Last updated: January 2019

Introduction

In Australia, foreign investment is generally encouraged but notification and approval is required for certain types of investments. Foreign investment in Australia is regulated by a framework which includes:

  • the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA)
  • the Foreign Acquisitions and Takeovers Regulation 2015 (Cth)(Regulations)
  • the Federal Government’s Foreign Investment Policy. 

Foreign investors in certain industries may also be subject to requirements under the recently enacted Security of Critical Infrastructure Act 2018 (Cth).

This chapter details the key principles of each of the above.

In most cases, a foreign person will only need to notify the Treasurer of their investment if the investment meets certain monetary thresholds.

Foreign investment

The Foreign Investment Review Board (FIRB) examines foreign investment proposals and makes recommendations to the Australian Government on those proposals. The Australian Government minister responsible for foreign investment decisions is the Australian Treasurer.

The Treasurer reviews foreign investment proposals against the "national interest" on a case by case basis. The national interest is not defined and is given a flexible meaning having regard to all relevant circumstances. The Treasurer can block foreign investment proposals that are contrary to the national interest or apply conditions to the way these proposals are implemented to ensure they are not contrary to the national interest.

The Australian Treasury is responsible for the day-to-day administration of the framework in relation to Australian businesses, agricultural land and commercial land proposals. Compliance and enforcement of foreign investment rules in regards to residential real estate is administered by the Australian Taxation Office (ATO). The ATO now also keeps a record of all foreign persons who holds agricultural land on the Agricultural Land Register.

Australia’s foreign investment legislation applies to investment proposals by foreign persons. A foreign person means:

  • an individual who is not ordinarily resident in Australia
  • a foreign government or foreign government investor,1 or
  • any corporation, trustee of a trust or general partner of a limited partnership in which:
  • a foreigner (ie. an individual not ordinarily resident in Australia, a foreign corporation or a foreign government) has a 20 per cent or more interest, or
  • two or more foreigners have a 40 per cent or more interest in aggregate.

Foreign government investors include not only a foreign government but also any corporation, trustee of a trust or a limited partnership (the general partner of which is treated as a foreign person) in which a foreign government has a 20 per cent or more interest or in which two or more foreign governments have a 40 per cent or more interest in aggregate.Back to article

Notification of transactions to FIRB

Whether notification of an investment by a foreign person is required is determined by reference to the type of investor, the type of investment, the industry sector in which the investment will be made and the value of the proposed investment.

The two most important concepts with respect to notification of foreign investment in Australia are a Significant Action and a Notifiable Action.

A Significant Action is an investment by a foreign person that does not require notification to the Treasurer before that action can be undertaken. However, under the FATA, the Treasurer has the power to make a variety of orders in relation to a Significant Action, including prohibiting the transaction because it is contrary to Australia's national interest. Because of this, it is common practice to notify the Treasurer voluntarily that a significant action is proposed in order to receive a no-objection letter from the Treasurer (refer to Timeframe for decisions). Once a Significant Action is notified to the Treasurer, it automatically becomes a Notifiable Action for the purposes of the FATA. 

A Notifiable Action is an investment by a foreign person in respect of which notification of the proposed action to the Treasurer is compulsory before that action can be taken. Offences and civil penalties may apply if notice is not given. An action is only notifiable if it meets certain threshold tests. In contrast to a Significant Action, a Notifiable Action does not necessarily need to be a change in control transaction. A proposed foreign investment by a foreign person may be both a Significant Action and a Notifiable Action, and therefore be subject to both compulsory notification and certain orders by the Treasurer.

Parties may enter into agreements relating to a Significant Action or a Notifiable Action prior to the Treasurer's decision, however such agreements must be conditional upon the Treasurer not prohibiting the transaction.

Foreign investment applications involve lodging an online form and certain additional information. Applications that relate to foreign investment in Australian businesses, agricultural land or commercial land are processed by the Treasury. Applications that relate to foreign investment in residential real estate are processed by the ATO.

Application fees for foreign investment notifications are charged by the Australian Government. Civil and criminal penalties may be imposed on foreign persons for failing to notify an investment that is subject to Australia's foreign investment laws and for other breaches of these laws.

