Law and policy

Policies and practices

What, in general terms, are your government’s policies and practices regarding oversight and review of foreign investment?

Australia generally welcomes foreign investment. The Australian government screens foreign investment proposals on a case-by-case basis to determine whether a particular proposal is contrary to the national interest (or in some cases, national security). The kinds of proposals examined include both business investment proposals (which can capture transactions outside of Australia if there is a sufficient Australian nexus) across all sectors of the economy and investment in land, in each case subject to materiality thresholds.

In determining whether a foreign investment proposal is contrary to the national interest, the Australian government is able to examine any factors that it considers appropriate. Typically, these factors include the impact of the foreign investment proposal on: national security, competition, the economy and the community (eg, as a result of the investor’s plans to restructure the business in Australia after the acquisition), and other government policies such as tax and the environment, as well as the character of the investor. Increasingly, the government also now considers data security.

Some kinds of foreign investment proposals give rise to more specific concerns, which the Australian government takes into consideration (in addition to those described above) when examining those proposals:

  • for agricultural investment proposals, the Australian government typically considers the effect of the proposal on the quality and availability of Australia’s agricultural resources, including water; land access and use; agricultural production and productivity; Australia’s capacity to remain a reliable supplier of agricultural production, to both the Australian community and Australia’s trading partners; biodiversity; and employment and prosperity in Australia’s local and regional communities;
  • for residential real estate investment proposals, the overarching principle is that the proposal should increase Australia’s housing stock (by creating at least one new additional dwelling); and
  • where a foreign investment proposal involves a foreign government investor, the Australian government considers whether the proposed investment is commercial in nature or whether the investor may be pursuing broader political or strategic objectives that may be contrary to Australia’s national interest.

 

In general, Australia does not impose currency controls (subject to limited exceptions prohibiting, for example, transfers of funds to certain regimes).

Main laws

What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?

The main laws that regulate foreign investment in Australia are the following:

 

Separate legislation imposes other requirements in respect of foreign ownership in certain industries, for example:

Scope of application

Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?

There are four kinds of actions that are regulated:

  • Significant actions: the Treasurer has the power to make orders in relation to these kinds of transactions (including to block them, to order divestments or to impose conditions) if he or she considers the transaction to be contrary to the national interest. Approval only has to be sought for these if they are also notifiable actions or notifiable national security actions, but obtaining approval cuts off the Treasurer’s powers (subject to the Treasurer's last resort review powers). Seeking approval is advisable.
  • Notifiable actions: these are a category of transactions that require approval. Most notifiable actions are also significant actions (meaning the Treasurer has the above powers).
  • Notifiable national security actions: the Treasurer has the power to make orders in relation to these kinds of transactions (including to block them, to order divestments or to impose conditions) if he or she considers the transaction to be contrary to national security (which is narrower than the national interest test above). These actions require approval.
  • Reviewable national security actions: these are transactions with an Australian nexus that are not significant actions, notifiable actions or notifiable national security actions. These transactions, together with significant actions for which approval is not sought, are subject to the Treasurer’s ‘call in’ powers for a period of 10 years if he or she considers that the transaction poses a national security concern. Like significant actions, reviewable national security actions do not have to be notified, but getting approval cuts off the Treasurer’s powers (subject to the Treasurer's last resort review powers). The Australian government encourages seeking approval for reviewable national security actions in certain sensitive sectors.

 

A foreign person must not proceed with a notifiable action or notifiable national security action, or a significant action (which is not also a notifiable action) or a reviewable national security action that it has elected to notify, until the Treasurer has issued a statement of no objection, or ceases to be empowered to make orders in relation to the proposal under the law.

Actions that are both significant actions and notifiable actions include:

  • the acquisition by a foreign person of an interest of 20 per cent or more in the shares or units of an Australian company or unit trust valued above the then current monetary thresholds;
  • the acquisition by a foreign person of an interest in Australian land valued above the then current monetary thresholds (subject to certain exceptions);
  • the acquisition by a foreign person of an interest of 10 per cent or more (and in some cases interests below 10 per cent) in an Australian company or unit trust or Australian business that is an agribusiness, where the value of the acquirer’s past and current investments in the target exceed the then current monetary thresholds;
  • the acquisition by a foreign person of an interest of 10 per cent or more (and in some cases interests below 10 per cent) in a company, unit trust or business that wholly or partly carries on an Australian media business, regardless of value; and
  • the following transactions by foreign government investors:
    • the acquisition of an interest of 10 per cent or more (and in some cases interests below 10 per cent) in any Australian company, unit trust or business (including offshore businesses that have an Australian nexus, subject to a de minimis exemption for offshore transactions only);
    • the acquisition of an interest in Australian land, regardless of value;
    • starting an Australian business; and
    • acquiring a legal or equitable interest in a tenement or an interest of at least 10 per cent in securities in a mining, production or exploration entity (ie, an entity where the total value of legal or equitable interests in tenements held by the entity, or any subsidiary of the entity, exceeds 50 per cent of the total asset value for the entity).

