The Australian Treasurer recently announced reforms to Australia's Foreign Investment review framework in order to improve Australia's competitiveness and appeal to overseas investors.
The Australian Government aims to remove what it considers to be
disincentives for foreign private entities seeking to invest in
Australia. The major components of the changes include:
- an increase in the monetary threshold above which Foreign Investment Review Board (FIRB) notification is required;
- the indexing of the new unified threshold on 1 January every year to keep pace with inflation and to prevent foreign investment screening from becoming more restrictive over time; and
- the removal of new business notification requirement. Investments by foreign governments or government-owned (or controlled) enterprises will continue to be subject to FIRB review process.
If the Foreign Acquisitions and Takeovers Regulations 1989
(FATR) is successfully
amended in September 2009, as proposed, investment by private
foreign investors within the new thresholds will no longer be
subject to formal review processes by FIRB.
Based on figures from 2008-2009, it is estimated that following the
amendments, FIRB will no longer screen 20 percent of all business
applications.
Threshold changes
Non-US foreign investors investing in
Australia
Under the current foreign investment regime FIRB review is required for investments in:
- Australian businesses worth A$100 million or more; and
- off-shore corporations whose Australian assets are worth A$200 million or more.
The Government proposes to increase and unify these monetary thresholds to A$219 million.
Following the amendments to the FATR, FIRB review will only be
required for private foreign investments in Australian businesses
where the investor proposes to purchase in excess of 15 percent of
a business valued at A$219 million or more. Accordingly, the
acquisition of Australian businesses (including Australian
corporations, off-shore corporations which own Australian assets,
and non-corporate Australian businesses) valued at less than A$219
million will not be subject to FIRB review.
US investors investing in Australia
For US investors investing in Australia, FIRB review is currently
required for investments in:
- 'non-sensitive sector' Australian businesses valued at $A953 million or more;
- 'sensitive sector' Australian businesses valued at $A110 million or more; and
- off-shore corporations with Australian assets worth $A219 million or more.
The Government has proposed to unify the monetary threshold
applicable to US investors investing in sensitive sector Australian
businesses and off-shore corporations at $A219 million.
As such, FIRB review will only be required for investments by US
investors in sensitive sector Australian businesses and off-shore
corporations, where the investor proposes to purchase in excess of
15 percent of a business valued at A$219 million or more. The
acquisition of Australian businesses (including Australian
corporations, off-shore corporations which own Australian assets,
and non-corporate Australian businesses) valued less than A$219
million by US investors, will not be subject to FIRB review.
The monetary threshold applicable to investments by US investors in
non-sensitive sector businesses will remain at A$953 million.
New business notification requirements
Under the Australian Government's current foreign investment
policy, proposals by foreign investors to establish new businesses
involving a total investment of A$10 million or more, are subject
to Australian Government notification and approval. Where
notification is required, prior FIRB approval is often treated as a
condition precedent to completion.
While the Australian Government generally raises no objections to
proposals above the notification threshold where the relevant total
assets/total investment falls below $100 million, determining
whether the investment is in fact subject to notification and
approval can be complex and time-consuming.
As a result, the removal of the notification and approval
requirement outright will reduce costs, delays, and the anxiety
involved when establishing a new business. Where investments by
private investors are below the amended increased (and unified)
thresholds, prior notification and approval will no longer be
required procedurally or as a condition precedent.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
