Foreign investment in Australia – update on recent changes and what you need to knowFeb 2016 |
Australia’s foreign investment laws have received a shake up after the Commonwealth Government passed a reform package with the stated aim of strengthening Australia’s foreign investment framework and applying greater scrutiny to some foreign transactions in Australia.
The legislation giving effect to the changes commenced on 1 December 2015. The reforms include:
- A re-write of the legislation (including new regulations) to introduce concepts of significant actions, notifiable actions, different classifications of Australian land, various exemptions and changed thresholds for notification.
- The formal commencement of a national register of foreign-owned agricultural land, which has been in place since 1 July 2015. Foreign investors who hold an interest in farming land will need to register their interest by 29 February 2016 (extended from the initial date of 31 December 2015).
- The introduction of significant application fees for notifications required to be made under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA).
Requirement to give notice
Under the new regime, foreign persons must give notice to the Foreign Investment Review Board (FIRB) before taking a ‘notifiable action’. What constitutes a notifiable action will depend on whether the transaction relates to an interest in an Australian company or Australian land.
Generally, a proposed action will be a notifiable action if a foreign person seeks to acquire:
- ‘direct interest’ in an Australian agribusiness;
- a ‘substantial interest’ in an Australian entity; or
- an ‘interest’ in Australian land.
An action will only be notifiable if it meets the threshold test.
Actions involving Australian entities
For actions involving Australian entities, the ‘substantial interest’ threshold is 20% (up from the previous 15%). The Australian government is concerned with investments that result in a change in control of the relevant entity. Generally, a foreign person will be deemed to be in control of an entity if the person (whether acting alone or together with their associates) is in a position to determine the policy of an entity or business.
Whether a proposed transaction requires FIRB approval depends on whether the threshold tests are met. The threshold for a foreign investor seeking to acquire interests in securities of an Australian entity or the assets of an Australian business is $252 million, or $1,094 million for private (non-government) investors from the United States of America, New Zealand, Chile, Japan or Korea. If the proposed transaction concerns an agribusiness, the threshold drops to $55 million.
All foreign government investors require approval to acquire a direct interest in an Australian entity, irrespective of the value.
The provisions of the FATA have been amended to provide more clarity around the classification of Australian land and when notifications are required. The threshold will depend on the foreign government investor and the classification of the land in question. Australian land may be agricultural land, commercial land, residential land or a mining or production tenement. Each of these terms is defined in the legislation, and a number of exemptions are set out in the regulations.
Table 1 provides an overview of the various thresholds that apply to Australian land. For example, a foreign investor seeking to acquire an interest in agricultural land must notify the FIRB if the cumulative value of their interests in Australian agricultural land exceeds $15 million. Exceptions apply to investors (other than foreign government investors) in some countries where a free trade agreement is in place. All foreign government investors seeking to acquire an interest in Australian land are required to notify the FIRB.
Generally, the acquisition of an interest in residential land will be notifiable, regardless of the value of the investment. Foreign investors may also be required to notify FIRB of a proposed acquisition in commercial land, depending on whether the land is vacant or developed.
The new regime has also established rules around FIRB treatment of mixed use land in which two or more land types coexist – for example, agricultural land which is used for primary production but which includes a residence.
Mining and production tenements
Foreign investors seeking to acquire an interest in a mining or petroleum production tenement in Australia will need to obtain FIRB approval before proceeding with the acquisition unless the grant of the tenement is made by the Australian government. Depending on the resource, FIRB approval may also be required for foreign government investors to participate in cash bidding programs.
The acquisition of an interest in an exploration tenement will generally not be notifiable (unless the tenement is being acquired by a foreign government investor), but it will depend on the terms of the licence. If an exploration licence is reasonably likely to exceed five years (including any extension or renewal) and confers the right to occupy the underlying land, then FIRB approval may be required.
An acquisition that was exempt because the acquisition concerned an exploration tenement will still require FIRB approval if the holder intends to apply for higher tenure (e.g. a production tenement) and it meets the threshold test.
The new regime establishes a process for foreign entities to obtain an exemption certificate. A foreign investor may apply for an exemption certificate to be issued by the Treasurer which provides that an interest or an action that would otherwise be a notifiable action or significant action (including a proposed program of acquisitions or actions) is not required to be notified. The ability continues for property developers to seek an exemption certificate to sell new dwellings in a development to foreign persons without them having to obtain approval prior to sale. Substantial fees are now imposed to apply for and hold an exemption certificate for certain periods of time, or to vary an exemption certificate.
Foreign owned agricultural land register
Any foreign person that holds a freehold interest in agricultural land or a right to occupy under a lease or licence with a term of five years or more (including options and renewals) from 1 July 2015 must register their interest in the Register of Foreign Ownership of Agricultural Land.
Foreign investors who own (or hold a relevant leasehold or other interest in) Australian agricultural land now have until 29 February 2016 to register their interest. All new acquisitions must be registered within 30 days. Divestments will also need to be notified.
The register is to be maintained by the Australian Taxation Office (ATO), which has responsibility for collating information and reporting to Parliament on the extent of foreign-held farming land in Australia. Statistical information derived from the register will be published on the ATO website and presented to the Minister annually.
Different online forms are required to be completed, depending upon the type of entity or agent registering, and submitted via the ATO website. Information to be disclosed includes the market value of the land (being the sale price for an arms’ length transaction within the last 12 months, or otherwise value calculated on a reasonable basis). There is no cost involved in registering an interest. Notifications will also be required where land becomes, or ceases to become agricultural land, or an entity becomes or ceases to be a ‘foreign person’.
Application fees for FIRB approvals
From 1 December 2015, fees will be payable for any notification or application required under the FATA. The fees are imposed by two new pieces of legislation, being the Foreign Acquisitions and Takeovers Imposition of Fees Act 2015 (Cth) and the Foreign Acquisitions and Takeovers Imposition of Fees Regulation 2015 (Cth). The amount of the fee depends on the nature of the proposed transaction. A schedule setting out the key notification fees (subject to any available exceptions, exemptions or allowances) is provided in Table 2.
Foreign persons taking an interest in an Australian mining or petroleum production tenement will be liable for a fee of $25,000 for each notification.
As noted above, substantial fees are also payable to apply for, and hold, exemption certificates.
Note that application fees will be indexed each year, and the fees are not refundable if an approval is not granted, or conditions are imposed in response to a notification.
Foreign investors in Australia – both new and seasoned investors – are advised to review the changes and consider whether FIRB approvals may be required under the new regime, and if so, what fees are payable.
These substantive changes can mean transaction costs will be significantly increased, and all affected parties should be aware of both the notification obligations and costs. All available exceptions, exemptions and allowances should be carefully examined.
The requirement for registration of agricultural land interests should also be noted with increased involvement of the ATO, new offences, new and increased penalties and a range of other measures. The overall enforcement regime under the new legislation has stepped up significantly, making upfront awareness and compliance essential for all foreign investors.
This article may provide CPD/CLE/CIP points through your relevant industry organisation.
For more information on how the new foreign investment policy framework may affect you, log on to https://firb.gov.au/ or please contact us.