 

Significant actions that are not necessarily notifiable actions include change of control transactions in relation to Australian companies, entities and businesses valued above the then current monetary thresholds, which (unlike most notifiable actions) can capture offshore transactions if they have a significant Australian nexus, and asset acquisitions, in each case by foreign persons that are not foreign government investors.

The system of monetary thresholds is complex: both the way that the threshold is calculated and the dollar value of the monetary threshold differ for different kinds of transactions. Monetary thresholds are also indexed annually for inflation and are affected by Australia’s treaty obligations, so different thresholds may apply for investors from countries with which Australia has entered into free trade agreements. Not all free trade agreements contain the same exemptions. The standard monetary threshold for foreign persons who are not foreign government investors and who are investing into an Australian company or business that is not an agribusiness, media business or national security business is A$310 million for 2023.

A notifiable national security action includes:

  • to start a national security business;
  • to acquire an interest of 10 per cent or more (and in some cases less than 10 per cent) in a national security business or an entity that carries on a national security business;
  • to acquire an interest in Australian land that, at the time of acquisition, is national security land; and
  • to acquire a legal or equitable interest in an exploration tenement in respect of Australian land that, at the time of acquisition, is national security land.

 

A national security business is one that is carried on wholly or partly in Australia (whether or not for profit) that is publicly known, or could be known upon making reasonable enquiries, to be one or more of the following:

  • it is the responsible entity for or a direct interest holder of a critical infrastructure asset (as defined under the Security of Critical Infrastructure Act 2018) – these include certain assets in the following 22 sectors:
    • aviation;
    • banking;
    • broadcasting;
    • data storage or processing;
    • defence industry;
    • domain name system;
    • education;
    • electricity;
    • energy markets;
    • financial market infrastructure;
    • food and grocery;
    • freight infrastructure;
    • freight services;
    • gas;
    • hospitals;
    • insurance;
    • liquid fuel asset;
    • port;
    • public transport;
    • superannuation;
    • telecommunications; and
    • water and sewerage;
  • it is a carrier or nominated carriage service provider to which the Telecommunications Act 1997 applies;
  • it develops, manufactures or supplies critical goods or critical technology that are for a military or intelligence use by, or it provides critical services to, defence and intelligence personnel, the defence force of another country, or a foreign intelligence agency;
  • it stores or has access to information that has a security classification;
  • it stores or maintains personal information of defence and intelligence personnel collected by the Australian Defence Force, the Defence Department or an agency in the national intelligence community which, if accessed, could compromise Australia’s national security;
  • it collects, as part of an arrangement with the Australian Defence Force, the Defence Department or an agency in the national intelligence community, personal information on defence and intelligence personnel that, if disclosed, could compromise Australia’s national security; or
  • it stores, maintains or has access to personal information on defence and intelligence personnel that, if disclosed, could compromise Australia’s national security.

 

It should be noted that the burden in terms of determining whether it is 'publicly known' that a business carries on a national security business is very high. Transacting parties and their advisors are expected to have a high degree of familiarity with national security issues and the system for classifying information to make these assessments.

National security land is:

  • certain defence premises; and
  • land in which the Commonwealth, as represented by an agency in the national intelligence community, has an interest that is publicly known or could be known upon the making of reasonable enquiries.
Definitions

How is a foreign investor or foreign investment defined in the applicable law?

The legislation regulates foreign investment proposals by a ‘foreign person’. A foreign person, in general, means:

  • an individual not ordinarily resident in Australia;
  • a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds an interest of 20 per cent or more;
  • a corporation in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, holds an interest of 40 per cent or more;
  • the trustee of a trust where, in respect of the trust, an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds an interest of 20 per cent or more;
  • the trustee of a trust where, in respect of the trust, two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government hold an interest of 40 per cent or more;
  • the general partner of a limited partnership where, in respect of the limited partnership, an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds an interest of 20 per cent or more;
  • the general partner of a limited partnership where, in respect of the limited partnership, two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government hold an interest of 40 per cent or more; or
  • a foreign government or foreign government investor.
Special rules for SOEs and SWFs

Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

Australia scrutinises a broader range of investments by ‘foreign government investors’ than it does investments by other foreign persons.

