Fiona Blanch (White & Case, Associate, Melbourne) contributed to the development of this publication

The decision to approve or deny a foreign investment application is ultimately made by the Treasurer of Australia, based on an assessment of whether the investment would be contrary to the national interest and national security.

When making its decision, the Treasurer is advised by the Foreign Investment Review Board (FIRB), which examines foreign investment proposals, consults with other relevant Australian government agencies as required, and advises on the national interest and national security implications. Australia's foreign investment policy framework comprises the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the "Act") and its related regulations, the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 (Cth) and its related regulations ("Fees Regime"), Australia's Foreign Investment Policy (the "Policy") and a number of guidance notes.

Recent updates

• New government: A new federal government was elected in May 2022, with a new Treasurer appointed thereafter. While this immediately impacted penalties and the fees payable for assessing an application to FIRB (see below), it is unclear whether any substantive reforms on top of those in 2021 (also see below) will be implemented by the new government with respect to the FDI regime generally
• Fees: The new Treasurer announced in July 2022 that fees for making foreign investment decisions would double from July 29, 2022, with a maximum cap set at AUD1,045,000
• Compliance: The Australian government has again increased its focus on compliance activities, enforcement and audits, particularly with respect to tax and data conditions imposed on FIRB approvals, with contraventions that relate solely to residential land doubling as of January 1, 2023
• Reforms: As of January 2021, with the implementation of an updated foreign investment regime, the government's focus has firmly been on national security and compliance. The reform package included:
  • A new "national security test" created for foreign investors proposing to acquire a direct interest in a "national security business" or "national security land." The Treasurer now also has the power to impose conditions or block any investment on national security grounds, regardless of value
  • A new voluntary notification regime with respect to "reviewable national security actions," i.e., acquisitions involving a foreign person proposing to acquire a direct interest in any entity or Australian business, or any interest in Australian land
  • A new "call-in" power that allows the Treasurer to screen any investment that would not ordinarily require mandatory notification (i.e., a voluntary "reviewable national security action" noted above, which was not voluntarily filed at the time of acquisition), on national security grounds for a period of ten years following completion of the acquisition. In cases where the Treasurer determines the acquisition was contrary to national security, the Treasurer may make a number of orders, including in extreme cases, disposal orders
  • Updated sectoral guidance in FIRB Guidance Note 8 on national security, to include additional commentary for sectors such as health, critical minerals and technology, public infrastructure, energy, gas, electricity, transport and data
  • Removal of the 40 percent threshold for the foreign government investor test: Private equity investors are no longer treated as foreign government investors purely by virtue of passive upstream investors who are foreign government entities holding, in aggregate, >40 percent of the interests in that private equity investor (e.g., fund)
  • Expansion of the exemption certificate regime with ability for the Treasurer to grant investor-specific exemption certificates
  • Stronger and more flexible enforcement options, including powers to impose or vary conditions to approvals, or, as a last resort, require divestment of previously approved investments where national security risks emerge (compliance with approval conditions is receiving more attention as the government has received criticism for failing to allocate sufficient resources to this area)
  • Increased monitoring and investigative powers and materially higher civil and criminal penalties
  • Introduction of the Foreign Acquisitions and Takeovers Fees Imposition Regulations 2020 (Cth) and a new way of calculating submission fees for FIRB applications
• Data: FIRB has increasingly emphasized that, as part of its national interest assessment, it will have particular regard to the protection of sensitive Australian data and foreign access to or interference with such data. For example, this has been a particular focus with respect to proposed investments in Australian healthcare groups in the context of "patient data" and data centers
• Conditions: Generally, the Treasurer approves the vast majority of applications. However, FIRB has been increasingly willing to use conditions and undertakings as a mechanism to increase the government's oversight of more complex or sensitive investments. Undertakings required from FIRB may include matters relating to governance, location of senior management, listing requirements, market competition and pricing of goods and services (e.g., that all off-take arrangements must be on arm's-length terms) and other industry-specific matters. FIRB has also issued a set of standard tax conditions that apply to those foreign investments that pose a risk to Australia's revenue and make clear the requirements and expectations for investors—and in 2022, we are seeing an increase in tax conditions being imposed on foreign investors (in particular private equity investors) to address the potential for "treaty shopping," as a result of the ATO's view on income versus capital
• Powers: The Treasurer has wide divestiture powers; criminal prosecution and civil penalties (including the issuance of infringement notices) can also apply for serious breaches of Australia's foreign investment laws and for those facilitating such breaches, such as professional advisors. The standard practice is to seek approval where there is any doubt as to whether approval is required

