July 19, 2024
FOREIGN INVESTMENT POLICY OF AUSTRALIA
The Foreign Investment Framework since 1975, has been successful in maintaining Australia’s goodwill as an investment destination while managing risks to the National Security. Foreign investors consider Australia as a stable economy with low sovereign risk and a strong rules-based system that provides the opportunity to safely and consistently invest capital.
Australia is strengthening scrutiny of investments in sensitive sectors to protect national security and economic prosperity as National security threats from investments are growing. Changes in international security and rapid technological advancements heighten risks from foreign investments. Risks include potential access to and control over critical infrastructure, leading to espionage, sabotage, or other security threats.
The new “Australia’s Foreign Investment Policy” ensures that Australia can attract the significant foreign capital flows needed to support our priorities, while protecting the national interest in an increasingly complex economic and geostrategic environment. This new approach will deliver additional benefits to:
- Investors, by providing the transparency, clarity, timeliness and predictability they need to invest with confidence.
- The economy, by encouraging the flow of foreign capital to contribute to national economic priorities.
- The national interest, by protecting national security.
A STREAMLINED SYSTEM THAT ATTRACTS THE NEEDED INVESTMENT
The Government is streamlining consultation and assessment processes for foreign investment proposals, to enable low-risk capital to flow quickly. As part of a stronger risk-based approach, this process will be informed by consideration of the investor (who), the target of their investment (what), and the structure of the transaction (how).
In addition, the Government is taking further steps to support streamlining and attract foreign investment in line with key priorities by:
- Providing refunds of application fees for foreign investments that do not proceed because the investor was unsuccessful in a competitive bid process. This will encourage more participation by foreign investors in competitive bid processes and earlier submission of foreign investment applications.
- Allowing foreign investors to buy established Build to Rent developments, and applying lower application fees to this type of investment. This will contribute to Australia’s housing stock.
- Implementing an exemption for passive or low-risk inter-funding transactions from mandatory notification requirements and fees under the foreign investment framework. This will simplify routine transactions for large institutional investors and reduce the regulatory burden they face.
- Clarifying that in rural and regional areas, where labour supply is tight, Pacific Australia Labour Mobility (PALM) employers are able to buy established residential properties for their PALM workers. This will support Australia’s agricultural workforce.
FRAMEWORK FOR FOREIGN INVESTORS
- Determine if the proposed investment meets the criteria and notify to the Treasurer. Investors has an option of either voluntarily notifying certain investments to the Treasurer or seek an exemption from notification requirements.
- Submit the investment proposal to the Treasurer.
- Pay the required fee as stipulated by the Fees Imposition Act.
- The Foreign Investment Review Board (FIRB) which is a non-statutory advisory body reviews the proposal and advises the Treasurer on national interest implications.
- The Treasurer has the authority to approve, prohibit, or impose conditions on the proposed investment.
- Engage early with Treasury to facilitate efficient assessment of the proposal.
- Treasury manages proposals related to business, agricultural land, and commercial land. The Australian Taxation Office (ATO) handles investments in residential real estate.
- All proposals are reviewed on a risk-based, case-by-case basis, regardless of the investor’s country of origin. Therefore, one must ensure that the proposed investment aligns with Australia’s national interest and security requirements to increase the likelihood of approval as the framework is based on negative test which means an investment proposal shall proceed unless the proposal is found to be contrary to the national interest or to the national security.
Following are the considerations which impacts the requirement of whether a foreign investor is required to notify the treasure or not:
- The size and type of investment the investor will propose to make, or has taken;
- The monetary thresholds relevant to that investment;
- Whether the investor is a foreign investor or a foreign government.
- Whether or not any exemption is applied on the proposal.
ASSESSMENT OF PROPOSAL
- Each proposal is reviewed on a case-by-case basis to determine its impact on the national interest.
- Key factors which are considered are: 1) Who is the Investor. 2) What is the target of investment. 3) How is the structure of the transaction.
- Sensitive sectors receive greater scrutiny on the other hand non-sensitive sectors may benefit from faster assessments.
Screening Process:
- National Interest Test: It applies to most investments meeting monetary and control thresholds.
- National Security Test: It applies to investments posing national security concerns, regardless of thresholds.
- Relevant Commonwealth, state, and territory government departments and agencies are consulted as well.
- The Treasurer can prohibit investments deemed contrary to the national interest or security however, conditions are applied on proposals before approval to mitigate identified risk.
SENSITIVE AND NON-SENSITIVE SECTORS
Sectors needing additional scrutiny include:
- Critical infrastructure
- Critical minerals
- Critical technology
Treasury is dedicating more resources to review proposals in sensitive sectors to ensure thorough analysis of economic benefits and security risks. Factors such as the investor, transaction structure, and high foreign ownership may increase scrutiny. Investments in sectors like agriculture and residential land may also face scrutiny for national interest considerations beyond security.
The government aims to expedite low-risk investments, allowing quicker capital flow. Such investments will be evaluated based on:
- Investor (Who): Investors with a strong compliance record, known to Treasury, investing alone, or passive investors.
- Investment Target (What): Non-sensitive sectors such as manufacturing, professional services, commercial real estate, new housing, and non-critical minerals.
- Transaction Structure (How): Clear ownership and control structures, straightforward transactions.
From January 1, 2025, Treasury aims to process 50% of proposals within the 30-day statutory period. Improvements in processing speed has begun from July 1, 2024. Treasury will clearly communicate when longer assessment times are expected, especially for high-tax risk investments or those near sensitive government facilities.
THE NATIONAL INTEREST TEST
Treasurer’s Discretion:
Treasurer decides if an investment is contrary to the national interest on a case-by-case basis. Key Considerations are:
- National security
- Competition
- Taxation
- Consistency with other government policies
- Economic and community impacts
- Character of the investor
- Specific considerations for agricultural land, residential investments, and foreign government investors
The importance of each factor varies based on the nature of the investment. Larger enterprises or those with significant market share may raise more concerns than smaller ones, though small enterprises with unique assets or in sensitive sectors can also be significant. Investments that increase production capacity or introduce new technology are less likely to be contrary to the national interest.
SUBMISSION OF PROPOSAL
The proposal must be submitted before any transaction is made or coming into a purchase contract whereunder the condition is on receiving approval of the proposal. The transaction must not be proceeded with until the Government’s decision is received.
Proposals can be submitted electronically via the Foreign Investment website along with the payable fee. The decision timeline starts only after the correct fee is paid and the information of such acceptance or rejection is made within 10 days of the decision.
All proposals are treated in confidence. The Treasurer has 30 days to decide once the fee is paid. However, the period can be extended by up to 90 days by notification and another 90 days by publishing an interim order. Investors can also voluntarily extend the period with written consent. The decision may include :
- No objections raised, allowing the investment.
- Impose conditions that must be met by the investor
- Prohibit the proposal.
HOW WE CAN HELP?
- Our team can assist in preparing and submitting the necessary documentation for regulatory approvals.
- We can represent the investor in negotiations with sellers, partners, and other stakeholders while ensuring that the investor’s interests are protected throughout the negotiation process.
- We can help identify and mitigate potential risks associated with the investment.
- Our experts can advise on the tax implications of the investment.
For more information or queries, please email us at
[email protected]
Key Contact
Surendra Singh Chandrawat
Managing Partner
