The Australian Government’s general policy stance is to welcome foreign investment consistent with the national interest.Foreign investment provides scope for higher rates of economic activity and employment than could be achieved from domestic levels of savings. Foreign investment also provides access to new technology, management skills and overseas markets.

The Government’s foreign investment framework is implemented through the Foreign Acquisitions and Takeovers Act 1975 (the Act) and the Government’s foreign investment policy. The Federal Treasurer is responsible for the foreign investment framework. Under the Act, the Treasurer reviews investment proposals to decide if they are contrary to Australia’s national interest.

The Treasurer can block proposals that are contrary to the national interest or apply conditions to the way proposals are implemented to ensure they are not contrary to the national interest. When making such decisions, the Treasurer relies on advice from the Foreign Investment Review Board (FIRB).

Who needs to apply?

The policy applies to foreign persons. This includes a natural person not ordinarily resident in Australia and a corporation in which a natural person not ordinarily resident in Australia or a foreign corporation has a controlling (substantial) interest.

What proposals need approval?

Only proposals which are deemed to represent a ‘substantial interest’ trigger approval requirements under the Act.

• A ‘substantial interest’ occurs when a single foreign person (and any associates) has 15 per cent or more of the ownership of a corporation, business or trust, or several foreigners (and any associates) have 40 per cent or more in aggregate of the ownership of any corporation, business or trust.

In addition to this, monetary thresholds are specified in the Act. These determine the scope of the foreign investment examination process. As such, the following proposals require notification to FIRB.
• Acquisitions of a ‘substantial interest’ in an existing Australian company or business valued over $231 million (indexed annually on 1 January each year). A $1004 million threshold (indexed annually) applies to US investors.
• Acquisitions of a ‘substantial interest’ in an offshore company whose Australian subsidiaries or gross assets are valued above $231 million (indexed annually). A $1004 million threshold (indexed annually) applies to US investors.
• Portfolio investments in the media of 5 per cent or more and all non portfolio investments, irrespective of size.
• Direct investments by foreign governments or their agencies, irrespective of size.
• Acquisitions of interests in urban land (including interests that arise via leases, financing and profit sharing arrangements and the acquisition of interests in urban land corporations and trusts) that involve acquisition of:

• Developed non-residential commercial real estate where the property is subject to a heritage listing, valued at $5 million or more (and the acquirer is not a US investor);
  
• Developed non-residential commercial real estate where the property is not subject to a heritage listing, valued at $50 million or more, or at $1004 million (indexed annually) for US investors;
  
• Vacant real estate, irrespective of value;
  
• Residential real estate, irrespective of value; or
• Shares or units in Australian urban land corporations or trust estates, irrespective of value.
  

Proposals where the applicant has any doubt as to whether the acquisition is notifiable. Funding arrangements that include debt instruments having quasi-equity characteristics will be treated as direct foreign investment.

National interest

A proposal can only be rejected by the Treasurer if he or she is satisfied that the proposal is ‘contrary to the national interest.’ There is a presumption that foreign investment proposals are generally in the national interest and should occur.

In rare situations a proposal may be rejected because it is inconsistent with existing government law and policy (for example, environmental regulation or competition policy), national security interests or economic development.

Approval period

A statutory 30 day examination period and additional 10 day notification period applies to proposals once formally lodged with the FIRB. The examination period can be extended by up to 90 days for complex cases.

Industry specific regulations

In addition to the notification requirements already mentioned, certain industry sectors are subject to restrictions that arise under other legislation.

Banking

Foreign investment in the banking sector comes under the Banking Act 1959, the Financial Sector (Shareholdings) Act 1998, and banking policy, including prudential requirements.

Proposed foreign takeovers or acquisitions of Australian banks are considered on a case-by-case basis and judged on their merits.

Financial sector acquisitions by US investors are exempt from the Foreign Acquisitions and Takeovers Act 1975, but the Financial Sector (Shareholdings) Act 1998 still applies.

Civil Aviation

A foreign interest (including foreign airlines) can generally expect approval to acquire up to a 100 per cent of the equity of an Australian domestic airline (except Qantas), unless this is deemed not in the national interest.

A foreign interest (including foreign airlines) can generally expect approval to acquire up to 49 per cent equity in an Australian international carrier (except Qantas). In the case of Qantas, foreign ownership is limited to a maximum of 49 per cent in aggregate, 25 per cent individual holdings and 35 per cent aggregate ownership by foreign airlines. A number of national interest criteria must also be satisfied for such acquisitions.

Airports

Standard notice requirements apply to acquisition of interests in Australian airports, which are also subject to case-by-case examination. The Airports Act 1996 stipulates a 49 per cent foreign ownership limit for an airport offered for sale by the Commonwealth. There is also a five per cent airline ownership limit and cross ownership limits in relation to other specified Australian airports between Sydney airport (together with Sydney West) and Melbourne, Brisbane and Perth airports.

Shipping

Under the Shipping Registration Act 1981, a ship must be majority Australian-owned to be registered in Australia, unless it is designated as chartered by an Australian operator.

Telecommunications

Aggregate foreign ownership of Telstra is restricted to 35 per cent of the privatised equity (including installment receipts) and individual foreign investors are only allowed to acquire a holding of no more than 5 per cent of the privatised equity.

Exemptions to the regulations

Proposed acquisitions of residential real estate are exempt from examination in the case of:
• Foreign nationals purchasing (as joint tenants) with their Australian citizen spouse; and
• Foreign nationals who are the holders of permanent resident visas or are holders of a ‘special category visa’ (typically New Zealand citizens) purchasing property that is zoned residential either in their own name or through an Australian corporation or trust.

There is also a range of further exemptions under the Foreign Acquisitions and Takeovers Regulations 1989.

Useful websites

The Foreign Investment Review Board:www.firb.gov.au
Australian Prudential Regulation Authority: www.apra.gov.au

To view a copy of Australia's Foreign Investment Policy click here

Source: www.firb.gov.au

Updated July 2010