Who files

A foreign person or entity making an acquisition that requires approval under the Act must apply to FIRB for a notification that the Treasurer has "no objection" to the acquisition, before completion of the acquisition. In these circumstances, any agreement to make the acquisition must be conditional upon, and subject to, receipt of FIRB approval by the acquirer.

An application includes a filing fee that varies according to the type of deal and the deal value. As of January 1, 2021, amendments to the Fees Regime changed the way that fees are calculated for applications and, as of July 29, 2022, the fees applicable for an application to FIRB doubled, with the maximum fee payable now capped at AUD1,045,000.

An application to FIRB can be mandatory (as explained below), or voluntary, subject to the type of the transaction and the sectors involved (a voluntary filing may preclude post-acquisition orders being made by the Treasurer on the basis of "national security" concerns—as further explained below).

Types of deals reviewed

FIRB approval is required for a range of acquisitions by foreign persons, including:

• A "substantial interest" in an Australian entity: An acquisition of a direct or indirect interest of 20 percent or more in an Australian entity valued at more than AUD310 million (approximately US$216 million as of January 15, 2023)
• A "direct interest" in a national security business: An acquisition of a direct interest of 10 percent or more in an Australian national security business (for example, a business that holds critical gas, water or port assets, a telecommunications carrier, or is involved in the supply chain for military and defense goods and services). There is no monetary threshold for these acquisitions
• An interest in national security land (for example, a defense premises or land in which the Australian intelligence community has an interest). There is no monetary threshold for these acquisitions
• Australian land and land-rich entities: Various acquisitions of interests in Australian land are regulated with varying monetary thresholds, including with respect to residential land, vacant commercial land, developed commercial land and an entity where the value of its interests in Australian land exceeds 50 percent of the value of its total assets
• Agricultural land and agribusinesses: Acquisitions of interests in agricultural land and agribusinesses are regulated separately in the Act. In addition, a register of foreign ownership of agricultural land is maintained by the Australian taxation authority

Certain types of investors receive differing treatment for their deals:

• Free trade agreement investors: Consistent with Australia's free trade agreement (FTA) commitments, higher monetary thresholds apply to certain acquisitions made by investors from Chile, China, Japan, New Zealand, Singapore, the US and countries for which the Comprehensive and Progressive Agreement for Trans-Pacific Partnership is in force. For example, an acquisition of an Australian entity by an FTA country investor will only require FIRB approval if the entity is valued at more than AUD1.3 billion (approximately US$907 million as of January 15, 2023), unless the investment relates to a "national security business" or a "sensitive business," such as media, telecommunications, transport, defense and military-related industries (to which a lower or zero threshold may apply), or the investor is a foreign government investor
• Foreign government investors: Stricter rules apply to foreign government investors, which can include domestic or offshore entities where a foreign government and its associates hold a direct or upstream interest of 20 percent or more, or foreign governments of more than one foreign country and their associates hold an aggregate interest of 40 percent or more. In general, unless an exemption applies (e.g., the de minimus exemption for offshore acquisitions), a foreign government investor must obtain FIRB approval before (i) acquiring a "direct interest" (generally defined as at least 10 percent holding or the ability to influence, participate in or control) in any Australian asset or entity; (ii) starting a new business; or (iii) acquiring mining, production or exploration interests

Scope of the review

The Treasurer may prohibit an investment if he or she believes it would be contrary to the national interest or national security.

