The overhaul of Australia’s foreign investment regime has been in effect since 1 December 2015.
While the general focus has been on the major initiatives introduced as part of the package of reforms (application fees, higher penalties and more comprehensive regulation of investment in agribusiness), there were also a number of changes that practically impact investments by foreigners.
This update focuses on some of those practical implications.
Exemption certificate for developers
- a proposed development has 50 or more dwellings
- development approval has been obtained
- any necessary FIRB approval was obtained for the purchase of the land
- if FIRB approval was obtained, any conditions imposed by FIRB have been met,
then the developer may apply to FIRB for an exemption certificate which will allow the developer to sell the new dwellings to foreigners without the purchasers themselves being required to seek FIRB approval. The fee for an exemption certificate is $25,000. An exemption certificate therefore streamlines the sale of new dwellings to foreign purchasers.
A developer who obtains an exemption certificate must report back to FIRB every six months on the number of dwellings sold to foreigners.
The developer will also be required, on a six monthly basis, to pay to the Australian Government an amount equal to the application fees that would otherwise have been paid by the foreign purchasers of the dwellings in the development. The application fee for investment in Australian real property starts at $5,000 for dwellings sold for $1 million or less, $10,000 for a sale price over $1 million but less than $2 million, and increases by $10,000 per $1 million of the sale price above $2 million.
Developers who choose the convenience of the exemption certificate mechanism may consider incorporating provisions in their sale contracts with foreign acquirers to recover these application fees.
Annual approval program
Foreign persons may now apply for approval to acquire multiple pieces of real estate, without the need to seek separate approval for each acquisition. This multiple approval may be granted if FIRB is satisfied it would not be contrary to the national interest for it to do so. Applications are considered on a case by case basis.
This multiple approval mechanism is intended to assist foreign persons who wish to undertake high volumes of acquisitions of land. Any approval given will generally specify the maximum value of interests in land that can be acquired and the period within which such acquisitions may be made.
The application fee for multiple approvals is $25,000 where the total consideration is $1 billion or less, and $100,000 where the total consideration is over $1 billion.
Approval under multiple provisions
The FIRB legislation is intentionally drafted in very wide terms to ensure the regulation of foreign investment is not sidestepped by the use of structuring or other devices. As a consequence, there may be instances of overlap in the application of the various provisions of the FIRB legislation. For example, an acquisition by a foreign person with a 20 percent shareholding in an Australian food processing company, which also owns real property and has gross assets of more than $252 million, may be subject to provisions relating to the approval of acquisitions of:
- Australian agribusiness
- Australian land
- Australian companies.
If approval of a particular acquisition is required under a number of different provisions, the application to FIRB should include a request for approval under each of these provisions. This has the potential to make some applications complex and external advice may be required to ensure the legislation is complied with.
FIRB has a period of 30 days to make a decision on an application, and another 10 days to notify the applicant of its decision. The time only starts running when payment of the relevant fees is made to FIRB.
Under the new legislation, FIRB is able to extend the time, subject to agreement by the applicant. If the applicant does not agree to the new deadline, then FIRB may consider recommending the issuance of an interim order that will prohibit the proposed acquisition for a period not exceeding 90 days.
The practical effect is that applicants are likely to agree to the extension of time. However, if there is any urgent commercial deadline for the applicant, FIRB should be notified and an expedited review sought. FIRB is not required to agree to such a request