Foreign investment in Australia is an attractive proposition because of what Australia offers in terms of its workforce and stability and its contributions to the Australian economy. However, with any foreign investment this must be balanced against national security risks and other factors to ensure the investment is of benefit to Australia. The Australian government mitigates risk through the regulatory framework of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), Foreign Acquisitions and Takeovers Regulations 2015 (Cth), the Federal Government’s Foreign Investment Policy and through the Foreign Investment Review Board (FIRB), which, should a proposed investment meet criteria, will be required to be reviewed for approval. However, COVID-19 and international events have hastened a review and proposed amendments of the current regulatory framework.
Things to know
Key definitions under the regulatory framework are around what is a ‘Foreign Person’, a ‘Significant Action’ and a ‘Notifiable Action’, which commences the analysis of whether review and approval for foreign investment in securities, assets or Australian land is required from FIRB.
In summary, a Foreign Person will be:
- an individual not ordinarily resident in Australia;
- a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
- the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
- a foreign government; or
- general partners of limited partnerships where an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds at least 20 per cent in the limited partnership, or two or more persons each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate interest of at least 40 per cent in the limited partnership;
- foreign government investors who would not otherwise be foreign persons without the regulations providing for this.
An action will only be regarded as significant if the conditions set out are met and these vary depending on the types of transaction and circumstances. The monetary threshold, for example for an investment bid by a private foreign company was prior to 29 June 2020 more than $1,192 million if from a country that Australia has a free trade agreement (FTA) with (and more than $275 million if from a country with no FTA with Australia). Significant actions taken are often the subject of an approval application. If the action also meets the criteria of being a notifiable action, then prior notice and approval must be sought and obtained.
And along came COVID
When COVID-19 hit, on 29 March 2020, the Australian Government made a swift and significant change to last for the duration of the crisis situation. The March change expanded the regime to all foreign investment in Australian assets, business or land regardless of the size of the investment. This was done by reducing all dollar value thresholds to $0. So, the other criteria continue to apply with the addition of this new monetary threshold of $0.
Let’s talk about further reform
On 5 June 2020 the Government announced further reform to the Foreign Acquisitions and Takeovers regulatory regime. This reform is to “ensure that our foreign investment framework keeps pace with emerging risks and global developments, including similar changes to foreign investment regimes in comparable countries.
Some of the key aspects of the proposed reform are:
- a new national security test. This will be a boarder test than currently exists and will consider factors that give rise to concerns around national security. The test will apply regardless of the value of the investment and will allow the Treasurer to set or vary conditions or block investment on this ground. There will also be a required mandatory notification prior to direct interest acquisition in a sensitive national security business, which definition is expected to be expanded upon in regulations;
- a ‘call in’ power – an investment not otherwise notified under the existing national or new national security mandatory pre-investment notification process, will able to be called in before, during or after the investment if the Treasurer considers that it raises concerns about national security. It will then be reviewed under the national security test to see if it raises concerns in the same vein as those investors who are required to notify on a mandatory basis;
- additional Government powers around enforcement, compliance and imposition of penalties including access to premises with consent or by warrant to acquire information, power to give directions to investors to address or prevent suspected breaches of conditions or foreign investment laws;
- requiring foreign persons to seek further foreign investment approval for increases in holdings after previous approval;
- extension of tracing rules to unincorporated limited partnerships so that beneficial interest may be traced;
- a foreign person parent or spouse of an Australian resident will need foreign investment approval prior to the purchase of Australian land where they provide money to their Australian family member for the purchase, other than by way of a gift;
- consideration of a new Register of Foreign Ownership that will encompass and expand the existing agricultural land, water and residential registers to obtain visibility of foreign investments in Australia; and,
- greater government information sharing under provisions of the FATA and Tax Administration Act 1953 (Cth).
Where to now?
A draft exposure of legislative reform is expected for July 2020 with an intended commencement date for the change in January 2021. The reform increases government scrutiny and powers to protect national security but also to protect vulnerable Australian businesses as we emerge from our COVID-19 hibernation. It is expected that the temporary amendments to the monetary thresholds will segue into the new reforms in that the previous monetary thresholds will be reinstated. More detail should be available for review in July when the legislation is released for consultation.
Should you require any further information please do not hesitate to contact a member of Coleman Greig’s Commercial Advice Team, who would be more than happy to assist you today.
This article is in the nature of general information only and is not intended as specific legal advice.
 Australia Government Treasury- Foreign Investment reforms June 2020
 The Hon Josh Frydenberg, Announcement 5 June 2020: https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/major-reforms-australias-foreign-investment-framework