Foreign Investment in Australia
By Stuart Jebb, Law Graduate, MST Lawyers
Foreign investment has been a very topical issue of late. Earlier this year the ATO announced “Project DO It”, an initiative designed to make taxpayers come forward and voluntarily disclose unreported foreign income and assets. In its June Bulletin, the Reserve Bank of Australia considered the impact foreign investment is having on the real estate market in Australia. Furthermore and perhaps more publicised, there has been an apparent resurgence in corporate takeover activity from foreign companies this year.
In light of the above, it is timely to consider the law surrounding a foreign person’s investment in Australian corporations and Australian urban land.
Foreign Acquisitions and Takeovers Act 1975 (Cth)
All foreign persons, including corporations, which are considering investing in Australian companies or land, need to be aware of the requirements under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (“the Act”).
The Act empowers the Treasurer to examine proposals by foreign persons to:
- acquire, or increase, a substantial shareholding in, or acquire a controlling interest in the assets of, a prescribed Australian corporation; or
- acquire an interest in Australian urban land.
Generally, in making decisions under the Act, the Treasurer acts on the advice of the Foreign Investments Review Board (“FIRB”) which is a statutory body designed to administer the Act and review proposals.
Foreign investment proposals may be rejected by the Treasurer if they are contrary to the national interest. For example, in 2011 the Treasurer rejected the $8.4 billion takeover of Australian stock exchange operator, ASX Ltd by the Singapore Stock Exchange given its potential to have negative effects on the Australian economy.
In addition to the Act, the Foreign Acquisitions and Takeovers Regulations 1989 (Cth) (“Regulations”) are also important as they provide monetary thresholds in relation to the land and companies below which the Act provisions do not apply.
Other applicable legislation
In addition to the Act, a few specific sectors such as the airline and banking sectors have additional legislation that may impose further limitations on foreign investment.
Who is a foreign person?
A “foreign person” is any of the following:
- a natural person not ordinarily resident in Australia;
- a corporation in which a natural person not ordinarily resident in Australia or a foreign corporation holds a controlling interest;
- a corporation in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate controlling interest;
- the trustee of a trust estate in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest; or
- the trustee of a trust estate in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest.
What does the Act require?
Under the Act, it is compulsory for a foreign person to notify the Treasurer of a proposal to acquire, or increase, a substantial shareholding in a prescribed Australian Corporation where the total assets exceed, or the transaction values it above, the thresholds set under the Regulations.
A similar obligation exists in relation to real estate in which it is compulsory for a foreign person to notify the Treasurer of a proposal to acquire an interest in Australian urban land, unless the acquisition is exempt under the Regulations.
Land that is not used wholly and exclusively for carrying on a business of primary production such as dairy farming is considered to be urban land and an ‘interest’ may include ownership, entering into a lease, or financing or profit share arrangements.
Failure to provide notice in the prescribed form may in both instances result in a significant fines or imprisonment.
When should approval be obtained?
Foreign persons should ensure that they have notified the Treasurer and obtained approval before entering into any agreement. A foreign person will be guilty of an offence under the Act if they enter into an agreement which results in the acquisition of a substantial interest in an Australian Corporation or an interest in Australian Urban Land without providing prior notification to the Treasurer.
In instances where it is not reasonably practicable to obtain approval before entering into the agreement, foreign investors should ensure that the provisions of the agreement that relate to the acquisition of the interest are subject to foreign investment approval. The Act states that where the acquisition of an interest does not become binding until approval is obtained, a person will not be guilty of an offence.
Tips for Foreign Investors
If you’re a foreign investor you should bear in mind that the Treasurer generally has 30 days to consider your application and make a decision. Therefore, it is wise to be proactive and submit the application ahead of time to avoid any unnecessary delays.
Furthermore, it is recommended that you consider making any contract entered into subject to foreign investment approval, unless of course you have already received approval or the transaction is exempt from the Act. This will not only ensure that you do not commit an offence under the Act, but will also ensure that you do not become liable for damages for breach of contract in the event that the approval is not granted and you are unable to proceed as agreed.