Monetary Thresholds

In most cases, a foreign person will only need to notify the Treasurer of their investment if the investment meets certain monetary thresholds. These thresholds are summarised in the below tables and depend on the type of investor and the action proposed to be taken by that investor.

The monetary threshold investment amounts listed in the below table are indexed annually on 1 January (except where indicated otherwise).

Investor Action 2 Threshold - more than:

Privately owned investors from Free Trade Agreement (FTA) partner countries that have the higher threshold 3

Acquiring a substantial interest 4 in:

  • an Australian corporation or unit trust, or
  • a foreign corporation that holds Australian assets or has Australian subsidiaries and that carries on an Australia business (or the parent of that foreign corporation)
  • assets of an Australian business which results in a change in control of the business 

$1,154 million (non-sensitive sectors)

$266 million (sensitive sectors) 5

For acquisitions of a substantial interest in an Australian corporation or unit trust, the threshold is based on the higher of the total asset value or the total issued securities value for the corporation or unit trust. 

For acquisitions of interests in assets of an Australian business, the threshold is based on the value of the consideration for the assets. 

 

Acquiring an interest of 5 percent or more in an entity or business that wholly or partly carries on an Australian media business 6

$0

 

Acquiring a direct interest 7 in an Australian agribusiness 8

For Chile, New Zealand and United States, $1,154 million.

   

For Canada, China, Japan, Mexico, Singapore and South Korea: $58 million (based on the value of the consideration for the acquisition and the total value of other interests held by the foreign person (together with any associates) in the entity).

Other privately owned foreign investors

Acquiring  substantial interest 4 in:

  • an Australian corporation or unit trust

  • a foreign corporation that holds Australian assets or has Australian subsidiaries and that carries on an Australia business (or the parent of that foreign corporation).

  • assets of an Australian business which results in a change of control of the business 

$266 million (all sectors)

For acquisitions of a substantial interest in an Australian corporation or unit trust, the threshold is based on the higher of the total asset value or the total issued securities value for the corporation or unit trust.

For acquisitions of interests in assets of an Australian business, the threshold is based on the value of the consideration for the assets. 

 

Acquiring an interest of 5 percent or more in an entity or business that wholly or partly carries on an Australian media business 6

$0

 

Acquiring a direct interest< in an Australian agribusiness 8

$58 million (based on the value of the consideration for the acquisition and the total value of other interests held by the foreign person (together with any associates) in the entity).

Foreign government investors

All direct interests7 in an Australian entity or Australian business (other than direct interests as a result of the foreign government investor establishing a new wholly-owned subsidiary) 9

$0

 

Starting a new Australian business

$0

 

Acquiring an interest of 5 percent or more in an entity or business that wholly or partly carries on an Australian media business 6

$0

2 FATA applies to all foreign investments irrespective of the way they are structured (for example, quasi debt (such as convertible notes) are treated as equity for foreign investment law purposes).Back to article

3 Agreement countries as at 17 January 2019 are Canada, Chile, China, Japan, Mexico, New Zealand, Singapore, South Korea, United States and Vietnam, as well as any country for which TPP-11 subsequently comes into force.Back to article

A substantial interest exists for an entity when a foreign person( together with any associates) holds an interest of 20 per cent or more of the entity and for a trust when the foreign person (together with any associates) holds a 20 per cent or more beneficial interest of the income or property of the trust. Back to article

Sensitive businesses include media, telecommunications, transport, defence and military related industries and activities, encryption and securities technologies and communications systems, and the extraction of uranium or plutonium or the operation of nuclear facilities.Back to article

For investments in the media sector, a holding of at least five per cent requires notification and prior approval regardless of the value of investment.Back to article

Direct interests include investment in interests: a) of 10 per cent or more of the target investment; b) of 5 per cent or more of the target investment if the acquirer has entered a 'legal arrangement' relating to the business; or c) regardless of the percentage interest, which allow the investor to influence or participate in the management and control of the target investment or influence, participate in or determine its policies.Back to article

