Australia: Australias FIRB regime: an overview for foreign investors

Last Updated: 18 September 2019
Article by Andrew Corkhill

The regulatory framework that governs foreign investment in Australia, known as the 'FIRB regime', is complex and often requires expert assistance to navigate. This article provides an overview of the policy, key legislation and regulatory instruments that govern foreign ownership of Australian businesses, the decision-making roles and powers of the federal Treasurer and the Foreign Investment Review Board (Board), and the potential impacts the FIRB regime has on the planning and execution of foreign investments in Australia.

Australia's Foreign Investment Policy

Governmental regulation of foreign investment in Australia aims to strike a balance between ensuring that Australia remains an attractive destination for foreign investment, by maintaining an accessible and transparently administered political, legal and economic environment, and retaining the Australian Government's ability to protect the national interest as it judges necessary and appropriate.

The principles underpinning the FIRB regime are set out in Australia's Foreign Investment Policy (Policy), published by the Board on behalf of the federal department of Treasury. The Policy provides an overview of the regime and the stated aims of the legislation and can aid in interpreting the law and providing certainty around policy intentions.

The legislative framework of the FIRB regime

The FIRB regime is made up of the following main legislative instruments:

  • the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA)
  • the Foreign Acquisitions and Takeovers Regulations 2015 (Cth) (FATR)
  • the Foreign Acquisitions and Takeovers Amendment (Exemptions and Other Measures) Regulations 2017 (Cth), which amended FATR
  • the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 (Cth) and regulations.

Foreign investment decisions under the FIRB regime are made by the Treasurer, who is advised by the Board. The Board is an administrative advisory body, which examines foreign investment proposals and advises the Treasurer on the national interest implications. Such analysis and advice are not binding on the Treasurer, who retains the ultimate decision-making power; although, in practice, the Board's recommendations will always be received and considered.

The FIRB regime legislation is supported by the Policy and Guidance Notes on the specific application of the law. While neither have the force of law, they provide a helpful aid to interpreting and understanding the FIRB regime and are updated by the Treasury from time to time to take account of changes in the Government's policy position and the relevant legislation.

Who is a foreign person?

The FIRB regime applies to 'foreign persons' seeking to invest in Australian land or entities. The FATA and FATR provide that a foreign person is:

  • an individual not ordinarily resident in Australia
  • a foreign government or foreign government investor
  • a corporation, trustee of a trust or general partner of a limited partnership in which:
    • an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds an interest of 20% or more
    • two or more persons, each of whom is either an individual not ordinarily resident in Australia, a foreign corporation, or a foreign government, hold an aggregate interest of 40% or more.

The FIRB regime also incorporates 'tracing rules' that operate so that any foreign person that holds a 20% or more interest in a higher entity is taken to hold the same interest in any second entity that the higher entity holds. For example, if a foreign person holds 30% in Company 1 and Company 1 holds 100% in Company 2, the foreign person is taken to hold 100% of Company 2.

Which entities are foreign government investors?

Any of the following entities will be classified as a foreign government investor under the FIRB regime:

  • a foreign government
  • a separate government entity1
  • a corporation, trustee of a trust or general partner of a limited partnership in which:
    • a foreign government, separate government entity or foreign government investor from one country holds an interest of 20% or more
    • foreign governments, separate government entities or foreign government investors from more than one country hold an interest of 40% or more.

What transactions are covered by the FIRB regime?

There are two categories of transactions that are covered by the FIRB regime:

  • significant actions that are also notifiable actions
  • other significant actions.

A notifiable action must be notified under the FIRB regime by the foreign person proposing to take that action. Failing to notify is an offence that can attract civil and criminal penalties. With respect to significant actions, the Treasurer has broad powers to make orders if he or she is satisfied that a transaction would be contrary to the national interest. Orders can include blocking the transaction, requiring disposal of the interest acquired or imposing binding conditions on the transaction.

If a significant action is also a notifiable action, it is an offence to proceed with the transaction until a statement of no objection is received or the Treasurer's power to make a decision in relation to the transaction expires. Significant actions that are not also notifiable actions do not need to be notified under the FIRB regime. However, it is prudent practice for an investor to notify such actions in advance to manage the risk that the Treasurer may block or unwind the transaction at a later date.

Significant actions that are also notifiable actions

Unless subject to a valid exemption, the following actions will be notifiable:

  • a foreign person acquiring an interest of 20% or more of shares or units of an Australian company or trust valued above the FATR monetary thresholds
  • a foreign person acquiring an interest in Australian land valued above the FATR monetary thresholds2
  • a foreign person acquiring a direct interest in an Australian company, unit trust or agribusiness valued above the FATR monetary thresholds3
  • a foreign person acquiring an interest of 5% or more in a company, unit trust, or business that wholly or partly carries on an Australian media business
  • a foreign government or foreign government investor acquiring a direct interest in any Australian company, unit trust or business
  • the starting of an Australian business by a foreign government or foreign government investor
  • a foreign government or a foreign government investor acquiring an interest in an exploration tenement or a mining or production tenement, or an interest in at least 10% in securities in a mining, production or exploration entity.

Other significant actions

In addition to transactions that are both significant and notifiable actions, other significant actions include:

  • an acquisition of securities in an entity carrying on an Australian business or entry into or termination of a significant agreement with an Australian business, valued above the FATR monetary thresholds, that results in a change of control in that entity4
  • the entry into an agreement relating to the affairs of an entity, under which one or more officers of the entity will be obliged to act in accordance with the directions of a foreign person who holds a 20% or more interest in the entity, that results in a change of control in that entity
  • the alteration of the constituent documents of an entity, such that one or more officers of that entity will be obliged to act in accordance with the directions of a foreign person who holds a 20% or more interest in the entity, that results in a change of control in that entity.

