Due to COVID-19, the Treasurer announced in March 2020 that the various dollar thresholds for investments by foreign persons is reduced to AU$1. Therefore, any acquisition by a foreign person of 20% or more of an interest of an Australian company or business needed to obtain prior FIRB approval. In addition, timelines for obtaining approval were lengthened. It was announced on 9 December 2020 that these Temporary Measures will be lifted as of 1 January 2021. When reviewing this memorandum, please be aware that the stated dollar thresholds may not apply for applications lodged prior to 1 January 2021.

Introduction

Regulatory framework

Foreign investment in Australia is regulated by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), its related regulations, and Australia’s Foreign Investment Policy (FIRB Policy). The Australian Federal Treasurer administers FATA and FIRB Policy, assisted by the Foreign Investment Review Board (FIRB).

The Treasurer has the authority to refuse proposals for certain foreign investments in Australia, impose conditions on those proposals and make a range of other orders, if the Treasurer considers the proposal to be contrary to the national interest.

The Australian Government regularly states that it recognises the substantial contribution it makes to Australia’s economic growth and prosperity, and that it welcomes foreign investment that is consistent with Australia’s national interest.

Certain foreign investment proposals require notification to FIRB and the Treasurer’s approval before being implemented. In practice, most applications do not raise national interest concerns and generally receive approval.

Foreign investors

FATA and FIRB Policy apply to foreign investors who are considered ’foreign persons’. For these purposes, a ‘foreign person’ includes foreign persons, corporations, trusts, governments and partnerships.

An individual is a foreign person if they are not ordinarily resident in Australia (including expatriate Australian citizens).

A corporation, trust or partnership is a foreign person if:

• At least 20% is held by a single foreign person, foreign corporation or foreign government
• At least 40% is held by investors made up of foreign person, foreign corporations or foreign governments
• All foreign government investors are also foreign persons (see below)

Significant actions and notifiable actions

The Treasurer can make a range of orders in relation to ‘significant actions’ and ‘notifiable actions’. The Treasurer’s key concern will be transactions that negatively impact on the national interest (see below).

Foreign persons are not required to inform the Treasurer of proposed significant actions unless they are also notifiable actions, however they may choose to notify the Treasurer of a significant action to receive the benefit of the Treasurer’s response prior to undertaking a significant action to prevent the Treasurer from making a subsequent disposal order.

Significant actions

Actions by a foreign person that may be a ‘significant action’ include:

• Acquisition of Australian land
• Acquisition of a direct interest in Australian agribusiness
• Acquisition of an interest in Australian business assets resulting in a change of control in the business
• Entering into a ‘significant agreement’ with an Australian business resulting in a change of control in the business
• Actions relating to the acquisition of interests in or issue of securities in an entity, and
• Certain other actions, such as alterations to constituent documents, that result in the company coming under the control of a foreign person (or a foreign person’s associate)

These will only be significant actions where the investment exceeds the prescribed monetary threshold. The regulations also prescribe certain other investments in Australian businesses as significant actions.

Notifiable actions

A foreign person who proposes to take a notifiable action (investment) must give a notice to the Treasurer before taking the action.

Notifiable actions include acquisitions of direct interests in agribusiness, of substantial interests (>20% by one foreign person or >40% aggregate interest held by two or more foreign persons) in Australian entities, and of any interest in Australian land that exceeds the prescribed monetary thresholds.

The regulations also prescribe certain other investments in sensitive Australian businesses as notifiable actions.

Thresholds

Some investments are not considered ‘significant actions’ unless they exceed a monetary threshold. The thresholds are detailed below.

Investors from the United States, New Zealand, China, Singapore and Chile enjoy higher thresholds in most instances under their respective free trade agreements with Australia.

Foreign investment in business

Agribusiness

Foreign persons must apply for approval to acquire a direct interest in agribusiness where the value exceeds AU$58 million. This is a significant action and a notifiable action.

Investors from the United States, China, Singapore, Chile and New Zealand have a higher threshold of AU$1,192 million before being subject to notification and approval requirements.

Normal businesses and entities

The relevant monetary threshold for investment by a foreign person of a substantial interest in an Australian business or entity is:

• AU$1,192 million for investors from the United States, New Zealand, China, Singapore and Chile where the investment is not in a prescribed sensitive sector, or
• For all other investments, AU$266 million

Foreign government investors

All foreign government investors must obtain approval, irrespective of the value of the investment or asset, before:

• Making a direct investment in an Australian entity or business
• Establishing a new Australian business
• Obtaining an interest in Australian land
• Obtaining any interest in a prospecting, exploration, production or mining tenement

Exemption certificates

Exemption certificates may be applied for in certain circumstances, such as in relation to underwriting by certain foreign financial institutions.

Foreign investment in land

Who needs FIRB approval?

In most instances, foreign persons must obtain FIRB approval when acquiring an interest in Australian land.

What is Australian land?

Australian land includes:

• Residential land
• Agricultural land
• Vacant commercial land
• Developed commercial land
• Mining and production tenements

Residential real estate

Generally and regardless of the value, foreign persons must obtain approval for an interest in Australian residential real estate unless an exemption applies.

