Q&A: foreign investment issues for project companies in Australia

Foreign investment issues

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

There are significant and complex restrictions on foreign ownership of Australian companies or assets, including mining and petroleum tenements and land. Approval from the Foreign Investment Review Board (FIRB) is required for a wide range of transactions. If approval is not granted and the transaction proceeds, the Treasurer has the power to impose penalties or to make orders to unwind transactions or dispose of assets. Whether FIRB approval is required for a transaction can be a technical question and applying for an approval will often incur significant fees.

However, there is a broad exemption for financiers. The restrictions do not apply to acquisitions of an interest in securities, assets, trusts, land or tenements for the purposes of securing payment obligations under a money-lending agreement, or on enforcement of that security. Additional rules apply in respect of security over residential land: the financier must be registered as an authorised deposit-taking institution (ie, a bank) in Australia or licensed outside Australia as a financial institution and be listed on a stock exchange or have at least 100 holders of its securities. There are also limits on how long a security holder who is a foreign government investor can hold an interest post-enforcement of security.

The FIRB regime has different thresholds for classes of transactions. The level of scrutiny a proposal is subjected to depends on whether the sector is deemed high risk (eg, critical energy, critical minerals and critical technology) or low risk (eg, manufacturing, professional services, commercial real estate, new housing and mining of non-critical minerals). Investments in national security businesses and national security land attract a mandatory FIRB approval requirement. The exemption for financiers does not apply to such investments in national security businesses and national security land, so financiers taking security over such businesses will require FIRB approval.

Subject to the requirement for investments in national security business and national security land, acquisitions under the applicable thresholds may not require FIRB approval. For ‘agreement countries’, these thresholds are higher and capture a wider spread of transactions. Current agreement countries are Chile, China, Hong Kong, Japan, New Zealand, Peru, Singapore, South Korea, the United Kingdom, and the United States and the countries for which the Comprehensive and Progressive Agreement for Trans-Pacific Partnership is in force, being Brunei Darussalam, Canada, Mexico, Malaysia and Vietnam. However, the increased thresholds do not apply where the acquisition is made by a subsidiary incorporated elsewhere, the acquirer is a foreign government investor or the acquisition target is in a sensitive sector. These assessments are complex and should be made on a case-by-case basis.

The Australian Treasurer also has a last-resort power to unwind, on national security grounds, transactions that were previously granted FIRB approval, as well as a call-in power for the Australian Treasurer to review and make orders on national security grounds, in respect of a broad range of transactions.

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

Any person wishing to carry on an insurance business in Australia must be authorised by the Australian Prudential Regulation Authority, whether conducting business directly or through an insurance agent or broker, and regardless of whether or not the person or company holds an authorisation in an overseas jurisdiction. There is a limited exemption to enable insurance businesses that cannot be appropriately placed in Australia to be provided by an unauthorised foreign insurer. Products for managing financial risk may be subject to financial services regulation and licensing requirements.

Non-resident insurers with no principal office or branch in Australia may be taxed on a deemed taxable income based on gross premium derived under an insurance contract from the insurance of property situated in Australia or the insurance of an event that can only happen in Australia. In certain circumstances, the insured person and any person in Australia acting on behalf of the insurer can become personally liable to pay this tax.

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

There are a number of restrictions on bringing in foreign workers to work on Australian projects. Foreign workers must hold a valid and appropriate visa to work in Australia (including on offshore resources projects) and are subject to Australian employment laws. Employers can sponsor foreign workers for either temporary or permanent visas.

There are three main streams available under the Temporary Skill Shortage (TSS) visa programme:

1. short-term stream – this is for employers to source genuine temporary overseas skilled workers in occupations included on the Short-term Skilled Occupation List for up to two years (or four years if an international trade obligation applies, or five years for Hong Kong passport holders);

2. medium-term stream – this is for employers to source genuinely temporary overseas skilled workers in occupations included on the Medium and Long-term Strategic Skills List or the Regional Occupation List for up to four years (or five years for Hong Kong passport holders); and
3. labour agreement stream – this is for employers who have a Labour Agreement with the Australian Government to source genuine temporary overseas skilled workers in occupations specified in the Labour Agreement for up to four years (or five years for Hong Kong passport holders), depending on the terms of the Labour Agreement.

Changes to the TSS visa programme in 2023 mean that visa holders in any of the three streams may apply for permanent residency if they are eligible.

Temporary visas are available only to workers in a specified list of occupations. In addition, employers may first be required to demonstrate that they have sought to employ an Australian citizen in the role. Labour market testing will apply to all occupations nominated under the TSS visa programme unless an exemption applies under Australia’s international obligations.

Visa applicants must clear a criminal records check, demonstrate English language proficiency, demonstrate at least two years of relevant work experience, and have a relevant skills assessment if required for the occupation. Under the TSS programme, employers will be subject to undertake a ‘non-discriminatory workforce test’ to ensure that Australian workers are not being actively discriminated against, pay the minimum Australian market salary rate and contribute more towards training Australian workers. Applicants with an occupation listed as a government policy priority are given priority processing.

What restrictions exist on the importation of project equipment?

Australia offers a straightforward and undemanding platform for importation to the country. There is no general requirement for an importing entity to hold a licence for importation. The import of certain goods may be prohibited or restricted, but this is unlikely to be relevant to project equipment.

The Australian Border Force must clear all goods imported into Australia, whether they are imported by air, sea or post. All goods imported with a value of more than A$1,000 must be cleared by submitting a completed import declaration form and paying any duty, goods and services tax and other taxes and fees and charges that may apply. Goods with a value equal to or less than A$1,000 generally do not attract any duties, taxes or charges other than goods and services tax (at the point of sale).

Any equipment to be used in Australia must also comply with Australian standards and relevant codes of practice.

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?

Australia is a low-risk jurisdiction for the nationalisation or expropriation of project companies and assets. All levels of government in Australia may compulsorily acquire land where necessary for certain public purposes. They are obliged to pay compensation for the land, generally based on the value of the land acquired. There has been no nationalisation of project companies in Australia in recent history.