A ‘foreign government investor’ includes:

  • a foreign government;
  • an individual, corporation or corporation sole that is an agency or instrumentality of a foreign country but is not part of the body politic of that foreign country (referred to below as a ‘separate government entity’); and
  • a corporation, trustee of a trust or general partner of a limited partnership in which (1) a foreign government, separate government entity or foreign government investor from one country holds a 20 per cent or more interest, or (2) foreign governments, separate government entities or foreign government investors from more than one country hold a 40 per cent or more interest. 

 

The definition of foreign government investor captures not only SOEs and SWFs, but also things such as public sector pension funds, the investment funds into which SOEs, SWFs and public sector pension funds invest and, owing to tracing rules, portfolio companies for such investment funds.

There is an exception from the definition of ‘foreign government investor’ for collective investment vehicles that are caught solely because of the ‘40 per cent test’, where such investors have no say in individual investment, divestment and management decisions and the investor has no role (other than as investor) in respect of the fund.

As foreign government investors are also foreign persons, they are subject to the usual range of significant actions, notifiable actions, notifiable national security actions and reviewable national security actions that apply to all foreign persons. In addition, the following transactions by foreign government investors are notifiable actions:

  • the acquisition of an interest of 10 per cent or more (and in some cases interests below 10 per cent) in any Australian company, unit trust or business (including offshore businesses that have an Australian nexus);
  • the acquisition of an interest in Australian land, regardless of value;
  • the starting of an Australian business; and
  • acquiring a legal or equitable interest in a tenement or an interest of at least 10 per cent in securities in a mining, production or exploration entity (ie, an entity where the total value of legal or equitable interests in tenements held by the entity, or any subsidiary of the entity, exceeds 50 per cent of the total asset value for the entity).

 

These are subject to very limited exemptions. A key exception is for offshore transactions that meet a de minimis test – namely that the action is the acquisition of securities in a non-Australian entity with an Australian subsidiary; the assets of the Australian subsidiary are worth less than A$67 million (for 2023); those assets constitute less than 5 per cent of the total assets of the target group; and none of those assets are used in either a sensitive business (which broadly covers telecoms; transport; media; supply of military goods; development, manufacture or supply of, or the provision of services relating to, encryption and security technologies and communications systems; uranium or plutonium extraction; and operation of a nuclear facility) or a national security business.

Relevant authorities

Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?

The Treasurer has the ultimate power to decide whether a transaction is contrary to the national interest.

When making foreign investment decisions, the Treasurer is advised by the Foreign Investment Review Board (FIRB), which examines foreign investment proposals and advises on the national interest (or in certain cases, national security only) implications. The FIRB is a non-statutory advisory body.

The FIRB is supported by a secretariat located in the Treasury and by the Australian Taxation Office (ATO). The Treasury is responsible for the day to-day administration of the framework in relation to business transactions and some land transactions. The ATO administers foreign investment into residential real estate and certain other types of proposals.

Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?

The Australian government has wide discretion to approve or reject significant actions and notifiable actions on national interest grounds, and notifiable national security actions and reviewable national security actions on national security grounds.

In determining whether a foreign investment proposal is contrary to the national interest, the Australian government is able to examine any factors that it considers appropriate. Typically, these factors include the impact of the foreign investment proposal on: national security, competition, the economy and the community (eg, as a result of the investor’s plans to restructure the business in Australia after the acquisition), and other government policies such as tax and the environment, as well as the character of the investor. Increasingly, the government also now considers data security.

Some kinds of foreign investment proposals give rise to more specific concerns, which the Australian government takes into consideration (in addition to those described above) when examining those proposals:

  • for agricultural investment proposals, the Australian government typically considers the effect of the proposal on the quality and availability of Australia’s agricultural resources, including water; land access and use; agricultural production and productivity; Australia’s capacity to remain a reliable supplier of agricultural production, to both the Australian community and Australia’s trading partners; biodiversity; and employment and prosperity in Australia’s local and regional communities;
  • for residential real estate investment proposals, the overarching principle is that the proposal should increase Australia’s housing stock (by creating at least one new additional dwelling); and
  • where a foreign investment proposal involves a foreign government investor, the Australian government considers whether the proposed investment is commercial in nature or whether the investor may be pursuing broader political or strategic objectives that may be contrary to Australia’s national interest.

 

As noted above, notifiable national security actions and reviewable national security actions are reviewed against national security only.