Doing Business in Australia 2015: 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 the Treasurer determines not to be in the “national interest”. Investment proposals by foreign persons are reviewed on a case-by-case basis.

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 policy 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, shipping and investment in 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.

Investment by “foreign persons” (including foreign corporations and trusts)

The following are considered “foreign persons”:

  • an individual who is not ordinarily resident in Australia
  • a corporation in which one or more individuals, who do not ordinarily reside in Australia, hold a “substantial interest” of 15% or more
  • unrelated individual foreign persons and foreign corporations that hold an aggregate interest of 40% or more of the corporation
  • a trustee of a trust estate in which one or more individuals, who do not ordinarily reside in Australia, hold a beneficial interest of 15% or greater of the assets or income of the trust, and 
  • unrelated individual foreign persons and foreign corporations that hold, in aggregate, a beneficial interest of 40% or more 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).


Investment thresholds 

Not every acquisition above is subject to FATA regulation. Foreign persons only need to notify the Australian government and seek approval only for investments which meet the specified threshold amounts. 

The thresholds are generally:

  • •    for investments in Australian urban land, (including some companies and trusts which are “land rich”):
  1. for Heritage listed land, $5 million (or $1,094 million in the case of investors from the US, Chile, New Zealand, Japan or Korea)
  2. for other non-residential commercial land (including hotels, motels, hostels and guesthouses), $55 million (or $1,094 million in the case of investors from the US, Chile, New Zealand, Japan or Korea), and
  3. 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, $252 million (or $1,094 million in the case of investors from the US, Chile, New Zealand, Japan or Korea where the business is not a sensitive activity).

The thresholds are reduced for “sensitive sectors”, which include the media, telecommunications, transport, military, uranium and encryption and security technology sectors.

The threshold amounts are indexed annually on 1 January. As well as general anti-avoidance provisions, there are specific provisions to preclude investors not from the US, Chile, New Zealand, Japan or Korea from making investments through entities based in these countries 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 (for example, acquiring an interest in a time share scheme that allows you to use a residential property for up to four weeks a year), however approval is unlikely to be granted outside these specific exemptions.

Starting a new business in Australia 

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.

Government approval

The approval process may take up to 30 days, although there is scope for the Treasurer to extend this period by 90 days where more information is required.

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.