Depending on the acquirer, target and transaction value, thresholds for mandatory notification start as low as five percent of voting rights.

Voluntary notification may be relevant for other “significant actions”.

Australian Treasurer.

Up to 10 years.

Mandatory and voluntary notification, depending on the transaction/sector.

National interest or national security.

The FDI regime captures the indirect acquisition of Australian businesses and land.

Usually one to three months.

Fines up to AU$555 million; and potential imprisonment.

Limited rights to appeal. 

The temporary measures in response to COVID-19 have been reversed (including the temporary reduction of monetary thresholds to AU$0).

The foreign investment review framework is set by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and the Foreign Acquisitions and Takeovers Fees Impositions Act 2015 (Cth), and administered by the Foreign Investment Review Board (FIRB). The Act requires foreign investors to notify the Australian Treasurer (Treasurer) of proposed foreign investments that meet certain criteria. Foreign investors will be required to pay an application fee when notifying the Treasurer of a proposed investment.

The Treasurer has the power to prohibit investments, or apply conditions to the way they are implemented, to ensure they will not be contrary to the national interest or national security. When making foreign investment decisions, the Treasurer is advised by the FIRB, which examines FDI proposals and advises on the national interest implications. The great majority of proposed investments are approved.

FATA contains complex provisions regulating the acquisition by a foreign person of, among other things, Australian business and land. Whether an acquisition by a foreign person will be subject to Australian FDI approval is highly fact-sensitive and will be dependent on numerous factors, including:

• Whether the investor is a foreign government or non-government investor.
• The type of acquisition.
• whether the investment is likely to raise national security concerns.
• The monetary thresholds relevant to the investment.
• Any free trade agreement commitments.

A “foreign person” includes an individual (not ordinarily resident in Australia), a foreign corporation and a foreign government (including a foreign government entity).

General thresholds

The monetary thresholds for acquisitions vary depending on the types of the deals and the investors. For example, from 1 January 2022, the general screening threshold for acquisitions of business is AU$289 million for investors from most countries. Certain countries which have free trade arrangements with Australia have a higher screening threshold of AU$1,250 billion (e.g. Chile, China, Hong Kong, Japan, New Zealand, Peru, Singapore, South Korea and the U.S.). In general, lower monetary thresholds will apply for land investments and investments into certain industries, such as media, for national security related investments and where the investor is considered to be a foreign government investor.

The percentage interest threshold to trigger FIRB review is usually a 20 percent or more interest (a “significant interest”) however this can be lower where the relevant test is taking a “direct interest”. The concept of a “direct interest” is a 10 per cent interest, but this percentage is lowered to 5 per cent if the investor is a party to a shareholders agreement in relation to the target or any per cent interest if the investor is in a position to influence control of the Target.

However, different thresholds and special considerations may apply to acquisitions of interest in national security businesses, agriculture businesses, media businesses or when the target is Australian land. There are also additional actions for foreign government investors.

National security businesses

From 1 January 2021, a foreign person proposing to take a “notifiable national security action” must give notice of the action to the Treasurer and seek approval from FIBR. A “notifiable national security action” includes, among other things, an action to:

• Start a “national security business”.
• Acquire a direct interest in a “national security business”.
• Acquire an interest in Australian land that, at the time of acquisition, is “national security land”.

This means that foreign investors will need to consider the nature of the target of their investment and whether it could be a “national security business” or “national security land”.

A “national security business” refers to an endeavor that if disrupted or carried out in a particular way may create national security risks. For example, provision of critical services to defense and intelligence personnel in Australia may be considered a “national security business” under FATA regardless of whether such business is in anticipation of profit or gain. From this year, a “national security business” also includes business dealings with “critical infrastructure assets” (within the meaning of the Security of Critical Infrastructure Act 2018), examples of which are Port of Christmas Island or a gas processing facility with large capacity.

Under FATA, a business would only be a national security business if it is publicly known, or could be known by making reasonable inquiries, that the business fulfils the criteria for being a national security business. Likewise, the definition of “national security land” includes land of which an interest holder is an agency in the National Intelligence Community that is publicly known, or could be known by making reasonable inquiries.

Agriculture

Foreign persons must get approval before acquiring a “direct interest” in an agribusiness where the value of their holdings in that business are more than the relevant monetary threshold.

Media

All foreign persons must get approval before acquiring a “direct interest” in an Australian media business, regardless of the value of the investment.

Land

Foreign persons will need to obtain approval before acquiring an interest in “Australian land” (this includes agricultural land, commercial land, mining and production tenements, and residential land) where the value of their land holdings is more than the relevant monetary threshold or regardless of the value of land, depending on the type of land.

Foreign government investor

A foreign government or foreign government investor (FGI) is subject to the same requirements for approval as other foreign persons but additional requirements apply – the key one being that FGIs require approval before acquiring any “direct interest” in an Australian entity or business, regardless of the value.

