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Australia's new foreign investment regime
1 December 2015
The Federal Government’s overhaul of Australia’s foreign investment regime comes into effect today, 1 December 2015. Here are the key changes:
WHAT HAS CHANGED
Under the new regime:
(a) the substantial interest threshold that triggers notification has been increased from 15% to 20% (the result of which is that, in general, the entities to which the regime applies has been narrowed);
(b) there is a simplified system of notifiable and significant actions;
(c) there are increased criminal penalties and the imposition of civil penalties; and
(d) application fees now apply.
The changes have been mainly implemented by changes to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FIRB Act).
SIGNIFICANT ACTIONS AND NOTIFIABLE ACTIONS
The new regime is based on two categories of actions undertaken by foreign persons:
(a) significant actions – an action is a significant action if there is a change in control relating to an Australian business or land and, generally, if it meets a threshold test. Significant actions may be notified on a voluntary basis.
(b) notifiable actions – an action is a notifiable action if it meets a threshold test. There does not need to be a change in control. Notifiable actions must be notified.
Significant actions and notifiable actions are defined by reference to various dealings involving the following investments: entities (corporations or unit trusts), Australian businesses and interests in Australian land.
Certain actions are expressly excluded from being significant or notifiable actions including for example, where a foreign person is specified in an exemption certificate and compulsory acquisitions or buy-outs under the Corporations Act 2001 (Cth) (Corporations Act).
For the threshold test to be met, a certain value (which is dependent on the action taken) must be above a threshold prescribed in the Foreign Acquisitions and Takeovers Regulation 2015 (FIRB Regulations). The threshold test for land distinguishes between three kinds of land – prescribed land, agricultural land and all other land. As anticipated, residential land, vacant commercial land, certain mining or production tenements and land acquired by a foreign government investors has been prescribed.
Consistent with the previous regime, the Treasurer is empowered to make a broad range of orders in relation to a significant or notifiable action that a person is proposing to take or has already taken including, for example, if the action is contrary to the national interest, to make an order prohibiting the action, or make a disposal order unwinding the action. In addition, the Treasurer may also grant the person a no objection notification.
‘Foreign person’
The definition of “foreign person” has been changed to include foreign governments, and a corporation or trustee of a trust in which a non-resident individual, a foreign corporation or a foreign government (or 2 or more of those persons) and their associates hold an interest of at least 20% (or in the case of 2 or more persons, an aggregate substantial interest of 40%).
Notably, the “substantial interest” threshold has been amended from 15% to 20% to align with the takeover rules in the Corporations Act.
HOW ARE MINING LEASES TREATED?
Unless an exemption certificate is obtained, the acquisition of a mining lease by a foreign person constitutes both a significant action and a notifiable action under the FIRB Act as an ‘acquisition of Australian land’. The definition of “Australian land” in the FIRB Act includes a “mining or production tenement” which in turn is defined as a legal right to recover minerals, oil or gas in Australia, but does not include a right to recover minerals, oil or gas for the purposes of prospecting or exploring for minerals, oil or gas. However, it is important to note that where foreign government investors are concerned, acquisitions of an interest in mining, production or exploration tenements or an interest of at least 10% in securities in a mining, production or exploration entity are also significant and notifiable actions under the FIRB Regulations.
In order to be a significant and notifiable action, an acquisition of an interest in Australian land must meet the threshold test. The FIRB Regulations prescribe mining and production tenements (except a tenement acquired by a relevant agreement country investor) as having no threshold value. Accordingly, an acquisition of a mining lease (regardless of value) constitutes a significant and notifiable action.
A foreign person proposing to acquire an interest in Australian land (which includes mining leases) may apply for an exemption certificate under the FIRB Act. The exemption certificate regime effectively replaces the annual programme regime under the previous legislation, albeit that the FIRB Act does not prescribe a specific timeframe for an exemption certificate. The Treasurer is empowered to give a certificate if the Treasurer is satisfied that acquisitions of the types of interests proposed is not contrary to the national interest.
OFFENCES AND CIVIL PENALTIES
The FIRB Act provides for increased criminal penalties and the imposition of civil penalties, as well as the issuing of infringement notices for less serious offences.
INTRODUCTION OF APPLICATION FEES
Prior to 1 December 2015, no fees or charges were payable when making an application or giving a notice under the previous FIRB Act. Under the new FIRB Act, a person who applies for an exemption certificate, gives notice of a notifiable action, or gives a notice in relation to a proposal to take a significant action that is not a notifiable action must pay a fee. A fee is also payable if the Treasurer makes a decision relating to a significant action and the person has not notified the Treasurer. The fee amounts imposed under the Foreign Acquisitions and Takeovers Fees Imposition Bill 2015 for giving notice of notifiable actions are as set out in the table below.
Where a fee is payable for making an application or giving a notice, a person is taken not to have given the notice or made the application until the fee has been paid or waived.
The Treasurer has the discretion to waive or remit the whole or part of a fee that is payable under the new FIRB Act if the Treasurer is satisfied that it are not contrary to the national interest to do so.
| Fee category | Fee amount |
Interests in Australian businesses | (a) if the consideration is $1 billion or less - $25,000 (b) otherwise - $100,000 |
Residential or agricultural land | (a) $5,000 (b) Determined in accordance with a prescribed formula |
| Commercial land (not vacant) To acquire an interest in commercial land (other than commercial land that is vacant). | $25,000. |
| Vacant commercial land To acquire an interest in commercial land that is vacant. | $10,000. |
| Mining and production tenements To acquire an interest in a mining or production tenement. | $25,000. |
| Prescribed notifiable actions To take a notifiable action prescribed by the FIRB Regulations. | The amount not exceeding $100,000 that is prescribed by the FIRB regulations, or worked out using the method prescribed by the FIRB Regulations. |
*Fees are subject to the “de minimus rule” – if the relevant fee (eg, $25,000) is more than 25% of the consideration for the relevant acquisition then only $1,000 is payable – see s7 Foreign Acquisitions and Takeovers Fees Imposition Regulation.
Contacts: Jon Cane, Principal; Philip Lucas, Principal; Stuart Mengler, Principal; Michael Swift, Principal; David Walker, Principal.
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