Each year FIRB quietly releases the Foreign Investment Policy ("Policy") on its web site noting the new thresholds for the calendar year. This year, the release has come late to accommodate the 1 March 2013 commencement of the higher thresholds for New Zealand investors. In addition, there are some welcome clarifications for foreign government investors and for Foreign Government related ADIs, some relaxation of Policy.
Foreign Government Investors
A welcome development in this year’s Policy statement is the clarified definition of what a “foreign government investor” is for the purposes of Policy. The new definition that now lines up more closely with the legislation is:
Foreign government investors include:
- a body politic of a foreign country;
- entities in which governments, their agencies or related entities from a single foreign country have an aggregate interest (direct or indirect) of 15 per cent or more;
- entities in which governments, their agencies or related entities from more than one foreign country have an aggregate interest (direct or indirect) of 40 per cent or more; or
- entities that are otherwise controlled by foreign governments, their agencies or related entities, and any associates, or could be controlled by them including as part of a controlling group.
This removes the previous “aggregate” 15% test which was confusing and had unintended impact on entities that were not foreign under the legislation.
The Government has now implemented what has long been suspected and that is the association of entities from a single country with Government ownership.
The term “entities” in the definition is clarified to include corporations, trusts and limited partnerships.
Unfortunately, the term “foreign government investor” has been used in place of foreign governments and their related entities. Many entities deemed to be foreign government investors by the test simply do not see themselves as foreign government investors. It remains to be seen how this term will be accepted.
The requirement remains for foreign government investors to notify of direct investments regardless of the value of the investment. There has been no change to the position that a passive investment of less than 10% with no control element attached does not attract a notice requirement.
Foreign Government ADIs
Whilst only appearing as an easily missed footnote in the Policy, another welcome development is the relaxation of the Policy notice requirement in respect of foreign government investors that are Authorised Deposit Taking Institutions (“ADIs”) regulated by the Australian Prudential Regulation Authority.
Such investors now do not need to notify the Government when they take security over an asset(s) as part of a lending agreement.
Also, notification and prior approval is no longer required if the security is enforced and the asset(s) is sold. However, the investor must notify the Government and get approval if the security is enforced and the investor gains control over the asset(s) and retains it for more than 12 months.
The Policy now reflects FIRB’s recent consistent approach to notifications by Foreign Government ADIs. The relaxation will remove the burden of having to notify and will speed up the availability of funds to Australian borrowers and investments.
New Zealand Investors
The Protocol on Investment to the Australia-New Zealand Closer Economic Relations Trade Agreement, which was signed by the Australian and New Zealand Prime Ministers in February 2011, includes a commitment by Australia to provide New Zealand investors with the higher foreign investment screening thresholds that apply to United States investors.
Amendments to the Foreign Acquisitions and Takeovers Regulations commenced on 1 March 2013 implementing the protocol and providing New Zealand Investors with the same high threshold that US Investors have enjoyed since 2005.
The higher thresholds for 2013 (and indexed annually are):
- A$1,078 million for all investment in non-sensitive sectors;
- A$1,078 million for developed commercial property; and
- A$248 million for acquisitions in prescribed sensitive sectors or by an entity controlled by a NZ government.
The prescribed sensitive sectors have not changed and are:
- transport, including airports, port facilities, rail infrastructure, international and domestic aviation and shipping services provided either within, or to and from, Australia;
- the supply of training or human resources or the development, manufacture or supply of military goods, equipment or technology to the Australian Defence Force or other defence forces;
- the manufacture or supply of goods, equipment or technology able to be used for a military purpose;
- the development, manufacture or supply of, or provision of services relating to, encryption and security technologies and communications systems; and
- the extraction of (or holding of rights to extract) uranium or plutonium or the operation of nuclear facilities.
The same approach to US Investors is adopted. To get the benefit of the higher threshold, the investor must be incorporated or formed in New Zealand. An acquiring entity not so formed or incorporated, even if in Australia, does not receive the higher threshold.
Impact on Rural Land
The New Zealand Investor threshold will open up opportunities for New Zealand investors in the rural land and agri-business space. At $1,078m this means that almost no private New Zealand proposal will be subject to FIRB scrutiny.
With the Federal election campaign effectively under way, acquisition of rural land by foreign persons is a sensitive political topic. There is already bi-partisan political support for the implementation of a register of foreign holdings of rural land. The Opposition has proposed a $15 million threshold for FIRB scrutiny of proposed acquisitions. (That still buys a lot of farm though.) The Senate Committee reviewing the national interest test applied to rural land will also likely recommend a reduction in the rural land threshold when it finally reports in May 2013.
Whether the New Zealand and US Investor threshold can be adversely impacted given it is the subject of international treaties remains to be seen. Right now though, the threshold for rural land acquisition by New Zealand and US Investors is an unrealistically high A$1,078 million.
Finally, the updated Policy confirms the indexed thresholds for 2013 (from 1 January 2013) as follows:
- $248 million - General threshold;
- $54 million - developed commercial property; and
- $1,078 million - Prescribed investors (NZ and US) in non-sensitive sectors.