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

Australia requires a wide variety of proposed investments by foreign investors to be reviewed and approved before completion of the investment.

The Treasurer of Australia, advised by the Foreign Investment Review Board (FIRB), determines foreign investment approval or denial based on national interest and security considerations.

Australia's foreign investment policy framework comprises the Foreign Acquisitions and Takeovers Act 1975 (Cth) and its related regulations, the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 (Cth) (Fees Regime) and its related regulations, Australia's Foreign Investment Policy, and associated guidance notes.

Summary of major changes in 2023

• The maximum financial penalties for contraventions of foreign investment provisions relating to residential land were doubled
• The Australia-UK Free Trade Agreement commenced on May 31, 2023, enabling UK investors to benefit from higher monetary screening thresholds under the foreign investment framework
• The Australian Taxation Office (ATO) implemented the new Register of Foreign Ownership of Australian Assets, which replaces and consolidates the existing foreign asset registers, as well as replacing the existing method whereby foreign investors notified the FIRB of having completed an approved investment. It is also now the source of notifying of the disposal of a FIRB-approved investment, or notification of certain changes to existing investment already notified on the register. Notably, the new register requires that the foreign investor registers with the new supporting ATO online services for foreign investors platform prior to registering the acquisition of registrable Australian investments"and this can take some time. And importantly, the acquisition of Australian land, securities or assets by a foreign investor may require registration via the new ATO register, even where the acquisition did not require mandatory FIRB approval.

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 and value of the action being taken, the consideration payable and whether special fee rules apply. As of January 2024, the maximum fee payable is capped at AUD 1,119,100.

Types of deals reviewed

FIRB approval is required for various acquisitions by foreign persons.

These include "substantial interest": the acquisition of a 20 percent or more direct or indirect interest in an Australian entity or business valued at more than US$330 million.

"Direct interest" covers the acquisition of a 10 percent or more direct interest in an Australian national security business such as businesses relating to critical infrastructure assets, telecommunications, defense or national intelligence communities or an Australian media business, irrespective of monetary value. Starting a national security business also requires prior approval, irrespective of monetary value.

Approval is required to acquire an interest in national security land, such as defense premises or land in which a national intelligence community has an interest.

The regulations also cover diverse acquisitions of interests in Australian land, and mining and production tenements subject to varying monetary thresholds. This includes agricultural, residential, vacant and developed commercial land, and entities with 50 percent or more of their total asset value attributable to Australian land interests.

Types of investors also receive differing treatment for their deals, and each foreign investor should consider the applicable monetary threshold and other provisions relevant to it.

Investors from specific countries benefit from higher monetary thresholds based on free trade agreements (note however, the direct acquiring entity will also need to be from the relevant country for the higher thresholds to apply). Generally, in respect of acquisitions of securities in an Australian entity, mandatory FIRB approval is only required where the monetary threshold exceeds US$1.427 billion, except for national security or sensitive businesses.

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, such as the de minimus exemption for offshore acquisitions, a foreign government investor must obtain FIRB approval before 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; starting a new business; or 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 or, while approving the investment, may impose conditions on such investment to safeguard 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 Treasurer will also consider the impact on competition (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, environmental and critical technology laws and objectives, and the impact of the investment on Australian tax revenues); the impact of the investment on the Australian economy and the community; and 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 for example, 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. The holiday period and federal government election periods usually impact 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 such that, 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 that requires FIRB approval, and any transaction requiring mandatory FIRB approval must be conditioned on receipt of FIRB approval. Foreign investors should obtain appropriate advice at an early stage of the transaction with respect to the application of the act whenever a transaction directly or indirectly involves the acquisition of Australian assets. A transaction requiring mandatory FIRB approval should not proceed to completion until the Treasurer advises on the outcome of his or her review.

Particularly for applications related to sensitive or national security businesses (those with a nexus to the Australian defense force, public infrastructure, sensitive data, power, ports, water, telecommunications, banking or media sectors), the Australian government encourages engagement with FIRB before filing applications for significant investments.

These early discussions serve as a valuable forum for foreign investors to gain insights into the intricacies of their application, discern any national interest concerns the government may have, and understand the potential conditions the Treasurer might impose upon approval. Such an understanding may result in foreign investors being able to structure transactions differently to mitigate adverse FIRB outcomes. Furthermore, proactive and early engagement is crucial in competitive bid scenarios to avoid situations where other bidders have already obtained FIRB approval.

Moreover, foreign investors need to be cognizant of the sensitivity surrounding investment structures, profit shifting and the payment of Australian tax. Collaboration with tax advisors at the outset ensures that investment structures align with the parameters acceptable to the ATO, a critical consideration given the ATO's involvement in all approval processes and the increasing imposition of tax conditions on approvals.

We also recommend transparency in disclosing upstream ownership details of the acquiring entity, including identifying and disclosing direct and indirect, legal and beneficial holders of a 5 percent or more interest in the acquiring entity (this is a FIRB requirement), in order to streamline the review process as well as mitigate unwarranted scrutiny by FIRB.

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