The recent announcement by the Australian Treasurer,¹ The Hon Dr Jim Chalmers MP, regarding the government’s proposal to introduce major reforms to the FIRB framework which take effect from 1 January 2025, broadly aims to enhance the Foreign Investment Review Board’s (FIRB), assessment process by providing greater transparency, faster assessment timeframes and enhancing scrutiny for sensitive sectors. We have prepared the following general summary of the existing rules that underpin Australia’s foreign direct investment (FDI) regime. 

Overview

Whilst Australia’s federal government states that it welcomes and supports foreign investment, the FDI regime (which is administered by the FIRB), and the legislative provisions that govern this area, are extremely complex and require careful consideration by foreign investors and their advisers in relation to any potential investment opportunity in Australia.

The Foreign Investment Review Board

The FIRB is a non-statutory body established in 1976 to advise the Treasurer and the government on Australia's Foreign Investment Policy (the Policy) and its administration.²

The FIRB’s functions are advisory only. Responsibility for making decisions about the Policy and proposals rests with the Treasurer. The Treasury's Foreign Investment Division (the Division) administers Australia’s foreign investment regulatory framework and supports the work of the FIRB.

What is the FIRB?

To ensure foreign investment proposals are consistent with Australia's national interest, the Australian government reviews major foreign investment proposals on a case-by-case basis (either on a transaction-specific basis or certain exemptions) through the FIRB. The FDI regime is multifaceted with specific rules, thresholds and exceptions applying to certain investors and acquisitions. 

The FIRB examines significant foreign investment applications that fall within the scope of Australia's foreign investment policy and the Foreign Acquisitions and Takeovers Act 1975 (the Act)³ and makes recommendations to the Treasurer, on behalf of the government, on those proposals. The review system allows the government to consider government and community concerns around foreign ownership of certain assets when assessing Australia's national interest.

Pursuant to the Act, a ‘foreign person’⁴ must submit an application to the Treasurer before taking certain transactions known as ‘notifiable actions’⁵ or ‘notifiable national security actions’.  

In deciding whether an application is required, an assessment should be undertaken to determine whether a notifiable action or notifiable national security action is proposed to be taken.

The following flow chart is a quick reference guide to determining whether a foreign investment application should be made to the Treasurer.

Which investment activities are caught by the regime?

The FDI regime regulates the investment activities of ‘foreign persons’ in Australia. A ‘foreign person’ is defined to include:

• an individual not ordinarily resident in Australia;
• a foreign government or a foreign government investor;⁶
• a corporation, trustee, or general partner of a limited partnership in which a foreign corporation, foreign government or an individual not ordinarily resident in Australia holds a ‘substantial interest’ (being at least 20%); or
• a corporation, trustee, or general partner of a limited partnership in which two or more foreign persons hold an ‘aggregate substantial interest’ (being at least 40%).

When to submit an application or to consider doing so

A proposed foreign investment by a foreign person in Australia may require a mandatory or voluntary filing with FIRB, depending on the specific qualification of the proposed action. A foreign investor may need to notify or submit an investment approval to the FIRB if it proposes to acquire:

(a) an interest in national security land⁷ - the monetary threshold for all investments is AU$0; regardless of the value of the transaction.

Land is national security land if it is:

1. A ‘Defence premises’,⁸ this includes all land owned or occupied by Defence, including buildings and structures as well as Defence prohibited areas; or
2. Land in which an agency in the National Intelligence Community (NIC)⁹ has an interest, if the existence of the interest is publicly known or could be known by making reasonable inquiries.

This includes interests in exploration tenements over national security land; acquiring a direct interest in a national security business or entity that carries on a national security business and / or starting a national security business.

Investments that do not need to be notified (and are not notified), can be called in for review on national security grounds, at any time in the future while under foreign ownership. However, Foreign investors can choose to voluntarily notify the FIRB of these investments and receive certainty that the investment won’t be called in for review.

In exceptional circumstances, the FIRB can impose conditions, vary existing conditions, or as a last resort, require the divestment of any investment where national security risks emerge. This ‘last resort’ power is subject to several safeguards.

National security is already a factor in making an assessment against the national interest test.

To avoid overlap between the national interest and national security tests, wherever the broader national interest test applies to an investment, only that test is applied.

