investors

In addition to the requirements for non-government foreign investors (which are generally also applicable to foreign government investors), foreign government investors must notify the FIRB and get prior approval before making certain investments in Australia, regardless of the value of the investment. The following are notifiable and significant actions for foreign government investors:

  • acquiring a direct interest in an Australian entity or Australian business
  • starting an Australian business
  • acquiring an interest in Australian land
  • acquiring a legal or equitable interest in a mining, production or exploration tenement (this applies irrespective of the duration of the tenement) and
  • acquiring an interest of at least 10% in securities in a mining, production or exploration entity.

Notification

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 may be issued to the acquirer.

A fee, based on the nature and value of the proposed acquisition, must be paid to FIRB prior to the commencement of FIRB’s consideration of the proposal.

Review process

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 its consent to an acquisition with or without conditions (eg construction on acquired vacant land or land for redevelopment 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.

Australia’s Foreign Investment Policy (which is maintained by FIRB) 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;
  • Competition;
  • Other Australian Government policies;
  • Impact on the economy and the community; and
  • Character of the investor.

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 substantial experience in acquisition planning and structuring to ensure FIRB approval is promptly obtained.

Please contact us to discuss these matters further.

[1] Canada, Chile, China, Japan, South Korea, New Zealand, Singapore, United States, Hong Kong, Peru and Vietnam

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