Introduction
Foreign direct investment in Australia is regulated by the Foreign Acquisitions and Takeovers Act 1975 (the Act) and the Foreign Acquisitions and Takeovers Fees Impositions Act 2015 (the Fees Imposition Act), along with their associated regulations. Under the Act, foreign investors must notify the Treasurer of proposed investments in Australia if they meet certain criteria. In other cases, proposed investments may be voluntarily notified to the Treasurer. Such proposed investments are assessed by the Foreign Investment Review Board (FIRB), a non-statutory body that advises the Treasurer.
Notification Requirement
The Act differentiates between foreign investments that:
- must be notified to the Treasurer and FIRB, being investments that are either:
- both a “notifiable action” and a “significant action”; or
- a “notifiable national security action”; and
- may be notified to the Treasurer and FIRB, being investments that are either:
- a “significant action”; or
- a “reviewable national security action”.
“Notifiable actions” are those that acquire a direct interest in an Australian entity or Australian business that is an agribusiness; acquire a substantial interest in an Australian business; or acquire an interest in Australian land. A “significant action” is an action to acquire interests in securities, assets or Australian land, or other investment actions relating to Australian corporations, unit trusts and businesses. Whether or not an action is deemed “significant” varies depending on the type of action and the particular circumstances. Specifically, significant actions require a (i) change of control for entities or an Australian business, and (ii) a certain monetary threshold to be met. “Notifiable national security actions” are actions that involve:
- Starting a national security business;
- Acquiring a direct interest in a national security business or an entity that carries on a national security business; and
- Acquiring an interest in national security land.
A “national security business” is broadly defined as one involved in or connected with a “critical infrastructure asset”, telecommunications, defence or a national intelligence community (of either Australia or a foreign country), or their supply chains.
Monetary thresholds
An investment will not be notifiable if the relevant monetary theshold has not been met. Different types of investments attract different thresholds with some investments, such as those in national security businesses, Australian media businesses, and those made by foreign government investors, having a $0 threshold. Subject to limited exceptions, the monetary thresholds are indexed annually on 1 January.
Decision timeframes
The Treasurer has 30 days to consider and make a decision in relation to an application. It is important to note that the clock does not start running until the correct fee has been paid in full. Further, the Treasurer is also able to unilaterally extend the decision period by up to 90 calendar days on written notice.
Powers of the Treasury
The Treasurer has broad powers under the Act to ensure that foreign investments are not contrary to Australia’s national interest. One such power is the Treasurer’s ability to ‘call in’ an application for review, if the Treasurer considers that the action may pose a national security concern. However, the Treasurer cannot call in a transaction if it was previously notified to the Treasurer, or if a person was given a no objection notification or exemption certificate in relation to the action. As a result, foreign investors regularly elect to voluntarily notify their proposed investments to the Treasurer in order to mitigate future risk.
Although subject to certain requirements, the Treasurer is able to make divestment orders and unilaterally impose new conditions or vary existing conditions after FIRB approval has been granted.
Recent developments in Australia
On 1 May 2024, the Australian Govermnent announced reforms aimed to improve Australia’s FDI regime by making it stronger, more streamlined and more transparent by adopting a risk-based approach. Interestingly, these reforms will generally not be implemented through legislation, but rather through updates to the FIRB’s policies, guides and processes. For “lower-risk” investments, the Government is implementing a streamlined process for faster approvals. Low-risk investments include those made by investors who are known to the FIRB, have a strong track record of compliance and are investing in sectors considered not to be sensitive (manufacturing, professional services, commercial real estate, new housing and mining of non-critical minerals). Conversely, the Government has put measures in place to ensure that foreign investments in sensitive sectors are more closely scrutinised.
