Australia: Foreign Investment in Australia

Last Updated: 11 May 2006
Article by Chris Ahern

Foreign investment in Australia is primarily regulated by the Foreign Acquisitions and Takeovers Act 1975 ("FATA") and associated regulations and policies, subject to the entry into any Free Trade Agreement that may amend the application of the FATA to investments by a certain country.

The FATA grants the Treasury the power to scrutinize, approve or disallow foreign investment proposals. The Australian Federal Treasurer approves each acquisition that is subject to the FATA, with the advice and assistance of the Foreign Investment Review Board ("FIRB").

Free Trade Agreement with Australia?

In the Joint Feasibility Study prepared by Australia and China in March 2005, it was recommended that the application of the provisions of the FATA be removed or simplified in a possible Australia- China Free Trade Agreement ("FTA"). Both the Australian government and the Chinese government have called for a fast tracking of negotiation between the two countries. Just recently, the fourth round of Australia-China FTA negotiations took place in Canberra. One of the main aims of the meeting was to reduce investment barriers and allow better market access for both countries.

Government Policy Overview

No sector in Australia is completely closed to foreign investment. The FATA requires certain foreign investment proposals to be approved if the value of the planned acquisition exceeds certain thresholds. While the FATA applies across all industries and sectors, limitations on foreign equity apply in certain strategic or politically sensitive areas. These include real estate, banking, telecommunications, shipping, civil aviation, airports and the media.

While foreign acquisitions in the mining and resources sector may be subject to notification, they do not form part of those "sensitive sectors" that are subject to a specific government’s policies. This is the case even for industries like uranium mining. As indicated by the Treasurer, the Australian government’s attitude toward foreign investment policy in relation to uranium projects will be the same as that for other minerals. This means that while prior approval is still required, no special restrictions will be imposed unless a proposal is judged contrary to the national interest.

Determining the National Interest

The "national interest" test is the single most important criterion for qualifying foreign investment proposals in Australia. Generally, a foreign investment proposal will be rejected only if it is considered contrary to the Australian national interest. It is acknowledged by the Australian government that the national interest is best served by liberal foreign investment policies. Foreign capital and technologies allow Australian resources, such as mining assets, to be better exploited.

It is only in rare circumstances that the Australian Treasurer will reject foreign investment proposals on the ground of the national interest. The rejection of Shell Australia’s proposed acquisition of Woodside Petroleum ("Woodside") is an example of an application that was rejected. Central to the Treasurer’s decision was Woodside’s position as an operator of the North West Shelf liquefied gas project in Western Australia. In his reasoning, the Treasurer emphasized that "it is in the national interest of Australia that the project be developed to its full capacity and that Australia’s export sales from the North West Shelf are maximized". It is in the Australian government’s interest that production and export of liquefied natural gas would be maximized as quickly as possible. This would allow the maximization of the payment of royalties to the Australian government.

Australia’s foreign investment policy presumes that foreign investment proposals are generally in the national interest. Therefore, the majority of foreign investment proposals have been approved by the Australian Treasury despite resistance from certain parts of the Australian community. For instance, in 2002, Japan’s Mitsui & Co ("Mitsui") made a proposal to acquire Coal and Alliance Industry Ltd’s 55 percent interest in the Moura Mine in Queensland. This acquisition allowed Mitsui to on-sell a 51 percent stake to London-based South African company Anglo American. The Treasurer approved the purchase in spite of strong oppositions by rival bidders and some MPs to the Mitsui takeover. Similarly, when the London-listed Swiss firm Xstrata Plc ("Xstrata") revealed its plan to take over the Australianbased miner MIM Holding Ltd ("MIM"), there was strong resistance from the Queensland community and MIM’s small shareholders. Nevertheless, the Treasurer raised no objection to the proposed acquisition by Xstrata on the ground that the proposal was not contrary to the national interest.

Foreign Persons

The FATA and its associated regulations and policies apply to foreign persons. A foreign person is defined as any of the following:

  • A natural person not ordinarily resident in Australia (for a person other than an Australian citizen, "ordinarily resident" means that person has resided in Australia for 200 days or more in the immediately preceding 12 months).
  • A corporation in which a natural person not ordinarily resident in Australia or a foreign corporation holds 15 percent or more of the corporation.
  • A corporation in which two or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold 40 percent or more of the corporation.
  • The trustee of a trust estate in which a natural person not ordinarily resident in Australia or a foreign corporation holds a beneficial interest of 15 percent or more of the trust.
  • The trustee of a trust estate in which two or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold a beneficial interest of 40 percent or more of the trust.