Agribusinesses include businesses carried out in certain classes of the Australian and New Zealand Standard Industrial Classification Codes, such as agriculture, forestry, fishing and certain first stage downstream manufacturing businesses (including meat, poultry, seafood, dairy, fruit and vegetable processing and sugar, grain and oil and fat manufacturing) where the earnings before interest and tax from those businesses exceed 25 per cent of the total earnings of the entity.Back to article

There is an exemption for acquiring an interest in securities in a foreign entity that has non-material Australian assets (ie. the Australian asset value is less than 5 per cent of the global asset value, the Australian total asset value is less than $55 million, and none of the assets are of a sensitive business).Back to article

Investor Action Threshold - more than:

All investors

Acquiring residential land 10

$0

 

Acquiring vacant commercial land 11

$0

 

Acquiring an interest in Australian land corporations or trusts 12 if the residential land and vacant commercial land is 10% or more of the entity's total assets

$0

Privately owned Investors from FTA partner countries that have the higher threshold3

Acquiring agricultural land 13 (including an interest in an agricultural land corporation or trust 4 holding the same)
 

For Chile, New Zealand and United States: $1,154 million

For Canada, China, Japan, Mexico, Singapore, South Korea and Vietnam: $15 million (cumulative). This threshold is not indexed annually. 

 

Acquiring developed commercial land 10(including an interest in an Australian land corporations or trusts 11 holding the same) 

$1,154 million

 

Acquiring interests of 10 per cent or more in listed Australian land corporations or trusts 11

Acquiring interests of 5 per cent or more in unlisted Australian land corporations or trusts 11

 $1,154 million
 

Acquiring mining and production tenements 15 (including an interest in an Australian land corporations or trusts 11 holding the same)

For Chile, New Zealand and United States: $1,154 million

Others: $0 

Other privately owned investors  Acquiring agricultural land 12 (including an interest in an agricultural land corporation or trust 13 holding the same)   For Thailand, where land is used wholly and exclusively for a primary production business $50 million (otherwise the land is not agricultural land). This threshold is not indexed annually.  
    Others: $15 million (cumulative). This threshold is not indexed annually.   
  Acquiring developed commercial land 10 (including an interest in an Australian land corporations or trusts 11 holding the same)  $266 million
  Acquiring low threshold land (sensitive land)16 $58 million
 

Acquiring interests of 10 per cent or more in listed Australian land corporations or trusts 11

Acquiring interests of 5 per cent of more in unlisted Australian land corporations or trusts 11

$266 million 
  Acquiring mining and production tenements 14 (including an interest in an Australian land corporations or trusts 11 holding the same)   $0 

Foreign government investors

Acquiring any interest in land 

$0

 

Acquiring an exploration tenement 17 or a mining or production tenement 14

$0

 

Acquiring interests of 10 per cent or more in a mining, production or exploration entity 18

$0

10 Residential land is any Australian land which has at least one dwelling on the land, and the number of dwellings that could reasonably be built on the land is less than 10. It does not include land used wholly and exclusively for a primary production business or commercial residential premises (see note 11 below).Back to article

11 Commercial land is any Australian land other than land used wholly and exclusively for a primary production business or residential land. It includes "commercial residential premises", ie. hotels, motels, boarding houses, school accommodation, certain kinds of marinas, caravan parks, camping grounds, etc. Student housing and residential care (eg. aged care) are covered under Commercial Land.Back to article

12 Australian land corporations and trusts are those whose Australian land (other than agricultural land) is >50 percent of its total assets by value.Back to article

13 Agricultural land is land used, or that could reasonably be used, for a primary production business. There are some exclusions for certain land that is not being used wholly and predominately for a primary production business. An agricultural land register was established and has been administered by the ATO since 1 July 2015. A wind farm is not  counted as agricultural land, and land is not deemed to be vacant if a wind or solar panel station is located on the surface of the land. Back to article

14 Agricultural land corporations and trusts are those whose agricultural land is >50 percent of its total assets by value. Back to article

15 A mining and production tenement is a right under Australian law to recover minerals (such as coal or ore), oil or gas in Australia or the Australian exclusive economic zone or continental shelf (other than an exploration tenement - see note 17 below). An exploration tenement is generally not considered to create an interest in Australian land, since it does not give the holder the exclusive right to occupy land, and is generally for a period of less than five years.Back to article