Depending on whether the foreign person is a temporary resident in Australia or is a non-resident, there are different rules around who is allowed to acquire residential real estate and the nature of the residential real estate.

Foreign persons can apply to purchase established dwellings for the purposes of residential redevelopment, provided that the residential redevelopment increases Australia’s housing stock. Approval may be granted with restrictions and conditions.

Vacant commercial land

Regardless of the value of the vacant commercial land, all foreign persons must obtain approval before acquiring an interest in vacant commercial land.

Developed commercial land

Foreign persons must obtain approval for an interest in developed commercial land if the interest exceeds AU$266 million, unless the land is classified as sensitive developed commercial land in which case, the threshold is AU$58 million.

Investors from the United States, China, Singapore, New Zealand and Chile enjoy a higher monetary threshold of AU$1,192 million.

Mining and production tenements

Mining or production tenements are treated as Australian land for the purposes of the FATA and there is no applicable monetary threshold for most foreign investors, making any such investments notifiable actions. Investors from the United States, China, Singapore, New Zealand and Chile are the exception, enjoying a AU$1,192 million monetary threshold before being subject to notification requirements.

Where an exploration and prospecting tenement provides a right to occupy land for a term of more than five years (including any likely extensions) it will be treated as ‘Australian land’.

Australian land entities

An Australian land entity is an entity where the interests in Australian land held by that entity exceeds 50% of the total value of the total assets held by the entity. The acquisition of any securities in such an entity may be a notifiable action and a significant action, unless an exception applies.

Exemption certificates

Exemption certificates are available to foreign persons for an up-front approval for land acquisitions without the need to seek separate approvals. The exemption certificate is intended for foreign persons with a high volume of acquisitions of interest in land.

Applications for the exemption certificates will be considered by FIRB on a case-by-case basis to ensure that they are not contrary to the national interest and given subject to conditions.

Procedures

National interest

A wide range of factors are considered when FIRB is determining if a foreign investment proposal is contrary to Australia’s national interest. These factors include the nature of the target entity or asset, the effect the proposal has on national security and a competitive market, the impact of the proposal on the economy and tax revenue, and the transparency and character of the investor.

When to apply

You should apply for FIRB approval before you enter into an agreement to purchase, lease or license Australian land, an agreement to buy shares or units in an Australian land corporation or trust, or before you undertake any other notifiable action.

If you are unable to obtain approval before entering into any contract or agreement, you should ensure that the contract or agreement remains conditional on obtaining satisfactory FIRB approval.

Fees

Application fees apply for all foreign investment applications and are payable at the time of application.

Penalties

Failure to apply for FIRB approval may result in a divestment order, civil and criminal penalties and/or prohibition of the proposal

New developments

Critical infrastructure

The Critical Infrastructure Centre was established at the start of 2018 to assist the safeguarding of Australia’s critical infrastructure from national security risks of sabotage, espionage and coercion. The Security of Critical Infrastructure Act 2018 (SCI) was enacted to support the role of the Critical Infrastructure Centre. The SCI provides for key measures to manage national security risks related to critical infrastructure, including establishing a register of critical infrastructure assets, granting the Secretary of the Department of Home Affairs the power to inspect and giving the relevant Minister power to regulate the operation of critical infrastructure.

The SCI defines the following as critical infrastructure assets:

• Electricity assets: Generation stations that generate electricity above thresholds set out in the rules; generators providing system restart services; and electricity transmission networks or distribution systems that service at least 100,000 customers.
• Ports: 20 ports Australia specifically named in the SCI.
• Water assets: Water or sewerage systems or networks managed by a water utility which service more than 100,000 connections.
• Gas assets: Gas processing facilities with a capacity of more than 300 terajoules per day; gas storage facilities with a maximum daily quantity of more than 75 terajoules per day; gas distribution networks which service at least 100,000 customers; and gas transmission assets which meet the threshold set out in the rules.
• Miscellaneous: Any other assets declared to be critical infrastructure assets, and assets prescribed by the rules.

FIRB continues to assess acquisitions of interests in critical infrastructure to foreign investors where the relevant thresholds are met. FIRB and the Centre work with investors to address any national security concerns raised through the FIRB review process.

National security

In December 2020, the Parliament passed new reforms, which take effect as of 1 January 2021, relating to national security. A AU$0 threshold will be imposed for all foreign investments in ‘sensitive national security’ businesses. The Treasurer may review these investments (irrespective of their value), and impose conditions or block any transaction if the investment is considered to be contrary to Australia’s national security. 

Under the proposed legislative changes, a foreign person that:

• Acquires a direct interest (a minimum of 10% or in a position of control), or
• Starts carrying on activities

in a ‘sensitive national security business’ will be required to notify and obtain FIRB  approval prior to making the acquisition. This obligation will apply regardless of the value of the investment or the foreign person’s nationality or if they are classified as either a private foreign investor or a foreign government investor.

The exact scope of the new national security test has yet to be determined. But issued guidance suggests it includes businesses regulated by the Security of Critical Infrastructure Act (as referred to above), involved in the supply or manufacture of defence goods or technologies, and related to the ownership, storage or collection of sensitive data.