The rules relating to foreign investment in Australia

Australia's foreign investment framework

Australia’s foreign investment approval regime regulates certain acquisitions of equity interests in Australian business, Australian companies and unit trusts and interests in Australian real property by foreign persons.

The foreign investment review framework is governed by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) along with some associated regulations.

FATA requires foreign investors to notify the Treasurer of proposed foreign investments that meet certain criteria. Foreign investors can also make a voluntary notification in certain circumstances.

The Australian Treasurer will determine whether approval is granted and is advised by the Foreign Investment Review Board (FIRB).

Who is a foreign person?

A person will be considered a ‘foreign person’ for the purposes of FATA if they are:

• an individual not ordinarily resident in Australia;
• a corporation, trustee of a trust or general partner of a limited partnership in which:
    - an individual not ordinarily resident in Australia, foreign corporation or foreign      government holds a substantial interest of at least 20%;
    - two or more foreign persons hold an aggregate substantial interest of at least 40%;
• a foreign government or foreign government investor.

For the purposes of determining the “interest” held in an entity, this is not limited to voting power but can also include potential voting power and veto rights over board decisions.

Notification

Where a foreign person is required to notify FIRB of their proposed investment, notification must occur before any transaction takes place. Failure to notify FIRB is a criminal offence.

A foreign person is required to notify FIRB where an action is both a notifiable action and a significant action. Broadly, whether an action needs to be notified to FIRB will depend on:

• whether the investor is a foreign government or non-government investor;
• the type of acquisition;
• whether the investment is likely to raise national security concerns;
• the monetary thresholds relevant to the investment; and
• whether any exemptions apply.

Investors from certain countries who have entered into free trade agreements with Australia, have higher monetary thresholds for notification.

FTA Countries are Canada, Chile, China, Hong Kong, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, South Korea, United Kingdom, United States of America and Vietnam (FTA Countries).

For these FTA Countries the threshold applicable is AUD$1.339 billion where no special rules apply to the entity.

For investors from FTA Countries where the target carries on a sensitive business (mainly businesses involving telecommunications, transport and media), the threshold is AUD$310 million.

If the investor is a non-foreign government investor from India then the monetary threshold is AUD$500 million.

There is no minimum threshold for foreign government investors or if the target operates a national security business (i.e.. all transactions involving a foreign government or a national security business are subject to compulsory notification).

For foreign persons (other than foreign government investors and foreign persons from FTA countries) the threshold is AUD$310 million.

There are special rules if the transaction relates to the agricultural sector, mining and property.

Consultation

In considering an application for approval, FIRB can consult with Commonwealth, state and territory government departments and agencies. This includes consultation with the Australian Taxation Office and the Australian Competition and Consumer Commission.

Timing and costs

A fee is charged for each application for approval. FIRB will only consider an application once the fee has been paid. Current fees can range from AUD$4,200 – AUD$1,119,000 depending on the transaction value and certain other factors.

Once an application is lodged and the fee paid, the Treasurer generally has 30 days in which to make a decision and a further 10 days in which to notify the applicant.

The time period can be extended by the Treasurer in certain circumstances including where further information is requested by the Treasurer. The Treasurer can also unilaterally extend the time period by up to 90 days or make an interim order prohibiting the transaction temporarily for up to 90 days.

Penalties

The Treasurer has broad powers to deal with foreign investments.

These include the power to “call-in” transactions which have not been notified to FIRB where the Treasurer considers a transaction to be contrary to the national interest or national security.

The Treasurer can also make adverse orders such as requiring the transaction to be unwound or imposing conditions on the transaction, and can impose the following criminal penalties:

• for an individual - up to 10 years imprisonment or a fine of up to AUD$4,695,000
• for a corporation - a fine of up to AUD$46,950,000

or civil penalties:

• for an individual – a fine of up to AUD$1,565,000
• for a corporation – a fine of up to AUD$15,650,000.

Considering the potential penalties for non-compliance, it is important for any foreign investors to seek legal advice on any proposed investments into Australia.

Contributors:

Simon Correggia – Special Counsel, Deutsch Miller – Corporate Team
Anna McKay – Associate, Deutsch Miller – Corporate Team

Further reading:

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As Alliott Global Alliances’s law firm member representative in New South Wales, Australia, the team at award winning Deutsch Miller combines technical excellence, first class service and a practical, commercial approach to legal issues, earning them a reputation as the astute choice for international and domestic clients and their advisers when they face complex, critical commercial challenges and opportunities. Read more.