16 Low threshold land includes sensitive land such as mines and critical infrastructure (for example, an airport or port). It no longer includes land falling under prescribed airspaces unless it is one or more of the kinds of low threshold land.Back to article

17 An exploration tenement is a right under Australian law to recover minerals (such as coal or ore), oil or gas in Australia or the Australian exclusive economic zone or continental shelf for the purposes of prospecting or exploring for minerals, oil or gas.Back to article

18 Mining, production or exploration entities are those whose Australian exploration tenements or mining or production tenements are >50 percent of its total assets by value.Back to article

 

National interest considerations

The Australian Government determines national interest concerns on a case-by-case basis and typically considers the following factors when assessing foreign investment proposals:

  • national security: the extent to which the investment affects Australia’s ability to protect its strategic and security interests
  • competition: whether the investment may result in an investor gaining control over market pricing and production of a good or service in Australia or allow an investor to control the global supply of a product or service
  • Australian Government policies: whether the investment may impact on Australian Government tax revenue or other policies, such as environmental objectives
  • impact on the Australian economy and community: whether the investment (including any proposed post-investment restructure) may impact on the Australian general economy and ensure a fair return for the Australian people
  • character of the investor: whether the investor operates on a transparent commercial basis and is subject to adequate and transparent regulation and supervision, including consideration of the corporate governance practices of foreign investors.

In assessing foreign investment applications in agriculture, the Australian Government typically considers the effect of the proposal on:

  • the quality and availability of Australia’s agricultural resources, including water
  • land access and use
  • agricultural production and productivity
  • Australia’s capacity to remain a reliable supplier of agricultural production, both to the Australian community and our trading partners
  • biodiversity
  • employment and prosperity in Australia’s local and regional communities.

 

The Security of Critical Infrastructure Act 2018 (Cth)

The Security of Critical Infrastructure Act 2018 (Cth)(SOCI) has introduced a framework for managing risks to Australia's national security which increases the transparency of ownership or operational control of assets deemed to be critical infrastructure.

Critical infrastructure includes certain ports, certain water, gas and electricity assets, and other assets the Minister for the Department of Home Affairs declares critical to Australia's social or economic stability, defence, or national security.

Once included in this category the Minister is empowered to issue directions that entities do or refrain from doing a specific act or thing in relation to that asset  This is consistent with legislative regimes in other jurisdictions, including the US and Canada.

If an entity holds a critical asset they are required to provide certain information in relation to the operation of that asset and its interest and control to the Secretary of the Department for inclusion on a private register.  If an entity (foreign or otherwise) becomes a direct interest holder in a critical infrastructure asset, which is defined as either the acquisition of at least a 10 percent interest, or coming into a position in which it may directly or indirectly influence or control such an asset then this is a notifiable event.

A notifiable event requires that interest and control information be provided to the Secretary of the Department by the person acquiring the direct interest.

Foreign government investment

The Australian Government considers the following additional factors when considering investments by foreign governments and foreign government investors:

  • whether the foreign government investor is wholly or partly foreign government owned, and whether it operates on a fully arm's length and commercial basis
  • whether the investment is commercial in nature or is the investor potentially pursuing broader political or strategic objectives that may be contrary to Australia’s national interest
  • the size, importance and potential impact of the investment.

Special industry sectors

Specific additional restrictions on foreign investment apply to the industry sectors of media, telecommunications, transport, defence and military related industries and activities, encryption and securities technologies and communications systems, and the extraction of uranium or plutonium or the operation of nuclear facilities.

Requirement for an open and transparent sale process

Where a transaction involves a foreign person acquiring an interest in agricultural land that will be used for a primary production business or residential development, the applicant will be required to demonstrate that Australian investors had an opportunity to acquire the land in question.

This requirement also applies where an exemption certificate is sought in respect of this type of land. What satisfies the requirements of openness and transparency will depend on the circumstances, but generally advertising widely and providing equal opportunity for bids to be made will suffice. An exemption may apply, subject to discretion, if the target entity is already a foreign person, or if the acquisition allows Australian investors to participate in a significant way.