Monetary thresholds

The monetary thresholds specified by FATR in deciding when a foreign investment becomes a significant or notifiable action are calculated differently for varying kinds of transactions. The thresholds are indexed annually for inflation and should be assessed carefully with each new foreign investment.

Higher monetary thresholds apply for certain kinds of transactions by investors from countries with which Australia has a free trade agreement. The thresholds will not be the same for every country party to a free trade agreement but will depend on what has been negotiated between the nations.

The higher monetary thresholds under free trade agreements will not, however, apply to foreign government investors or to transactions involving certain businesses prescribed under FATA as 'sensitive' to national interest considerations. Such businesses include (section 26 FATA and regulation 22 FATR):

  • those carried on wholly or partly in the media, telecommunications or transport sectors
  • those that are wholly or partly for:
    • the supply of services to, or manufacture of goods for, the Australian Defence Force or other defence forces
    • the manufacture or supply of goods able to be used for a military purpose
    • the development, manufacture, supply of, or provision of services relating to, encryption and security technologies and communications systems
    • the extraction of, or holding rights to extract, uranium or plutonium, or the operation of a nuclear facility.

The current monetary thresholds as at 1 January 2019 are:

What is the national interest test?

When the Treasurer is reviewing a proposed foreign investment transaction, the test to be applied is whether the transaction is contrary to the national interest. The Treasurer is able to take any factors considered appropriate into consideration. Such factors typically include:

  • the impact on national security
  • the impact on competition
  • the impact on the economy and community
  • other government policies
  • the character of the investor.

There are also specific matters taken into consideration when examining proposals relating to critical infrastructure, agricultural investment, residential real estate investment and those proposals involving a foreign government investor.

Following review of a proposed foreign investment transaction, the Treasurer may issue a statement of no objection, issue a statement of no objection subject to conditions, or reject the transaction.

If a transaction that the Treasurer objects to has already proceeded, the Treasurer has the power to issue a range of orders in relation to the transaction, including ordering disposal of the interest acquired.

What transactions are exempt from the FIRB regime?

The FATR sets out exemptions from the operation of FATA for certain acquisitions, interests, Australian businesses and foreign persons. Many of the exemptions set out in FATR are highly technical and conditional, requiring careful consideration of the transaction in question before being relied upon. Some examples of exemptions from the FIRB regime include:

  • interests acquired as security for moneylending arrangements, except foreign governments in certain circumstances (regulation 27)
  • interests acquired by Will or devolution with certain exceptions (regulation 29)
  • interests held for the purpose of providing custodian services (regulation 30)
  • an acquisition of an interest in shares of a financial sector company, except foreign governments (regulation 32)
  • an acquisition of an interest in securities under a compulsory acquisition or a compulsory buy out (regulation 33)
  • an acquisition of an interest in Australian land by an Australian citizen not ordinary resident in Australia or by their spouse or de facto partner (where the interest is jointly held), and certain Australian corporations, trustees and charities (regulation 35).

Exemption certificates

The Treasurer is also given power to grant exemption certificates in respect of certain transactions that would otherwise be significant or significant and notifiable actions. The Treasurer must first be satisfied that the transaction would not be contrary to the national interest before granting such a certificate. Exemption certificates can be varied or revoked and may name multiple persons, specify conditions or a period, or deal with more than one interest.

Standing categories of exemption certificate exist under the FATR to simplify the screening process for the FIRB regime. These include:

  • exemption certificates where a foreign person proposes to acquire one or more kinds of interests in an Australian business or securities of an entity (regulation 42)
  • exemption certificates where a foreign person proposes to acquire one or more kinds of interests in a tenement, or in securities in a mining, production or exploration entity (regulation 43)
  • a range of exemption certificates for various types of investment in Australian land.

How do I apply for a decision in relation to a foreign investment transaction?

All foreign investment applications (except applications relating to residential real estate, which will be processed by the Australian Taxation Office) must be made online through FIRB's application portal. A decision under the FIRB regime will typically take up to 40 days. However, this is commonly extended to allow additional time to examine the application.

To avoid delay in processing, applicants should ensure all necessary information in relation to the transaction is included in their application. The relevant fee for lodging an application under the FIRB regime is payable at the time of application, with fees varying according to the type of interest being acquired.

Where approval is required under the FIRB regime, it is important the transaction documents are made conditional on a no objection notice being issued.

If approval is obtained for a transaction, investors should complete the transaction in a timely manner (generally 12 months); otherwise further approval will need to be sought.

Impact on deal planning and execution

The FIRB regime is a complex framework of legislation requiring careful consideration of the classification of interests, categorisation of investor, level of control, monetary thresholds and potential exemptions that relate to a foreign investment proposal.

Getting it wrong can have fundamentally adverse consequences, including prosecution and compulsory divestment risks.

Footnotes

1 Under section 4 of the FATA, a 'separate government entity' is defined as: an individual, corporation or corporate sole that is an agency or instrumentality of a foreign country or a part of a foreign country; and is not part of the body politic of a foreign country or of a part of a foreign country.

2 Under section 4 of the FATA, land is classified as: developed or vacant commercial land; agricultural land; residential land; or mining tenements.

3 Under regulation 16 in the FATR, 'direct interest' means: any investment of 10% of more; investments of 5% or more where coupled with a legal arrangement relating to the business; or any interest where the acquirer is in a position to influence or participate in the central management and control of the business.

4 Under section 54(4) of FATA, a person controls an entity if they are in a position to determine the policy of the entity in relation to any matter or if they hold an interest of 20% or more in the securities of the entity.

© Cooper Grace Ward Lawyers

Cooper Grace Ward is a leading Australian law firm based in Brisbane.

This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions