The Federal Government continues in its implementation of the reforms to Australia's foreign investment regime. The relevant Bills have been introduced into Parliament and a report on them has been handed down by the Senate Economics Committee. A further exposure draft of the Regulations has also been released for comment by 30 October 2015.
The package as currently drafted broadly adopts the same approach as the exposure drafts released in July this year, whilst providing further detail in some discrete areas. It confirms that, if the reforms are implemented in their current form, many businesses operating in or looking to invest in Australia will face a more expensive and arguably more complex foreign investment regime.
What is different?
Our previous note provided a high level summary of the changes introduced by the July exposure drafts. That is, while the mechanisms remain broadly the same as the current law, investors face higher costs, more complexity and more scrutiny over their transactions.
Higher cost: Application fees will be payable for transactions captured by the regime, starting at $5,000 for residential and agricultural land and at $25,000 for business transactions. Fees generally increase based on the transaction value.
More enforcement options: the criminal penalties will be increased and new civil pecuniary penalties (which will also apply to those who knowingly assist a foreign person to contravene the regime) will be introduced.
More complexity: The regime will apply differently depending on the nationality of the investor and the type of asset proposed to be acquired.
More scrutiny: The ATO will be responsible for enforcement and monitoring of Australia's foreign investment regime as it applies to residential real estate. The ATO is also establishing a foreign land register (capturing all types of land, and starting initially with agricultural land).
The reforms represent a complete rewrite of the Act and Regulations (albeit with a backbone that remains the same). Some of the key proposed changes include:
- an increase in the 'substantial interest' test from 15% to 20% to align with Australia's takeovers law;
- allowing major Australian listed companies to disregard certain interests (<5% holdings) in determining whether they are 'foreign persons';
- exempting compulsory acquisitions and buy-outs, as well as pro rata rights issues, dividend reinvestments and some underwriting arrangements;
- a level of statutory confidentiality in relation to information disclosed to FIRB and shared with other Government agencies; and
- formalisation of the passive investor in urban land entities exemption.
The latest proposed reforms also clarified the application of the monetary thresholds to acquisitions of indirect interests in land and provide details of what is considered to be agricultural land (including a range of exemptions).
It remains to be seen whether the proposed implementation date of 1 December 2015 will be achieved. We will keep you updated on the progress of the changes.