Exemption certificates

Exemption certificates can be applied for certain acquisitions in relation to Australian land, and in relation to acquisitions of interests in either, or both of, the assets of an Australian business and the securities in an Australian entity (including interests acquired through the business of underwriting).

Exemption certificates can be applied for by:

  • a foreign person with a high volume of acquisitions of interests in Australian land, subject to a specified maximum value of interests that can be acquired and a specified period during which the acquisitions can be made
  • property developers and other vendors selling at least 50 new dwellings (such as an apartment) in a specified development to foreign persons (without each foreign person purchaser being required to seek their own foreign investment approval), provided that the total number of dwellings a developer sells to foreign persons does not exceed 50 percent of the dwellings within the specified development
  • foreign persons who are temporary residents wishing to make multiple attempts to acquire a single established dwelling (for example by making private offers, tenders or bidding at multiple auctions) (without having to seek individual approval for each property in which they have an interest in purchasing). Such established dwelling certificates will generally be valid for six months from the date of approval and will require that the temporary resident must use the property as their principal place of residence in Australia
  • a person who plans to acquire an interest in Australian land and build a new dwelling or dwellings on that land and some or all of the interests in those dwellings will become or may become near-new dwelling interests to be disposed of to foreign persons. The Treasurer may give an exemption certificate if they are satisfied that such disposal is not contrary to the national interest
  • a foreign person may apply for an exemption certificate if they propose to acquire one of:
  • an interest in the new dwelling
  • a near-new dwelling interest
  • an interest in vacant residential land.

The Treasurer may give such an exemption certificate if they are satisfied that the acquisition of those kinds of interests by that foreign person is not contrary to the national interest test (Section 43B of the Regulations). Reporting obligations apply on the acquisitions made during the period of the certificate.

On 1 July 2017, a new exemption certificate was introduced for programs of acquisitions of interests in either, or both of, the assets of an Australian business and the securities in an Australian entity (including interests acquired through the business of underwriting). This will enable a foreign person (including a foreign government investor such as a government pension fund) to apply once prior to making any acquisitions and seek pre-approval for multiple low risk investments over a period specified in the certificate, rather than having to notify before each separate acquisition.

It is unlikely that this business exemption certificate will be available to first time investors to Australia given that the applicant's track record in complying with Australian laws is a relevant consideration in the granting of the certificate.

If a person applies for an exemption certificate, the usual timeframes and rules under the FATA and associated regulation for processing applications and notifications apply.

Foreign custodians

There is an exemption for acquisitions of a legal interest in securities, assets, a trust, Australian land or a tenement by a foreign corporate custodian where the acquisition in the course of the custodian's custody business and the custodian exercises the voting rights associated with the interest only in accordance with the directions of another custodian or the holder of an equitable interest in the securities, assets, trust, land or tenement that is receiving custodian services that are related to that interest.

Australian government businesses or land acquired from government

There is an exemption for acquisitions of interests in Australian land or an Australian business acquired from the Commonwealth, a State, a Territory or a local governing body, or an entity wholly owned by the same. This exception does not extend to foreign government investors, or to interests in Australian land that are infrastructure holdings relevant to national security. 

Moneylending agreements

There is an exemption for acquisitions of interests in securities, assets, a trust, Australian land or a tenement if the interest is held solely by way of security for the purposes of a moneylending agreement or acquired by way of enforcement of a security held solely for the purposes of a moneylending agreement, where the entity that holds or acquires the interest is the entity who entered into the moneylending agreement (or its subsidiary, holding entity or security trustee) or a receiver (or receiver and manager) appointed to such an entity. 

There are further requirements for interests relating to residential land and interests acquired by a foreign government investor by way of enforcement of a security in order to fall within the moneylending agreements exemption.

Timeframe for decisions

Under the FATA, the Treasurer has 30 days to consider a formal notification and make a decision for both Significant Actions voluntarily notified and Notifiable Actions for which notification is compulsory. The 30 day period starts when the correct filing fee has been received by the Australian Government.