The definition of an FGI is broad and can capture investors that act independent of state governments – for example a private equity fund with a material portion of sovereign wealth funds/state pension funds can itself be deemed to be an FGI.

The Treasurer, the FIRB and the Australian Taxation Office (ATO) are responsible for screening foreign investment proposals in line with Australia’s foreign investment review framework.

The Treasurer reviews foreign investment proposals against the national security interest on a case by case basis.

The FIRB is a non-statutory body which advises the Treasurer on foreign investment policy and administration. They are responsible for examining foreign investment proposals that fall within the foreign investment framework. The FIRB application process involves mandatory engagement with the relevant government departments and agencies. Normally, this will include certain “consult parties” such as the Australian Competition and Consumer Commission, the ATO, national security agencies and government agencies relevant to the issues raised by an application.

The ATO has responsibility for administering residential real estate screening and for administering investments into non-sensitive commercial land and commercial reorganizations. The ATO assesses applications, collects fees, and is responsible for compliance and enforcement for residential real estate. They also, as a practical matter, take the lead in internal restructuring applications.

The Australian Prudential Regulation Authority (APRA) monitors FDI into the banking and financial sectors.

The Treasurer is able to “call in” for review transactions that have not been notified to the Treasurer for a period of up to 10 years. This is for the Treasurer to determine if such transactions raise national security concerns. For transactions “called in”, the Treasurer may issue a no objection notification, including with conditions, or prohibit the action, or require divestment (see the answer to question 5 for more details).

There are broadly four main categories of actions that may be subject to notification to or review by the Treasurer:

• Actions classed as “notifiable action”: it is necessary to obtain foreign investment approval, and the transaction cannot proceed without the Treasurer’s approval. It includes a proposed action by a foreign person to acquire a “direct interest” in an agribusiness, a “substantial interest” in an Australian entity or an interest in Australian land.
• Actions classed as a “significant action”: while the Treasurer’s approval is not required before the transaction occurs, if the Treasurer subsequently decides the action was against the “national interest” they have the power to amend to order the unwinding of the transaction in the following 10 year period. Thus, foreign persons may choose to notify the Treasurer of a proposed significant action (not a notifiable action nor a notifiable national security action) by submitting an application to benefit from the certainty offered by a no objection notification.

The conditions of a “significant action” vary depending on the types of action. And if it relates to an acquisition of an Australian business, generally will require certain monetary thresholds to be met and a change of control.

• Actions classed as “notifiable security action” (see at question 2 above).
• National security “call in”: the Treasurer has the power to “call in” and review any transaction that has occurred in the last 10 years, which has not been notified to the Treasurer. If the Treasurer deems the transaction to be against Australia’s “national security interests”, it has the power to prohibit the action or require divestment. FIRB has provided guidance for transactions that do not require mandatory notifications as “national security businesses” but could give rise to national security concerns in the future, so FIRB recommends a voluntary application to remove the risk of the transaction subsequently being “called in”.

If an investor decides to make a voluntary application to FIRB for a transaction, then the transaction becomes “notifiable” and the transaction cannot complete without the Treasurer’s approval.

Finally the 2021 amendments to the FIRB regulations introduced a new “last resort” power for the Treasurer. This gives the Treasurer an opportunity to review actions notified after 1 January 2021 for which a no objections notification, an exemption certificate, deemed approval or a notice imposing conditions has been given, if exceptional circumstances arise. It is contemplated that this last resort power would only be used in rare and exceptional circumstances.

If an investment falls within the framework as a “notifiable transaction” the FDI restrictions cannot be avoided. However, it may be possible to restructure a transaction so that an investment doesn’t fall within the FDI framework, for example by delaying the transfer of certain Australian assets. However, any such restructure must be done carefully and on the basis that the restructuring can be clearly explained to FIRB if they ever enquired about it. 

Foreign investment notifications are filed with the Treasurer through the online FIRB applications portal. The role of FIRB is to review and advise the Treasurer as to the national interest implications of the notified proposed foreign investment.

Once an application has been made, FIRB generally reviews the application and provides the applicant with requests for further information where required. However, the final decision to grant or refuse FIRB approval rests with the Treasurer.

The Treasurer has 30 days from the date that the application fee is paid to review and make a decision and a further 10 days to notify the applicant on whether FIRB will grant approval, giving an effective 40 day period, which is often extended as discussed below. The FATA does not provide grounds for expediating the assessment process, however, FIRB is open to hearing submissions as to why an application is urgent and should be expedited and will usually seek to be helpful where a strong case for urgent attention can be made.

The formal procedures allow FIRB to require more time by the issue of an interim order, which prevents the foreign person from carrying out the proposed transaction and allows FIRB a further 90 days to consider the application. The issue of an interim order is a public matter, however it is very rarely made, as discussed below.

