Regulation of foreign investment


The Australian Government’s general policy stance is to welcome foreign investment consistent with the national interest. Foreign investment provides scope for higher rates of economic activity and employment than could be achieved from domestic levels of savings. Foreign investment also provides access to new technology, management skills and overseas markets.

 

The Government’s foreign investment framework is implemented through the Foreign Acquisitions and Takeovers Act 1975 (the Act) and the Government’s foreign investment policy. The Federal Treasurer is responsible for the foreign investment framework. Under the Act, the Treasurer reviews investment proposals to decide if they are contrary to Australia’s national interest.

 

The Treasurer can block proposals that are contrary to the national interest or apply conditions to the way proposals are implemented to ensure they are not contrary to the national interest. When making such decisions, the Treasurer relies on advice from the Foreign Investment Review Board (FIRB).
 
The policy applies to foreign persons. This includes a natural person not ordinarily resident in Australia and a corporation in which a natural person not ordinarily resident in Australia or a foreign corporation has a controlling (substantial) interest.
 
Only proposals which are deemed to represent a ‘substantial interest’ trigger approval requirements under the Act.
A ‘substantial interest’ occurs when a single foreign person (and any associates) has 15 per cent or more of the ownership of a corporation, business or trust, or several foreigners (and any associates) have 40 per cent or more in aggregate of the ownership of any corporation, business or trust.


In addition to this, monetary thresholds are specified in the Act. These determine the scope of the foreign investment examination process. As such, the following proposals require notification to FIRB.
1. Acquisitions of a ‘substantial interest’ in an existing Australian company or business valued over A$231 million (indexed annually on 1 January each year). A$1004 million threshold (indexed annually) applies to US investors.
2. Acquisitions of a ‘substantial interest’ in an offshore company whose Australian subsidiaries or gross assets are valued above A$231 million (indexed annually). A$1004 million threshold (indexed annually) applies to US investors.
3. Portfolio investments in the media of 5 per cent or more and all non portfolio investments, irrespective of size.
4. Direct investments by foreign governments or their agencies, irrespective of size.
5. Acquisitions of interests in urban land (including interests that arise via leases, financing and profit sharing arrangements and the acquisition of interests in urban land corporations and trusts) that involve acquisition of:
       • Developed non-residential commercial real estate where the property is subject to a heritage listing, valued at A$5 million or more (and the acquirer is not a US investor);
       • Developed non-residential commercial real estate where the property is not subject to a heritage listing, valued at A$50 million or more, or at A$1004 million (indexed annually) for US investors;
       • Vacant real estate, irrespective of value;
       • Residential real estate, irrespective of value; or
       • Shares or units in Australian urban land corporations or trust estates, irrespective of value.
       • Proposals where the applicant has any doubt as to whether the acquisition is notifiable. Funding arrangements that include debt instruments having quasi-equity characteristics will be treated as direct foreign investments. 

National interest

 
A proposal can only be rejected by the Treasurer if he or she is satisfied that the proposal is ‘contrary to the national interest.’ There is a presumption that foreign investment proposals are generally in the national interest and should occur.
In rare situations a proposal may be rejected because it is inconsistent with existing government law and policy (for example, environmental regulation or competition policy), national security interests or economic development. 

Approval period

 

A statutory 30 day examination period and additional 10 day notification period applies to proposals once formally lodged with the FIRB. The examination period can be extended by up to 90 days for complex cases.  

Industry specific regulations


In addition to the notification requirements already mentioned, certain industry sectors are subject to restrictions that arise under other legislation. 

Exemptions to the regulations


Proposed acquisitions of residential real estate are exempt from examination in the case of:
• Foreign nationals purchasing (as joint tenants) with their Australian citizen spouse; and
• Foreign nationals who are the holders of permanent resident visas or are holders of a ‘special category visa’ (typically New Zealand citizens) purchasing property that is zoned residential either in their own name or through an Australian corporation or trust.

 

There is also a range of further exemptions under the Foreign Acquisitions and Takeovers Regulations 1989. 

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