Australia requires a wide variety of investments by foreign businesses to be reviewed and approved before completion
The decision to approve or deny a foreign investment application is ultimately made by the Treasurer of Australia, based on an assessment of whether or not the investment would be contrary to the national interest.
When making its decision, the Treasurer is advised by the Foreign Investment Review Board (FIRB), which examines foreign investment proposals and advises on the national interest implications.
Australia's foreign investment policy framework comprises the Foreign Acquisitions and Takeovers Act 1975 (the Act), the Act's related regulations, Australia's Foreign Investment Policy (the Policy) and a number of guidance notes.
A foreign person or entity making an acquisition that requires approval under the Act must apply to FIRB for approval before completion of the acquisition, and the agreement to make the acquisition must be subject to receiving FIRB approval.
An application includes a filing fee that varies according to the type of deal and the deal value.
Types of deals reviewed
Approval is required for a range of acquisitions by foreign persons, including:
A "substantial interest" in an Australian entity: An acquisition of an interest of 20 percent or more in an Australian entity valued at more than AUD 252 million (approximately US$200.5 million).
Australian land and land rich entities: Various acquisitions of interests in Australian land are regulated with varying monetary thresholds, including in respect of residential land, vacant commercial land, developed commercial land and an entity where the value of its interests in Australian land exceeds 50 percent of the value of its total assets.
Agricultural land and agribusinesses: Acquisitions of interests in agricultural land and agribusinesses are regulated separately in the Act. In addition, a register of foreign ownership of agricultural land is maintained by the Australian taxation authority.
Certain types of investors receive differing treatment for their deals:
Fair trade agreement investors: Consistent with Australia's fair trade agreement commitments, higher monetary thresholds apply to certain acquisitions made by investors from Chile, Japan, Korea, New Zealand and the United States. For example, an acquisition of an Australian entity by an agreement country investor will only require FIRB approval if the entity is valued at more than AUD 1.094 billion (approximately US$871 million), unless the investment relates to a "sensitive business" such as media, telecommunications, transport, defense and military-related industries.
Foreign government investors: Stricter rules apply to foreign government investors (which can include domestic or offshore entities where a foreign government holds a direct or upstream interest of 20 percent or more, or foreign governments of more than one foreign country that hold an aggregate interest of 40 percent or more). In general, foreign government investors must obtain approval before acquiring a direct interest (generally, at least a 10 percent holding or the ability to influence, participate in or control) in any Australian asset or entity regardless of the monetary thresholds for approval, starting a new business or acquiring mining, production or exploration interests.
Scope of the review
The Treasurer may prohibit an investment if he or she believes it would be contrary to the national interest. In making this decision, the Treasurer will broadly consider:
- The impact on national security (with advice from the Critical Infrastructure Centre)
- The impact on competition
- The effects of other Australian government laws and policies (including tax and revenue laws)
- The impact on the economy and the community
- The character of the investor
- Generally, the Treasurer approves the vast majority of applications
- However, FIRB has been increasingly willing to use conditions and undertakings as a mechanism to increase the government's oversight of more complex or sensitive investments. Undertakings required from FIRB may include matters relating to governance, location of senior management, listing requirements, market competition and pricing of goods and services (e.g., that all off-take arrangements must be on arm's-length terms) and other industry-specific matters. FIRB has also issued a set of standard tax conditions that apply to those foreign investments that pose a risk to Australia's revenue and make clear the requirements and expectations for investors
- The Treasurer has wide divestiture powers and criminal and civil penalties can apply for serious breaches of Australia's foreign investment laws
Trends in the review process
Historically, there have been few rejections by the Treasurer on the grounds of national interest. However, there have been some significant investment proposals that have been rejected on national security grounds, including the blocking of the New South Wales government's proposed sale of its electricity network Ausgrid to Chinese and Hong Kong investors in 2016.
How foreign investors can protect themselves
Foreign persons should file an application in advance of any transaction or make the transaction conditional on foreign investment approval, and a transaction should not proceed to completion until the Treasurer advises on the outcome of its review. For a more sensitive application (e.g., transactions involving the power, ports, water, telecommunications banking or media sectors), foreign investors should consider taking up the government's invitation in the Policy to engage with FIRB before filing an application for a significant investment. These discussions may help foreign investors understand national interest concerns the government may hold about a particular proposal and the conditions the Treasurer may be considering imposing on the proposal should it be approved. These discussions can also help with structuring a transaction in order to reduce the likelihood of rejection.
Such discussions should be held at an early stage in order to provide enough time to satisfy all FIRB queries. Where there is a competitive bid process for the acquisition, a foreign investor that does not actively engage with FIRB early in the bidding process may be placed at a competitive disadvantage to other bidders who do. Foreign investors should be prepared to discuss in detail any conditions and undertakings that may be requested by FIRB, especially for acquisitions that are likely to attract greater political or media scrutiny.
Review process timeline
Under the Act, the Treasurer has 30 days to consider an application and make a decision. The time frame for making a decision will not start until the correct application fee has been paid in full. If the Treasurer requests further information from the investor, the 30- day time period will be on hold until the request has been satisfied. The Treasurer may also extend this period by up to 90 days by publishing an interim order. An interim order may be made to allow further time to consider the exercise of the Treasurer's powers. Investors can also voluntarily extend the period by providing written consent.
2017 update highlights
- National security review of Australian critical infrastructure assets. In January 2017, the Attorney-General's Department established the Critical Infrastructure Centre (CIC) to address the Australian government's concerns about investors with access and control of Australian critical infrastructure. Acquisitions in sensitive sectors of power, ports, water and telecommunications will be the initial focus of the CIC, which will pre-emptively assess national security risks for critical infrastructure and advise FIRB on the national security component of the national interest approval test
- Business acquisition exemption certificates. Foreign investors can now apply for business exemption certificates for broad pre-approval for a program of investments activity over a specified period. Similar exemption certificates are available for acquisitions of land and land entities, and mining and exploration tenements
- Reinstatement of the custodian holdings exemption and increasing approval thresholds for offshore global transactions. Companies which become foreign persons by virtue of their foreign custodian holdings are not subject to notification requirements and thresholds for global acquisitions that result in an acquisition by a foreign government investor have been increased
- Clarifying treatment of various land interests: These include residential land used for commercial purposes and land used or intended to be used for solar or wind farms
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