The regime is set out in the Foreign Acquisitions and Takeover Act 1975 (Cth) (the Act). Under the Act, the Treasurer of Australia has the power to examine proposed foreign acquisitions and decide whether to:
- issue a “no objection notice,” a process commonly known as granting Foreign Investment Review Board (FIRB) approval for the acquisition;
- prohibit acquisitions determined to be contrary to the national interest;
- order the disposal of an interest already acquired; or
- impose conditions on the acquisition, necessary to remove national interest concerns.
Typically, matters that the Treasurer will take into consideration when making a decision include the impact of the acquisition on the Australian economy and community, national security, and the character of the investor.
Failure to comply with the Act can result in harsh financial penalties and possible criminal prosecution.
When is the requirement to seek FIRB approval triggered?
A foreign investor should assess the requirement to apply for FIRB approval if the acquisition is a significant and/or notifiable action under the Act that meets prescribed monetary thresholds and no exemptions apply.
The Act defines significant and notifiable actions, and generally an acquisition of an interest in Australian land by a foreign person meets the criteria to be considered a significant and notifiable action. How the criteria are defined and applied is discussed in more detail below.
Who is a foreign person?
An entity is a foreign person if they meet one of the following criteria:
- an individual that is not ordinarily resident in Australia. This includes Australian citizens living abroad;
- a foreign government or foreign government investor. Commercial investors may also be caught under this definition even though they operate independently of any foreign government, for example if they have some form of foreign government ownership in their shareholding or structure. Pension funds and sovereign wealth funds can also be considered foreign government investors.
- a corporation, trustee of a trust, or general partner of a limited partnership in which a foreign person holds a substantial interest of at least 20 percent; or
- a corporation, trustee of a trust, or general partner of a limited partnership in which two or more foreign persons hold an aggregate substantial interest of at least 40 percent.
An acquisition of an interest in Australian land is broadly defined
An acquisition of an interest can take many forms, such as entering a contract for the purchase of land and buildings, a call option to purchase or a lease or permit with an expected term of at least five years. Acquiring an interest in an Australian land corporation or Australian land trust, whose land assets comprise more than 50 percent of the entity’s total assets, is a deemed acquisition of an interest in Australian land.
For the purposes of the Act, Australian land is classified into four categories:
- Residential land: includes land on which at least one but not more than 10 dwellings are built or could be built. It can be land that is vacant or it may have new or established dwellings located on it.
- Agricultural land: includes land that is used or could reasonably be used for a primary production business. This may be for the purposes of cultivating crops, animal rearing, fishing, forestry or horticulture operations.
- Commercial land: covers land used for a wide variety of commercial purposes and can include land with office buildings, shopping malls, warehouses, industrial estates and factories. It also includes land with residential premises such as hotels and caravan parks, but it does not include retirement villages, aged care facilities or certain student accommodation. It can be either vacant or developed. Commercial land is considered vacant if there are no buildings on the land that can lawfully be occupied by people, goods or livestock. Land is not vacant if a wind or solar power station is located on it.
- Mining and production tenements: includes mining, oil, gas and petroleum production (offshore and onshore) acquisitions, leases and permits. It does not include exploration and prospecting permits. If the land being acquired is mixed use (eg, part commercial and part agricultural) FIRB will assess the classification based on factors including the current and intended use of the land, proportions of each use and the nature of the land.
What are the thresholds?
The Act prescribes monetary thresholds relevant to the acquisition which, if exceeded (and unless an exemption applies), require the foreign person acquiring the interest in Australian land to obtain FIRB approval before completing the acquisition. The thresholds vary depending on the type of foreign person and the acquisition, for example:
- Is the foreign person a foreign government investor? Foreign government investors are subject to stricter thresholds than other foreign persons and generally there is a zero monetary threshold that applies, so FIRB approval is almost always required.
- Is the foreign person (not a foreign government investor) from a Free Trade Agreement (FTA) country? FTA countries are the US, New Zealand, Chile, China, Japan, South Korea and Singapore. From December 30, 2018, Canada and Mexico became FTA countries. FTA countries have higher thresholds than non-FTA countries.
- Is the land classified as sensitive land? If so, it will have a lower monetary threshold. Sensitive land includes mines and public infrastructure such as an airport or port, and land that houses certain telecommunications or data facilities.
- For agricultural land, the threshold is cumulative based on a foreign person’s total holding, meaning all Australian agricultural holdings of the foreign person must be taken into account when assessing the thresholds.
- Vacant commercial land has a lower threshold than developed commercial land, so careful consideration should be given to the structures that exist on commercial land.
- Where an acquisition involves multiple titles with different uses, notification requirements and thresholds will be determined on a title-by-title basis.
The table below contains the prescribed monetary thresholds for acquisitions of interests in land for 2018.* These thresholds are indexed annually on January 1 every year.
* This table does not contain reference to Canada and Mexico which became FTA countries on December 30, 2018. Readers should contact our Australian offices directly for further information on the relevant thresholds for these countries.
Despite the seemingly onerous nature of the FIRB approval requirements, the Treasurer will usually only exercise a discretion to prohibit an acquisition in exceptional circumstances.
What are the main exemptions?
The Act provides for various exemptions and some of the more regularly applied exemptions include the following:
- An interest in land acquired directly from the Commonwealth, state or a local government body is generally exempt from the need to apply for FIRB approval.
- Residential land in integrated tourist development areas may be exempt from the need to apply for FIRB approval.
- Where an exemption certificate has been granted, the Treasurer may grant exemption certificates to foreign persons with a high volume of acquisitions, which are not contrary to the national interest, to ease the regulatory burden.
What does this all mean for foreign investors looking to invest in an interest in Australian land?
Understanding when and how Australia’s foreign investment regime applies can be a complex and nuanced process. Given the harsh penalties for non-compliance and relatively high application fees, each proposed foreign acquisition requires careful analysis. It is important to assess all the circumstances of the proposed acquisition at an early stage, to identify any issues and develop a strategy to manage the factors that may cause delay or put the acquisition at risk if the necessary FIRB approvals are not obtained.
Despite the seemingly onerous nature of the FIRB approval requirements, the Treasurer will usually only exercise a discretion to prohibit an acquisition in exceptional circumstances. There have been some highprofile and controversial decisions recently; however, in our experience the vast majority of applications for FIRB approval for proposed acquisitions are accepted and approved by the Treasurer.
Even for what might be considered a routine application, it is important to follow the correct process, given the potential consequences if FIRB approval is not obtained or applied for when it should.