The Treasurer has a period of 10 days after the end of the 30 day period to notify the applicant of the decision, which may be:

  • to advise the applicant that the Government has no objection to the foreign investment proposal
  • to advise the applicant that the Government has no objection to the foreign investment proposal, subject to specified conditions
  • to advise the applicant that the Government objects to and therefore prohibits the foreign investment proposal
  • to extend the decision period for a period of up to 90 days by making an interim order.

Approval process and timeframes

The Treasurer may make an interim order if a  proposal is complicated or further information is required. An interim order is published publicly on the Federal Register of Legislation and extends the timeframe for the making of a decision by a maximum of 90 days. 

If the applicant considers the 30 day decision period insufficient, or they do not wish for an interim order to be made, they can voluntarily extend the period by notifying the Treasurer in writing that they are extending the decision period for the time specified in writing. This must be done prior to the completion of the 30 day decision period. There is no limit on the number of times the decision period can be extended, however once an interim order is made, the applicant is unable to extend the decision period.

If the Treasurer does not make a decision or take action in relation to the proposal within the allowed period, the Treasurer loses the ability to prohibit or impose conditions on the proposed investment under the foreign investment framework. In routine cases, a decision is made within 30 days of lodgment of a notification and a decision to not object to the transaction is normally granted unless the proposal is judged to be contrary to the national interest. In circumstances where notifications relate to sensitive sectors or involve investors with broader political or strategic objectives that may be contrary to Australia’s national interest, then the timeframe to obtain a decision is likely to exceed 30 days.

For significant decisions, the Treasurer consults broadly within the Australian government and its instrumentalities, state and territory governments and their instrumentalities, national security agencies and authorities with responsibilities relevant to the proposed action. Advice and comments provided by such agencies and entities are important in assessing the implications of proposed actions, particularly their national interest implications.

Foreign investment decisions

A foreign investment no objection decision by the Treasurer will specify the permitted action(s), the foreign person(s) to which the decision relates (which may be a foreign corporation that is not yet incorporated or a trustee of a trust that is not yet established) and the time limit for the permitted action(s) to be taken (if the foreign person proceeds with those actions).

The time limit is generally 12 months but can be a longer period approved by the Treasurer. A material variation of an agreement (such as increasing the percentage that a person holds in an entity) can require further approval.  

Conditions placed on foreign investment

Approval of the transaction may be subject to conditions and compliance with these conditions is compulsory. These conditions are imposed to satisfy the Treasurer that the transaction is not contrary to the national interest.

Standard tax conditions are imposed on a case-by-case basis for transactions which the ATO believes may affect Australian tax revenues. Examples of standard conditions include providing documents or information to the ATO, and the payment of outstanding tax debts. Some transactions pose specific tax risks and in these circumstances the applicant must engage in good faith with the ATO to resolve any tax issues in relation to the transaction, and provide certain specified information, including a forecast of tax payable.

Conditions also apply to transactions involving vacant non-agricultural land. Acquisition of such land is generally conditional on the foreign investor commencing construction of a proposed development within five years of approval, and retaining the land until construction is complete.

Internal reorganisations

Notifications requirements can apply to internal reorganisations of corporate groups which meet the monetary thresholds. However, reduced fees apply to acquisitions of interests in securities between subsidiaries of a common parent entity or to a subsidiary, and acquisitions of interests in an asset or Australian land between subsidiaries of a common parent entity, or to a parent entity or subsidiary.

Record Keeping

Records relating to foreign investment notices and applications must be kept for specified time periods.

These obligations apply to records of:

  • actions taken by a person to the extent the records are relevant to an order or decision made by the Treasurer under the FATA (for five years after the action is taken)
  • actions specified in an exemption certificate (for five years after the action is taken)
  • compliance with conditions in a no objection decision and an exemption certificate (for two years after the condition ceases to apply)
  • certain disposals of interests in residential land (for five years after the interest is disposed).

Fees

A fee is payable at the time of giving a notice or making an application under the Act, and the Treasurer is not required to take any action prior to the fee being paid. The time limit on the making of a decision does not begin until the fee is paid.

The schedule of fees is set out in the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 (Cth). Generally the amount of the fee is calculated by reference to the value of the proposed transaction.

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