Background
In a move aimed at reducing compliance costs and disincentives to direct foreign investment in Australia, Treasurer Wayne Swan announced on 4 August 2009 an easing of certain foreign investment rules, effectively allowing a higher number of foreign investment proposals to proceed without Government vetting.
Proposed reforms
The Government's proposed changes include:
- replacing the current thresholds for private businesses with a higher threshold of 15% in a business worth A$219 million or more. This means private foreign investment in Australian businesses (including Australian corporations, non-corporate businesses and off-shore companies with Australian assets) below A$219 million can in most cases proceed without review
- indexation of the above unified threshold to occur on 1 January each year against the GDP price deflator
- abolition of the requirement that private investors notify the Government when establishing a new business in Australia valued above A$10 million. This currently applies to all non-United States investors.
Importantly, the proposed overhaul of foreign investment regulation will reduce the number of monetary thresholds that currently apply to private foreign investment in Australian businesses from six to two (as illustrated in the table below).
|
Current thresholds |
Proposed thresholds |
|
Foreign investor – interest in an Australian business A$100 million (not indexed) |
A$219 million (indexed on 1 January each year to the GDP price deflator in the Australian National Accounts for the previous year) |
|
Foreign investor – Offshore Takeover A$200 million (not indexed) |
|
|
US investors only - sensitive sector acquisition A$110 million (indexed) |
|
|
US investors only – Offshore Takeover A$219 million (indexed) |
|
|
US investors only – interest in an Australian business A$953 million (indexed). |
A$953 million (indexed on 1 January each year to the GDP price deflator in the Australian National Accounts for the previous year) |
|
Foreign investor – establishing a new business A$10 million (not indexed) |
Abolished |
According to the Treasury announcement, the new rules are planned to take effect in September of this year. The Government believes that, as a consequence, around 20 per cent of all business applications will no longer require screening by the Foreign Investment Review Board (FIRB).
No change to foreign government or real estate investment proposals
The proposed amendments will only apply to certain
private-sector foreign investments and leave a number of areas
unchanged. This includes the mandatory notification requirement for
all foreign government and sovereign wealth fund investment
proposals1 and the approval requirement for certain real
estate transactions (including the acquisition of mining
tenements). Accordingly, the foreign investment review process for
transactions in these sectors is likely to remain topical.
Footnote
1. For further information relating to FIRB approval requirements for foreign Chinese investment see Middletons previous e-alert "Testing time for the Federal Treasurer on Chinese investment"
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.