Notification Threshold

The FATA requires notification to the Australian Treasurer and the FIRB for the following transactions:

  • Acquisition threshold: The acquisition of a substantial interest (15 percent or more by a foreign individual or 40 percent or more by several foreign individuals) in the existing business where the total assets exceed A$50 million.
  • New business threshold: The establishment of a new business where the total investment exceeds A$10 million.
  • Offshore takeover threshold: The takeover of offshore companies whose downstream Australian assets have a value exceeding A$50 million or account for more than 50 percent of the target company’s global assets. The notification threshold is A$800 million for applicable US investors.

Special types of foreign investment proposals are subject to more stringent government scrutiny:

  • Foreign government investment: Direct investments by foreign governments and their agencies, or companies with greater than 15 percent direct or indirect holding by a foreign government or agency, are notifiable irrespective of size.
  • Proposed investments in the sensitive sectors: Proposed foreign investments in residential real estate, banking, telecommunications, shipping, civil aviation, airports and the media are subject to more rigid notification requirements.

The Australian government registers but normally raises no objections to proposed transactions above the relevant notification thresholds where the gross assets or investments fall below A$100 million. For acquisitions of existing businesses (with A$100 million or more) or the establishment of new businesses (with a total investment of A$100 million or more), the Australian government will fully examine the proposals, but it will usually raise no objections unless the proposals are contrary to the national interest.

Application and Assessment

Application. To notify the Australian government, foreign investors need to submit foreign investment proposal applications in letter form along with the appropriate notice.

  • Compulsory notification: For any acquisition of a substantial shareholding (equal or above 15 percent), unless the total assets are below the A$50 million threshold, the submission of a Section 26 Notice is required.
  • Voluntary notification: For any acquisition of an interest that is less than a substantial shareholding (below 15 percent), a Section 25 Notice should be submitted.
  • For real estate acquisition proposals, other forms and statutory notices may be required.

Assessment. Approval by the Australian government is normally given only for a specific transaction. Generally, the FIRB is required to make a decision within 30 days with 10 extra days to advise the parties of the decision. The formal notification activates a time clock so that if the Australian Treasurer does not take action against the proposal within 30 days, the Australian government loses its ability to block or impose conditions. However, the normal 30-day examination period may be extended to a further 90 days by the issuance of an interim order.

If an approved transaction does not proceed at that time and/or the parties enter into new agreements at that time and/or at a later date, or if a transaction is not completed within 12 months, further approval needs to be sought for the transaction.

Approval for share acquisition involving a full or partial takeover bid under the Corporations Act 2001 applies only to the shares acquired during the bid period. Any plan of further acquisition will require additional approval.

Prior approval is required to acquire options for the purchase of relevant shares, assets or property. Normally, approvals for options will also extend the exercise of those options, provided that the option is exercised within 12 months of approval. Subsequent approval for the exercise of the options may be sought on an annual basis.

The time period for an approval may be varied where it can be shown that an extended period is fundamental to the proposal’s success and that extending the timing of the proposal does not involve an activity that would be contrary to the national interest.


The Australian government respects the confidential status of commercial information and ensures that appropriate security is given to the information provided to the FIRB. Confidential commercial information held by the Australian government will not be made available to a third party unless the applicant gives permission. The exception is where there is an order of a court of competent jurisdiction.

Additionally, the Australian government is required to respect the privacy of personal information provided by applicants to the FIRB. The FIRB may pass relevant personal information to government agencies only when such information is required to ensure that applicants comply with the FATA.

Post-Investment Compliance

There are situations where the Treasurer may approve a foreign investment conditional upon the foreign investor’s complying with conditions that the Treasurer considers necessary to ensure that the proposal is not contrary to the national interest. For instance, Xstrata’s bid to take over WMC Resources Limited in 2005 was approved by the Treasurer with several conditions attached. Xstrata was required to comply with those conditions indefinitely, subject to amendment of the FATA or any other revocation or amendment by the Treasurer. A foreign investor will be liable under the FATA for breaching the attached conditions, and the Treasurer is able to make an order requiring the disposal of the asset.

Benefits of US -Australia Free Trade Agreement

Chinese investors may be able to take advantage of certain provisions of the US-Australia Free Trade Agreement. Under this FTA, US entities are exempt from the application of the FATA in relation to certain transactions. For instance, for applicable US acquisitions in Australian companies, instead of a A$50 million threshold for an investment proposal in a nonsensitive sector, the threshold becomes A$800 million. More importantly, there is no tracing to determine whether an entity is ultimately owned by a US entity. As a result, Chinese investors may take advantage of privileges enjoyed by US investors by acquiring assets in Australia through US entities. A US entity owned by a Chinese corporation will still have the benefit of the increased threshold afforded to other US entities, provided that the US entity is the entity making the direct investment in Australia. Also, this rule applies to trusts (i.e., where the legal interest is owned by one company, and the benefit is owned by another).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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