FIRB Annual Report: valuable insights for investors in 2019

21 Mar 2019
On the basis of the trends observed in 2017/18, investors can expect the number of applications approved with conditions to continue.

On 15 February 2019, the Foreign Investment Review Board (FIRB) released its 2017/18 Annual Report.

The Report examines trends and developments in Australian foreign investment and provides an overview of the foreign investment applications assessed by FIRB in 2017/18. The Report provides a number of observations on FIRB's approach to assessment of foreign investment applications, in particular, the increasing trend for FIRB to impose conditions on approvals as a means of managing potential risks that FIRB considers contrary to the national interest.

Foreign investment outlook: trends and developments

The Report examines several developments in Australian foreign investment:

  • The waning of resource and mining led growth continued through 2017/18, with the growth of the non-mining sectors (particularly, infrastructure) compensating for receding resource sector investment.
  • Despite strong investor interest, the infrastructure led growth spurt is likely to decline given the moderating pace of State Government infrastructure privatisations.
  • Although global rates of foreign direct investment declined in the first half of 2018, FIRB expects continued interest from the US, UK and China in advanced technology sectors, such as health care. In Australia, the health care sector experienced a $3.7 billion year-on-year increase of approved foreign investment. This trend is expected to continue.
  • The Report anticipates the softening of Chinese investment in Australian real estate will likely continue through 2019.
  • Investments in sectors critical to the Australian economy will continue to attract additional FIRB scrutiny. The past two reporting periods saw investments associated with the privatisation of large state-owned electricity assets and sales of data centres. In this respect, FIRB is increasingly focused on the security of critical infrastructure and the protection of sensitive data.

Overview of applications

The Report affirms the policy of the Commonwealth Government – being to promote the "open and non-discriminatory foreign investment framework that balances encouraging foreign investment flows while ensuring foreign investment is not contrary to the national interest". This stance of encouraging foreign investment has resulted in the majority of foreign investment applications being approved without conditions.

The overall number of FIRB applications decreased, while the number of approvals made subject to conditions increased. In this respect, 43.5% of the total number of approvals were subject to conditions. This is an increase of approximately 3% compared with the previous year following on from a near 9% increase in the 2015/16 calendar year.

Refusals remain particularly rare, with a mere two applications rejected during the 2017/18 period. These rejections concerned a proposed purchase of agricultural land for residential development and an application for the purchase of residential real estate, respectively.

Variation applications (which are usually an application to amend the conditions imposed by an approval or exemption certificate) declined compared to the previous year, as did the number of variation applications approved. 10% of variation applications were refused in 2017/18, reflecting an increase of over 7% of variation application rejections. Like the previous year, the overwhelming majority of variation applications related to variations to residential land approvals and are likely to be extensions to deadline conditions imposed by FIRB.

The rise of conditional FIRB approvals

As indicated above, there is an increasing trend for FIRB to impose conditions on approvals. FIRB's assessment of applications is conducted on a case-by-case basis. However, the Report contains some guidance in relation to the types of conditions likely to be imposed on approvals. We set out below some commentary on this guidance based upon the Report and our experience.

Real estate acquisitions

The conditions likely to be imposed on an approval to acquire an interest in real estate will depend on the category of land acquired. For commercial land and residential real estate, examples of the types of conditions include:

  • the maximum purchase price for the land;
  • if existing dwellings feature on the land, the future use of these dwellings may be specified by the conditions (including whether these dwellings are permitted to be demolished and replaced);
  • specifying the commercial purpose for any redevelopment;
  • restrictions on the use of the residential land for rental purposes; and/or
  • a deadline for completion of any redevelopment on the land.

For all FIRB applications relating to residential real estate and non-sensitive commercial real estate and corporate reorganisation cases, the ATO will assess these applications. As a consequence, investors should be prepared to respond to tax specific queries that may be asked by the ATO in the FIRB assessment process.

Securities acquisitions

The conditions likely to be imposed on an approval to acquire securities will depend on the nature of the entity and associated assets. However, examples of the types of conditions include:

  • the total equity permitted to be acquired through an acquisition;
  • the maximum consideration payable for the securities; and/or
  • a deadline for the acquisition of securities.

Tax conditions

Although not explicitly mentioned in the Report, it is likely that the standard tax conditions imposed by FIRB will continue through 2019. In our experience, standard tax conditions include:

  • ensure compliance with Australian tax laws;
  • provide specified documents to the ATO relating to the transaction within a specified timeframe; and/or
  • submit an annual report to FIRB in relation to its compliance with the specified FIRB tax conditions.

Data security considerations

The imposition of data security conditions will become an increasingly common feature of FIRB conditions specified, particularly where Government data, public information or otherwise sensitive information is involved.

The Report notes that FIRB's assessment of foreign investment applications will extend to assessing safeguards in place for protecting Australians' data. The types of data security conditions will generally specify:

  • the storage location of IT equipment holding the data in question;
  • nature of records to be kept; and/or
  • requirement to provide FIRB access to the data upon request.

Investors seeking FIRB approval for investments that may present data security risks may experience a protracted FIRB approval process, with possible extensions to the statutory deadline.

Other observations – exemption certificates applications

Exemption certificates permit foreign persons to undertake multiple acquisitions of Australian land, businesses or securities in Australian entities without having to apply for separate FIRB approval for each transaction. The Report notes that exemption certificates are suited to those investors, who may not have defined their acquisition target, but intend to "make a series of passive investments in sectors or industries that typically do not raise national interest concerns", and will likely be suitable for those investors who are "low risk foreign government investors".

In the 2017/18 Federal Government budget, a new form of business exemption certificate was introduced for acquisitions of assets and securities to enable broad pre-approval for "routine" transactions over a mandated period and up to a specified monetary limit.

The number of exemption certificate applications has moderated in comparison to previous years. The Report notes that this is due, in part, to the increased period of time (often up to three years) granted by exemption certificates. This extended period granted by exemption certificates is also likely to be a reason for the decreased FIRB application numbers.

Three exemption certificate applications were rejected in 2017/18. Although the reasons for these rejections is not specified in the Report, it is noted that the decision to reject the exemption certificate application reflects a situation where, for the Treasurer to be satisfied that the acquisition in question is not contrary to the national interest, the specific asset would need to be identified.

Key takeaways

On the basis of the trends observed in 2017/18, investors can expect the number of applications approved with conditions to continue. This is particularly the case for sensitive infrastructure and data intensive businesses. Rejections of FIRB applications remain rare.

Investors now benefit from the extended period granted by exemption certificates, negating the need for annual renewal of previously issued 12 month exemption certificates. However, the decreasing number of approved variations suggests that FIRB is increasingly unwilling to amend conditions imposed by an application.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.