FIRB often makes iterative requests for further information throughout the application process and, especially during busy periods, it is common for FIRB to request that the applicant gives them more time by way of a voluntary extension of the 40 day period. Although the request is “voluntary” the alternative is that FIRB will issue a public interim order, and so the “voluntary” request for extension is invariably consented to by applicants. The result is that applications frequently have “voluntary” extensions and a six - eight week time period is commonly needed to get final FIRB approval.

FIRB approval will generally be granted unless the foreign investment is considered a threat to Australia’s national interests or contrary to Australia’s national security. Upon review, the Treasurer will permit a foreign investment with or without additional conditions, or prohibit the foreign investment or, as the case may be, have the investment unwound.

Generally, we are seeing more conditions being imposed on FIRB approvals, particularly around tax compliance and data protection. This is consistent with the tightening of the foreign investment review framework enacted by the national security amendments and the increased concerns for tax and data privacy.

A failure to comply with the FATA may result in significant criminal and civil penalties. This includes failing to make a mandatory notification and proceeding with a transaction prior to receiving FIRB approval.

With a breach of FIRB conditions, an individual can be fined up to AU$3.33 million and face 10 years’ imprisonment, whilst a corporation can be fined up to AU$33.3 million. Under the civil penalty provisions, individuals can be fined between AU$1.11 million and AU$555 million and corporations liable to be fined between AU$11.1m and AU$555 million.

The Treasurer has a range of enforcement powers, including:

• imposing administrative payments under an infringement notice;
• having the power to unwind the investment;
• ordering divestment of the relevant asset; and
• accessing premises with consent or by warrant to gather information in order to monitor compliance with the FATA.

If there is a mandatory notification obligation, the transaction cannot be closed prior to seeking and obtaining approval. If a filing is actually made, either on a voluntary or mandatory basis, a transaction must not be closed prior to FIRB approval being obtained. If the parties implement the transaction prior to approval being obtained, penalties may apply.

Transaction documents can only be signed prior to approval if they contain an appropriate condition precedent relating to obtaining FIRB approval.

If a deal is blocked by authorities, there are limited rights to appeal. The review rights relate to procedural fairness and only extend to the merits of a decision when the Treasurer’s last resort powers have been used.

Early review and understanding of the FIRB regime is highly recommended. This can allow:

• Review of the structure of the transaction to see if it can be amended to properly structure around the FIRB framework.
• Review of the key transaction document(s) to ensure the requirements of the FIRB regime are fully addressed, e.g. inserting applicable condition(s) precedent in the sale and purchase agreement to accommodate the FIRB approval requirements.
• Consideration of whether to make a voluntary application.
• If an application is to proceed, ensure early engagement with FIRB and appropriate timing is built into the transaction timetable.

On 29 March 2020, the Australian Government temporarily reduced the monetary screening thresholds for all foreign investment subject to the FATA to $0 due to the impacts of COVID-19. This was thought to safeguard national interests as COVID-19 put pressure on Australia’s economy and businesses. However, this has now been reversed and the temporary COVID-19 provisions lifted.

Due to the 1 January 2021 changes to Australia’s FDI regime (see the answer to question 14), there is an increasing focus on national security, critical infrastructure, FGI and on the geo-political environment. This has arisen due to the increased risks due to a confluence of developments, including rapid technological advancements and changes in the international security environment.

Penalties for non-compliance have been increasing as well as resources for compliance monitoring.

The limited review rights has meant that there is a lack of cases noted publicly.

The centerpiece of the legislative amendments in relation to the Australia’s FDI regime is an enhanced review of acquisitions of property or businesses which are sensitive to Australia’s national security. Significant amendments were made to Australia’s FDI regime on 1 January 2021 with the introduction of the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 and the Foreign Investment Reform (Protecting Australias National Security) Regulations 2020, which introduced a new definition of “national security business”. The Australian Government further expanded the scope of what constitutes a national security business through amendments in 2022 to the Security of Critical Infrastructure Act 2018 (Cth), including deeming all “critical infrastructure” to be national security businesses.

Some of the most noteworthy developments from the amendments include:

• A new national security test was introduced alongside the concepts of “national security business” and “national security land”.
• The Treasurer was given call in and last resort powers.
• The severity of criminal and civil penalties for non-compliance have increased in magnitude, including for failure to give FIRB notice of a “notifiable action” or of a “notifiable national security action”.

It is too early to determine whether the newly implemented reforms in 2021 will have an impact on the FDI in Australia. As it stands, the reforms have achieved the Australian Government’s intentions to enable scrutiny of investments that are determined to pose national security risks.

Since the 2021 reforms, the Australian Government have considered the following findings:

• The Treasury will increase transparency of its operations, through the development of additional public performance reporting.
• Clarification to be given to investors in regards to the application of the national security test.
• Refinements of the compliance and enforcement measures to ensure proportionate and scalable responses are available for any contraventions of the framework.

For more information contact Charles Bogle, Partner, Sydney