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 the Treasurer 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 ordinarily resident in Australia
- a “foreign corporation”, which is generally a corporation in which:
- an individual foreign person or another foreign corporation, and their associates, hold a 15% or greater interest, or
- unrelated individual foreign persons and foreign corporations hold, in aggregate, a 40% or greater interest, and
- an individual foreign person or another foreign corporation and their associates hold a beneficial interest of 15% or greater of the assets or income of the trust, or
- unrelated individual foreign persons and foreign corporations hold, in aggregate, a beneficial interest of 40% or greater of the assets or income of the trust.
There are also provisions which identify and trace indirect holdings.
The acquisitions and arrangements to which FATA applies are, subject to specific thresholds:
- the acquisition of shares or an interest in shares
- the acquisition of the assets of an Australian business
- arrangements relating to the directorate of a corporation
- arrangements in relation to the control of 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”):
- for Heritage listed land, $5 million (or $1,078 million in the case of a US investor)
- for other non-residential commercial land (including hotels, motels, hostels and guesthouses), $54 million (or $1,078 million in the case of a US investor), and
- for residential land (some exemptions apply), vacant land, or acquisition of shares or units in an Australian urban land corporation or trust, zero
- for dealings by foreign governments and their related entities, zero, and
- for acquisitions of an interest in an Australian corporation (which is not an urban land corporation or trust) or business assets $248 million (or $1,078 million in the case of US investors where the business is not a sensitive activity).
The thresholds are reduced for sensitive sectors, which include the media, telecommunications, transport infrastructure, military and uranium sectors.
The $54 million, $248 million and $1,078 million thresholds are indexed annually on 1 January. 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, however 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.
FATA does not directly regulate the starting of a new business in Australia by a foreign corporation. However, Australia’s Foreign Investment Policy (which directs the administration of the FATA) provides that if a foreign government controls or owns more than 15% of a foreign corporation, that foreign corporation must notify FIRB and receive its approval before starting a new business in Australia.
Further, a foreign corporation wishing to start a new business in Australia should be aware that any Australian corporation that is owned by a foreign corporation will itself be deemed a foreign corporation under the FATA. Accordingly, if a foreign corporation creates a new Australian corporation for the purpose of conducting business in Australia, any acquisition made by that Australian corporation that come within the ambit of the FATA will be subject to the FATA and may need to be approved by FIRB.
The approval process may take up to 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 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.