Doing Business in Australia 2011: Foreign Investment Approvals

“The Government welcomes foreign investment. It has helped build Australia’s economy and will continue to enhance the wellbeing of Australians by supporting economic growth and prosperity.

Foreign investment brings many benefits. It supports existing jobs and creates new jobs, it encourages innovation, it introduces new technologies and skills, it brings access to overseas markets and it promotes competition amongst our industries.”1

While the Australian Government supports foreign investment, the Treasurer has the power to prohibit
or to impose conditions on specific arrangements involving “foreign persons” which he determines
not to be in the “national interest”.

The Treasurer also has power to order divestiture or cancellation if prior approval has not been obtained and, in three situations, (any dealings in relation to relevant companies or Australian urban land, and dealings by foreign governments and their related entities), prior approval must be obtained before an acquisition may be made or a transaction entered into.

Regulations made under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and the Commonwealth Government’s foreign investment policies, generally make up the regime governing the approval process. However, in limited areas there is specific industry based legislation that must also be considered. This includes the banking and financial sectors, airports, ships and specific companies such as Telstra and Qantas.

While the ultimate approval decision is made by the Treasurer, the regime is generally administered by the Foreign Investment Review Board (FIRB). Approval applications are lodged with FIRB. They collate input from all relevant government departments and make recommendations to the Treasurer.

The following are considered “foreign persons”:

  • an individual who is not permitted to reside permanently in Australia
  • a “foreign corporation”, which is generally a corporation in which:
    • (a) an individual foreign person or another foreign corporation, and their associates, hold a 15% or greater interest, or
    • (b) unrelated individual foreign persons and foreign corporations hold, in aggregate, a 40% or greater interest, and
  • a trust in which:
    • (a) an individual foreign person or another foreign corporation and their associates hold a 15% or greater interest, or
    • (b) unrelated individual foreign persons and foreign corporations hold, in aggregate, a 40% or greater interest.

Indirect holdings are captured by tracing provisions.

The acquisitions and arrangements to which FATA applies are, subject to specific thresholds:

  • the acquisition of shares
  • the acquisition of the assets of an Australian business
  • arrangements relating to the affairs of a corporation, such as a shareholders agreement
  • arrangements in relation to an Australian business, and 
  • the acquisition of Australian urban land (or interests in some companies and trusts owning it).

The thresholds are generally:

  • for investments in Australian urban land, (including some companies and trusts which are “land rich”)
    • (a) for Heritage listed land, $5 million (or $1,004 million in the case of a US investor)
    • (b) for other non residential commercial land (including hotels, motels, hostels and guesthouses), $50 million (or $1,004 million in the case of a US investor), and
    • (c) for residential land and vacant land, zero.
  • for dealings by foreign governments and their related entities, zero, and
  • for corporations, business assets and trusts, $231 million (or $1,004 million in the case of US investors).

The thresholds are reduced in the cases of the media, telecommunications, transport infrastructure, military and uranium sectors.

The $231 million and $1,004 million thresholds are indexed in accordance with inflation. As well as general anti-avoidance provisions, there are specific provisions to preclude non US investors making investments through US entities in order to take advantage of the higher thresholds.

There are also provisions dealing with how the values of relevant assets are to be determined.

In the case of residential land, there are a limited number of specific exemptions where approval is not required, but approval is unlikely to be granted outside these specific exemptions.

“National interest” is not defined in FATA and is determined on a case by case basis, but generally in accordance with Government policy.

The approval process generally takes 40 days, although there is scope for the Treasurer to extend
this period in unusual circumstances.

In situations where prior approval is required under FATA, this approval should be sought to avoid any offences. In situations where prior approval is not strictly required, but the Treasurer has power under FATA to make an order, it is usually desirable to obtain approval to preclude the possibility of orders being made in the future.

Where prior approval is required, an arrangement may usually be entered into immediately, provided an appropriately drafted condition precedent making the transaction subject to approval is included in the transaction documents.

1 Foreign Investment Policy January 2011 issued by the Treasurer.