Australia’s foreign investment laws have undergone a complex rewrite, which came into effect on 1 December 2015. The complexity is mainly due to a proliferation of departures from the standard monetary and ownership thresholds for determining whether foreign investment approvals are required. Some of these departures are forced by Australia’s free trade treaty obligations, others reflect political sensitivities around foreign investment in residential land and the agribusiness sector as well as the activities of foreign government investors.
For example, foreign investors are now faced with an array of monetary thresholds ($1.094m, $252m, $55m, $50m, $15m and $0) depending on where they are from and what they are investing in. Further, we have determined that some foreign investors will need to ask themselves up to 174 questions before they can determine whether they need an approval.
Substantive changes of particular note include the following.
- Application fees have been introduced for the first time. Typically $25,000, they can go as high as $100,000. This will impact the willingness of foreign participants in business auction processes to submit early applications as there will be no refunds if they are unsuccessful.
- The standard ownership threshold is now 20% (up from 15%). This aligns with the threshold under Australia’s takeover laws. However, there are many instances where the threshold is 10%, 5% and, in some cases, a single share.
- Lower monetary thresholds now apply to foreign investment in agricultural land ($15m, cumulative) and agribusinesses ($55m), subject to exceptions for investors from Chile, New Zealand and the United States.
- Listed Australian companies now need only count the shares held by foreign substantial holders (those who hold 5% or more) in determining whether they exceed the 40% aggregate foreign ownership threshold. While this appears helpful, it is illusory because Australian companies must still consider all foreign shareholdings in order to determine who, among its shareholders, are foreign government investors. This is because an Australian company will itself become a foreign government investor if foreign government investors from one country hold 20%, or foreign government investors generally hold 40%, of their shares.
- Foreign government investors are deemed to be associated (and their ownership interests thus aggregated) if they are from the same country. This makes it very difficult for sovereign wealth funds and government pension funds from large, diverse countries to engage in portfolio investment in Australia. None of them will be able to access reliable information on aggregate investment in order to determine whether their aggregate investments are below the 10% ownership threshold that applies to them.
* Marcus Clark is an author of Foreign Investment in Australia, published by Thomson Reuters.