This week, new foreign investment laws come into operation.
On 20 August 2015, the Australian government introduced the Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015 to amend the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA). The Bill was passed by both houses in late November 2015 and the amendments, together with revised regulations came into force on 1 December 2015. The new foreign investment regime introduces a number of important changes to the law. This alert identifies some of the more significant changes. The new foreign investment regime is quite complex. It has different effects on different industries, and, as a result of free trade agreements, does not treat investors from different countries in the same way.
Notifiable transactions: The new foreign investment regime requires investors to notify the Foreign Investment Review Board (FIRB) where a transaction is a 'notifiable action'. Failing to do so will be an offence under the Act. The changes include a substantially more severe penalty regime. Criminal penalties include $135,500 for individuals, $675,000 for companies, up to 3 years’ imprisonment and divestment orders. For failure to notify the acquisition of a second hand dwelling or for failure to comply with conditions of an approved acquisition the penalty can be the greater of:
- the capital gain;
- 25% of the price paid; and
- 25% of the market value of the property.
The penalty regime extends to company officers, lawyers, accountants and real estate agents. The penalties will not be deductible for tax and can be charged against the relevant property in appropriate circumstances.
Substantial interest threshold: The amendments to FATA mean that the substantial interest threshold (which is relevant in determining whether FIRB needs to be notified of a transaction) has been raised from 15% to 20%. This 20% threshold is consistent with the level in the Corporations Act 2001 (Cth) above which a person seeking to increase their ownership in a company with more than 50 shareholders is generally compelled to make a takeover offer for all shares in the company. Initial indications are that FIRB now regards foreign share/unit holders of less than 20% of the issued shares/units in an acquirer as associates of each other in circumstances where they proceed in concert with each other. This significantly expands the range of transactions which will be notifiable and it now becomes critical that any decision concerning a proposed acquisition by multiple foreign participants is made with great care.
Application fees: Under the new FIRB regime, there will be additional costs that will be imposed on foreign investors. The Foreign Acquisition and Takeovers Fees Imposition Act 2015 (Cth) imposes fees on all foreign investment applications from 1 December 2015. Fees range from $5,000 to $100,000 depending on the nature of the application. For example for residential or agricultural land the fee operates as a tax of 1% on the property value above $1million and, for properties valued at less than $1million, $5,000. Residential developers of 50 or more council approved dwellings can pay $25,000 to obtain an exemption certificate entitling foreign buyers to rely on the certificate for their exemption. Developers holding an exemption certificate will then be responsible to report their foreign buyer transactions 6 monthly and must pay a further fee for each of those transactions. That fee is marginally less than the fee which would be payable by foreign buyers on their own account,
Investment in agricultural land: Under the new regime, 'Agricultural land' is defined as 'Land in Australia that is used, or that could reasonably be used, for primary production business'. The amendments to FATA require all privately owned foreign investors to get prior approval for a proposed acquisition of an interest in agricultural land where the cumulative value of the agricultural land that the foreign person (and any associates) already holds exceeds, or immediately following the proposed acquisition is likely to exceed $15 million to foreign investors (unless an exemption applies).
Register of foreign ownership of agricultural land: The new foreign investment regime also provides for a register of foreign ownership of agricultural land which will provide information such as the location and size of the property and size of the interest acquired. In order to comply with the new regime, all existing holdings of agricultural land owned by foreign persons must be registered with the ATO.
Foreign government investors: The new foreign investment regime provides that all foreign government investors from a single country will be deemed to be associates. This means that it is assumed that each state-controlled entity acts in concert with each other.