2015 sees increased dollar thresholds for notification of foreign investments in Australian businesses, and even higher thresholds for countries which have signed free trade agreements with Australia.
Japan and China are joining the growing list of countries to enjoy significant exemptions from Australia's controls on inbound investment.
Other recent developments in foreign investment regulation include new monetary thresholds and a legislative glitch in relation to passive investments in urban land trusts.
Australia imposes restrictions on foreign investment in Australian businesses, companies and real estate.
These restrictions are complex, and can depend upon a number of factors:
- the identity of the investor (private or government);
- the nationality of the investor;
- the size of the target investment;
- the nature of the target investment (business/corporation v real estate);
- the industry in which the investment operates or exists.
In general terms, private investors are required to notify the Australian Government if they propose to acquire 15% or more of an Australian business or company that is valued above a monetary amount.
For a long time, the same monetary threshold applied to all investors, regardless of their country of origin. However, as a result of bilateral trade agreements, investors from an increasing number of countries have enjoyed considerably higher thresholds.
Japan and China
The Japan-Australia free trade agreement came into effect on 15 January. As a result, Japan joins South Korea, Chile, New Zealand and the USA as countries whose private investors do not need Australian Government approval for investments in Australian companies or businesses valued below $A1,094m.
This liberalisation is not, however, across the board. All investments by all governments are still subject to Australian Government scrutiny, as are investments in prescribed "sensitive" sectors (such as media, telecommunications and defence-related industries). In addition, Japanese and Korean investments in agribusinesses and agricultural land will be subject to screening where the business is valued at $53m or more, or the land is valued at $15m or more. These new controls on agricultural investments from Japan and Korea reflect an election commitment by the current Australian Government
January also saw the successful conclusion of negotiations on a China-Australia free trade agreement. When it comes into effect, Chinese investors will face the same rules as those from Japan and Korea.
Every year, the monetary threshold for compulsory notification of investments is indexed. For 2015, the relevant thresholds are set out below.
For all investors other than Chilean, Japanese, Korean, New Zealand and United States non-government investors:
- developed non-residential commercial real estate, where the property is heritage listed – $5 million;
- developed non-residential commercial real estate, where the property is not heritage listed – $55 million
- an interest in an Australian business – $252 million;
- an interest in an offshore company that holds Australian assets or conducts a business in Australia, and the Australian assets or businesses of the target company are valued above the threshold – $252 million.
For Chilean, Japanese, Korean, New Zealand and United States non-government investors:
- an interest in an Australian business involving a prescribed sensitive sector – $252 million;
- an interest in an offshore company that holds Australian assets or conducts a business in Australia in a prescribed sensitive sector, and the Australian assets or businesses of the target company are valued at/above the threshold – $252 million;
- developed non-residential commercial real estate – $1,094 million;
- an interest in an Australian business (not in a prescribed sensitive sector) – $1,094 million;
- an interest in an offshore company that holds Australian assets or conducts a business in Australia (not in a prescribed sensitive sector) , and the Australian assets or businesses of the target company are valued above the threshold – $,1094 million.
Australian urban land trusts
Previously Government approval was not required for the acquisition of 15% or less of an urban land trust, provided that the interests in the trust were offered under a prospectus approved by a State Corporate Affairs Commission.
However, this exemption has been rendered obsolete due to the State Corporate Affairs Commissions' being disbanded many years ago. The Government will consult about a replacement, but in the interim intends to apply the following policy:
"no action will be taken when a foreign person does not notify and seek prior approval in relation to an acquisition of a passive interest in a real estate investment trust or property trust, by acquiring an interest in units that results in a holding with associates of less than:
- 10 per cent in a listed trust, with a predominantly non-residential property portfolio of office, retail, industrial, or specialised properties, or a mix of these; or
- 5 per cent in other public trusts with at least 100 unit holders and whose developed residential real estate assets that have been acquired from non-associates are less than 10 per cent of the target trust's real estate assets.
Interests of less than the percentage holdings mentioned in a. and b. above may not be considered passive interests where there are special circumstances, such as the foreign person or their associates building a strategic stake in the trust, or being able to use their investment to influence or control the trust.
The acquisition of units by foreign persons in other Australian urban land trusts should be notified to the Foreign Investment Review Board."
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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.