In making this decision, while the concept of "national interest" is not defined in the legislation, the Treasurer will broadly consider:

• The impact on national security (being the extent to which investments affect Australia's ability to protect its strategic and security interests)
• The impact on competition (being whether a proposed investment may result in an investor gaining control over market pricing and production of a good or service in Australia)
• The effects of other Australian government laws and policies (including tax and revenue laws and the impact of the investment on Australian tax revenues)
• The impact of the investment on the Australian economy and the community
• The character of the investor (including to the extent to which the investor operates on a transparent commercial basis and is subject to adequate and transparent regulation and supervision, as well as the corporate governance practices of the investor)

The "national security test" requires the Treasurer to assess a given investment from a national security perspective, and whether such investment will affect Australia's ability to protect its strategic and security interests. In making this assessment, the Treasurer relies on advice from the relevant national security agencies for assessments as to whether an investment raises national security issues (e.g., through foreign intrusion or espionage). This test is generally applied in circumstances where an investment involves a "national security business, "national security land" or falls within one of the sectors of interest for the Treasurer, as set out in Guidance Note 8 on National Security.

Review process timeline

Under the Act, the Treasurer has 30 days to consider an application and make a decision. However, in practice, the assessment process is in many cases extended and takes longer, typically eight to 12 weeks from the time of application to the receipt of a "no objections" notification. As mentioned above, the holiday period usually impacts these timeframes for decisions.

The timeframe for making a decision will not start until the correct application fee has been paid in full. If the Treasurer requests further information from the investor, the review period will be on hold until the request has been satisfied.

Typically, if FIRB requires further time, it will request that the applicant voluntarily extend the approval deadline. As the Treasurer is also entitled to unilaterally impose a 90-day extension under statute, applicants are generally incentivized to "voluntarily" request the proposed deadline extensions and, in reality, the review process will take approximately eight to 12 weeks.

How foreign investors can protect themselves

Foreign persons should file an application in advance of any transaction, and any transaction requiring mandatory FIRB approval must be conditioned on receipt of FIRB approval. Such a transaction should not proceed to completion until the Treasurer advises on the outcome of his or her review. For applications involving a sensitive or national security business or sector (e.g., a transaction involving businesses engaged with the Australian defense force, public infrastructure, power, ports, water, telecommunications, banking or media sectors), foreign investors should consider the government's invitation in the Policy to engage with FIRB before filing an application for a significant investment. Leading into the holiday period in December and January, and the impact of an Australian federal election (the next federal election is not anticipated until 2025), it is expected that decision timeframes for FIRB applications will be protracted. Foreign investors should be particularly cognizant of the need to engage with FIRB and Australian legal advisers early in a deal timeline.

These discussions may help foreign investors understand the complexity of their application, any national interest concerns the government may hold about a particular proposal, and the conditions the Treasurer may impose on approvals.

These discussions can also help with structuring a transaction in order to reduce the likelihood of rejection. Such discussions should be held at an early stage in order to provide enough time to satisfy all FIRB queries. Where there is a competitive bid process for the acquisition, a foreign investor that does not actively engage with FIRB early in the bidding process may be placed at a competitive disadvantage to other bidders who do. Foreign investors should be prepared to discuss in detail any conditions and undertakings that may be requested by FIRB, especially for acquisitions that are likely to attract greater political or media scrutiny.

Investors should be aware of the sensitivity in relation to the investment structures used by foreign investors, profit shifting and payment of Australian tax. Early on, foreign investors should work with their tax advisors to ensure their investment structures do not fall outside the spectrum of what is acceptable to the Australian Tax Office (ATO), as the ATO is consulted in all approval processes. In particular, see below under the bullet point "Conditions" for commentary on tax conditions that may be attached to a FIRB approval. Investors should also work with their advisors to determine a level of transparency in upstream ownership, to avoid further enquiry from FIRB and possible future delays.

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