Investing in Australia: What Recent Changes Have Been Made to the Foreign Investment Regime?

Australia has always been an attractive destination for foreign investment. As we looked at previously, Australia has welcomed this interest from foreign investors as an important factor in its economic development. Notwithstanding this, certain types of foreign investments have always been subject to governmental notification or review. In this article, we look at the changes that have been made and the consequences of these.

Protecting national interests and changes to the foreign investment review framework

In March 2020, as a response to geopolitical upheaval and pandemic issues, the Australian Government took a number of steps to protect Australian national interests in terms of important assets such as land, businesses and other entities which had potentially become, if temporarily, more vulnerable. These temporary measures required all foreign investments to obtain approval from the Foreign Investment Review Board (FIRB) regardless of value or business type. Previously, for example, there had been a system of monetary thresholds.

From January 2021, the Government introduced significant changes to the foreign investment review framework. The provisions include:

• the reinstatement of certain monetary thresholds for transactions;
• an extension of the nil monetary threshold to certain categories of assets and transactions;
• a new user-pays fee regime linked to asset and transaction value;
• an extension of the definition of a ‘national security business’; and
• new powers to call in and review transactions.

The aim of these changes is to ensure the framework keeps pace with emerging risks and global developments.

What is the role of the Foreign Investment Review Board?

The Treasurer in the Federal Government has responsibility for foreign investment approval. The Treasurer is advised on foreign investment proposals and their potential national interest implications by FIRB.

Whether a transaction needs FIRB review depends on the type of investor, the nature of the investment, national security, and the monetary value involved.

The term foreign person is broadly defined and includes governments, corporations, and individuals not ordinarily residents in Australia. More stringent rules apply to foreign governments.

What temporary measures were introduced in March 2020?

In March 2020, several temporary measures were introduced to protect Australian businesses and infrastructure. These measures included lengthened timeframes for reviewing applications and new types of exemption certificates. Of particular importance, all monetary thresholds were reduced to nil, meaning a larger number of proposals needing to be notified to the Treasurer.

Changes to the FIRB process from January 2021

From the beginning of 2021, some of the temporary changes outlined were reversed while emphasising the importance of acquisitions of property or businesses sensitive to national security. These include the following:

Monetary thresholds

The monetary threshold of nil has been removed, and foreign investors will be subject to the previous monetary thresholds for screening investments. An exception to this is the nil monetary threshold that will still apply to foreign governments and those investments that are considered notifiable national security actions.

Notifiable national security actions include transactions where a foreign person starts a national security business; acquires a direct interest in a national security business of 10% or more, or is in a position to control or influence the business; or acquires an interest in Australian land that is regarded as national security land.

Extension to national security definitions

A wide range of businesses are now covered, including critical infrastructure (such as utilities); telecommunications, defence or intelligence-related businesses, and the storage of classified security information. National security land includes defence premises, land in which an Australian national intelligence agency has or will have an interest, or land declared by the Treasurer to be so.

Call-in power

The Treasurer has a new power to review any investment made or proposed where the Treasurer considers that it may pose a national security risk. The Treasurer may issue a no objection notification or make prohibitive or disposal orders.

To address the uncertainty surrounding the risk of a ‘call-in’, investors will be able to voluntarily notify proposed investments and will be able to apply for exemption certificates that allow the acquisition of eligible investments without the need for case-by-case screening.

Last resort power

The Treasurer also has the power to review previously approved transactions that might require the disposal of an already acquired asset if national security risks emerge after FIRB approval has been given.

A review may be undertaken where the Treasurer is satisfied that the foreign person made a false or misleading statement, or the organisation of the foreign person or circumstances have substantially changed since FIRB approval was granted. Following a review, the Treasurer may impose conditions, vary existing conditions or require the divestment of the business or land.

Other reforms

There are a number of other reforms that may affect a business, including increased penalties, enforcement powers and a new fee regime designed to make paying and calculating fees simpler.

The changes also aim to facilitate the better sharing of relevant information within various state and federal government agencies.

What do these changes mean for foreign investment in Australia?

The changes represent a renewed focus on sensitive foreign investment. If you are considering investing in Australia or are a business working with foreign investors, it may be necessary to obtain approval from FIRB. It is important to know whether approval is needed, know what is involved and seek professional advice on the process.

Help from Szabo & Associates Solicitors

Szabo & Associates Solicitors have extensive experience in the FIRB application process and can assist with navigating the regulatory and legislative framework. The increased focus on the regulation of the activities of overseas investors in the country means that it is more important than ever to obtain the right advice so as to take advantage of the many opportunities that still remain available.

Contact our Foreign Investment Regime and Migration Lawyers in Sydney, NSW

To enquire about purchasing real estate property, making a direct investment in Australia, or to find out more about the Foreign Investment Review Board application process, please call the experts at Szabo & Associates Solicitors on 02 9281 5088 or complete the online enquiry form.