Australia requires a wide variety of investments by foreign businesses to be reviewed and approved before completion.

The decision to approve or deny a foreign investment application is ultimately made by the Treasurer of Australia, based on an assessment of whether the investment would be contrary to the national interest. When making its decision, the Treasurer is advised by the Foreign Investment Review Board (FIRB), which examines foreign investment proposals and advises on the national interest implications. Australia's foreign investment policy framework comprises the Foreign Acquisitions and Takeovers Act 1975 ("the Act"), the Act's related regulations, Australia's Foreign Investment Policy ("the Policy") and a number of guidance notes.

The Australian government has indicated an increased focus on compliance activities and audits, particularly with respect to tax conditions imposed by the Australian Taxation Office on FIRB approvals.

WHO FILES

A foreign person or entity making an acquisition that requires approval under the Act must apply to FIRB for a notification that the Treasurer has no objection to the acquisition ("FIRB approval") before completion of the acquisition, and any agreement to make the acquisition must be subject to receiving FIRB approval.

An application includes a filing fee that varies according to the type of deal and the deal value.

TYPES OF DEALS REVIEWED

FIRB approval is required for a range of acquisitions by foreign persons, including:

• A "substantial interest" in an Australian entity: An acquisition of an interest of 20 percent or more in an Australian entity valued at more than AUD 266 million (approximately US$180 million)
• Australian land and land-rich entities: Various acquisitions of interests in Australian land are regulated with varying monetary thresholds, including in respect of residential land, vacant commercial land, developed commercial land and an entity where the value of its interests in Australian land exceeds 50 percent of the value of its total assets
• Agricultural land and agribusinesses: Acquisitions of interests in agricultural land and agribusinesses are regulated separately in the Act. In addition, a register of foreign ownership of agricultural land is maintained by the Australian taxation authority

Certain types of investors receive differing treatment for their deals:

• Free trade agreement investors: Consistent with Australia's free trade agreement (FTA) commitments, higher monetary thresholds apply to certain acquisitions made by investors from Chile, Japan, South Korea, China, Singapore, New Zealand, the US and countries for which the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP) is in force. For example, an acquisition of an Australian entity by an FTA country investor will only require FIRB approval if the entity is valued at more than AUD 1.154 billion (approximately US$780 million), unless the investment relates to a "sensitive business" such as media, telecommunications, transport, defense and militaryrelated industries (to which a lower threshold applies) or the investor is a foreign government investor
• Foreign government investors: Stricter rules apply to foreign government investors, which can include domestic or offshore entities where a foreign government and its associates hold a direct or upstream interest of 20 percent or more, or foreign governments of more than one foreign country and their associates hold an aggregate interest of 40 percent or more. In general, foreign government investors must obtain FIRB approval before acquiring a direct interest (generally, at least a 10 percent holding or the ability to influence, participate in or control) in any Australian asset or entity regardless of the monetary thresholds for FIRB approval, starting a new business or acquiring mining, production or exploration interests

SCOPE OF THE REVIEW

The Treasurer may prohibit an investment if he or she believes it would be contrary to the national interest. In making this decision, the Treasurer will broadly consider:

• The impact on national security (with advice from the Critical Infrastructure Centre on national security risks to critical infrastructure)
• The impact on competition
• The effects of other Australian government laws and policies (including tax and revenue laws)
• The impact on the economy and the community
• The character of the investor

TRENDS IN THE REVIEW PROCESS

Historically, there have been few rejections by the Treasurer on the grounds of national interest. However, some significant investment proposals have been rejected on national security grounds, including the blocking of the New South Wales government's proposed sale of its electricity network Ausgrid to Chinese and Hong Kong investors in 2016. In 2017 – 2018, only one non-residential land application was formally rejected (which related to the development of residential properties on agricultural land), out of a total of 1,024 nonresidential land applications).

HOW FOREIGN INVESTORS CAN PROTECT THEMSELVES

Foreign persons should file an application in advance of any transaction or make the transaction conditional on FIRB approval, and a transaction should not proceed to completion until the Treasurer advises on the outcome of its review. For a more sensitive application (e.g., a transaction involving the power, ports, water, telecommunications, banking or media sectors), foreign investors should consider the government's invitation in the Policy to engage with FIRB before filing an application for a significant investment.

These discussions may help foreign investors understand national interest concerns the government may hold about a particular proposal and the conditions the Treasurer may impose upon approvals.

These discussions can also help with structuring a transaction in order to reduce the likelihood of rejection. Such discussions should be held at an early stage in order to provide enough time to satisfy all FIRB queries. Where there is a competitive bid process for the acquisition, a foreign investor that does not actively engage with FIRB early in the bidding process may be placed at a competitive disadvantage to other bidders who do. Foreign investors should be prepared to discuss in detail any conditions and undertakings that may be requested by FIRB, especially for acquisitions that are likely to attract greater political or media scrutiny.

REVIEW PROCESS TIMELINE

Under the Act, the Treasurer has 30 days to consider an application and make a decision. The time frame for making a decision will not start until the correct application fee has been paid in full. If the Treasurer requests further information from the investor, the 30-day period will be on hold until the request has been satisfied. The Treasurer may extend this period by up to 90 days by publishing an interim order, which may be made to allow further time to consider the application.

Typically, if FIRB requires further time, it will request the applicant to voluntarily extend the approval deadline. Given the Treasurer's rights to otherwise impose a 90-day extension, applicants are generally incentivized to request deadline extensions. This makes it difficult to specify with certainty how long a review process will take; however, it is typical to expect a review period of 50 to 60 days from payment of the application fee.

2019 UPDATE HIGHLIGHTS

• Compliance: The Australian government has indicated an increased focus on compliance activities and audits, particularly with respect to tax conditions imposed by the Australian Taxation Office on FIRB approvals
• Data: FIRB has increasingly emphasized that, as part of its national interest assessment, it will have particular regard to the protection of sensitive Australian data. For example, this has been a particular focus with respect to proposed investments in Australian healthcare groups and data centers
• TPP: The TPP has resulted in higher FTA thresholds applying to a broader group of investor countries, including Canada, Mexico and Vietnam

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Foreign direct investment reviews 2019: A global perspective

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