Australia's current foreign investment framework is governed by the federal Foreign Acquisitions and Takeovers Act 1975 (FATA). Many of the key provisions in FATA have retained their original form, notwithstanding the evolution of business practices since 1975. Seeking to bring FATA in line with modern practices, Treasury has released the Modernisation Options Paper. The proposed changes will affect all foreign investment in Australia and the Government is calling for submissions on the proposed changes by 29 May 2015.
This latest announcement is in addition to the new penalties and FIRB application fees to apply from 1 December 2015.
Alignment with the takeovers regime and other Commonwealth legislation
Some of the current requirements under FATA are different from the requirements under other Commonwealth legislation, in particular the takeover regime under the Corporations Act. To simplify compliance with Australian laws for foreign investors, the following changes are proposed:
- increasing the control threshold for a single "foreign person" from 15% to 20% in line with the takeovers regime;
- amending the provisions surrounding the aggregate foreign ownership threshold of 40%, to prevent Australian companies with numerous unrelated passive foreign shareholders from being deemed as a "foreign person";
- reducing the scope of the definition of 'associate' to make it consistent with the definition used in the takeovers regime or other Commonwealth legislation;
- updating the "moneylending" exemption to reflect modern lending practices;
- exempting Chapter 6A compulsory acquisitions and buy-outs from the compulsory FIRB notification requirements;
- importing a number of exceptions under section 611 of the Corporations Act (subject to any necessary modifications) such as pro-rata rights issues, dividend reinvestment schemes and underwriters;
- removing the compulsory FIRB notification requirement where a majority (50%) foreign owner is increasing its direct investment; and
- removing financial sector investments from the FATA regime (leaving them to be governed by the Financial Sector (Shareholdings) Act).
Changes in the real estate sector
It is increasingly common for property to be acquired indirectly through property holding entities, as well as real estate investment vehicles. To better reflect these practices, the following changes are proposed:
- the annual program arrangement, under which foreign investors only need a single approval every 12 months to acquire specified types of property up to a monetary limit, is currently only available for direct acquisitions of interests in urban land. It is proposed that this will be extended to acquisitions through urban land corporations and trusts;
- putting into legislation the current interim arrangements for passive investments in urban land trusts;
- extending exemptions that are currently available for direct acquisitions of interests, such as the developed commercial property exemption, to indirect acquisitions through urban land corporations and trusts; and
- raising the screening threshold for non-sensitive developed commercial property from $55 million to $252 million in line with the general business threshold.
Foreign government investors
As part of the modernisation process, similar changes are proposed for foreign government investors. This includes lifting the control threshold at which a person is deemed to be a foreign government investor from 15% to 20%, extending some exemptions to foreign government investors where they do not raise national security concerns, and introducing an annual program arrangement for property acquisitions by foreign government investors.
Incorporating policy into legislation
Currently there are requirements under Australia's Foreign Investment Policy that are not set out in legislation, but are nonetheless imposed by Treasury and FIRB. These include the compulsory notification requirement for foreign government investors, specific requirements in the media sector, the recently reduced $15 million threshold for agricultural land investments, and the $5 million threshold for heritage-listed commercial property. The latest announcement proposes to legislate for these additional requirements which may provide greater certainty for foreign investors.
The Modernisation Options Paper indicates the Government's intention to modernise Australia's foreign investment framework, as well as reducing red tape and the compliance burden on businesses. It is proposed that the legislative framework will be simplified through greater consistency and formalising certain administrative practices. Interested parties have until 29 May 2015 to make a submission in response to the Modernisation Options Paper.
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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.