(b) an interest in agricultural land – the monetary threshold is:

1. AU$15 million if you meet certain conditions. This may differ for certain investors; or
2. AU$0 for foreign government investors, regardless of its value and whether the land is sensitive or vacant.

(c) an interest in commercial land – the monetary threshold is:

1. AU$0 for vacant commercial land for all investors;
2. AU$310 million for developed commercial land;
3. AU$67 million for developed commercial land that is considered sensitive (an operational mine is considered to be sensitive developed commercial land as are properties near Defence land or land that has communication infrastructure);
4. AU$1.339 billion for free trade agreement partners, regardless of whether the land is sensitive; or
5. AU$0 for foreign government investors, regardless of its value and whether the land is sensitive or vacant. For example, where an entity is beneficially owned by a foreign government, this can trigger the need to submit an application.

A no objection notification for vacant commercial land will generally be conditional on the land being put to productive use within a reasonable timeframe.

(d) an interest in residential land – the monetary threshold is AU$0 for all investors, regardless of its value.

Section 4 of the Act defines ‘land’ to include a building (including a new dwelling or an established dwelling) or part of a building and the subsoil of land. ‘Australian land’ means agricultural land, commercial land, residential land or a mining or production tenement.

The term ‘interest in Australian land’ is defined in Section 12 of the Act but it is broad in its capture. It includes not just freehold interests, but also other interests such as leases and interests in securities¹⁰ in Australian land entities.

Other reasons to consider submitting an application

Under the Act, the Treasurer has a range of powers to ensure that foreign investment transactions are not contrary to Australia’s national interest. Many of these powers extend to actions beyond the notifiable actions and notifiable national security actions discussed above.

One of these powers is the ability for the Treasurer to ‘call in’ an application for review, if the Treasurer considers that the action may pose a national security concern.

Under the Act, the Treasurer cannot call in a transaction for review if the action has been notified to the Treasurer, or if a person was given a no objection notification or exemption certificate in relation to the action. Therefore, to avoid an action being called in for review, foreign investors may wish to voluntarily notify the action to the Treasurer.

Exemptions

A foreign person proposing an investment may also consider if an exemption applies.

Typically, exemptions relate to lower risk, non sensitive investments where a foreign investor is seeking to make several investments over a specified time.

Specific exemptions are:

(a) Moneylending:¹¹ The ‘moneylending exemption’ is a key exemption relied upon by foreign financiers which provides that the acquisition and enforcement of security interests will not constitute a ‘notifiable action’ or ‘significant action’; it is also broadly interpreted and covers foreign lender’s subsidiaries, any person who is able to determine the investments or policy of the foreign lender, a security trustee who acquires an interest on behalf of the foreign lender and a receiver or receiver and manager appointed by the foreign lender or a connected party.

In the context of FIRB, a moneylending agreement is one which is entered into (i) in good faith and on ordinary commercial terms; and (ii) in the ordinary course of carrying on a moneylending business or providing financial accommodation.

However, the ‘moneylending exemption’ does not apply to acquisitions made by enforcement of security interests in ‘national security businesses’ or ‘national security land’, unless the enforcement is undertaken by a receiver (i.e. it will not apply in the situation where a lender forecloses or directly acquires the secured property). Interests acquired by a receiver or manager appointed by the foreign lender, or a connected party, are not affected by this carve out and are still covered by the moneylending exemption (subject to the other relevant conditions being met).

There are also some exemptions for foreign government investors who acquire an interest by way of enforcement of a security for the purposes of a moneylending agreement.

(b) De minimis exemption: the ‘de minimis exemption’ applies when a foreign government investor acquires an indirect interest in an Australian entity via an offshore transaction and the total asset value of the Australian entity is:

• less than 5% of the total asset value of the total assets of that entity;
• less than $71 million;¹² and
• none of the target’s Australian assets must be of a sensitive business or a national security business.

(c) Passive foreign government investors: Certain private equity and pension fund investors may be able to obtain a ‘passive foreign government investor exemption certificate’, which will result in the investor being treated by FIRB as a ‘foreign person’ and not a ‘foreign government investor’. However, this exemption requires that the foreign government investor classification be triggered by virtue of the aggregate substantial interest threshold rather than the 20% substantial interest threshold (where the foreign government investors are all from one country), it is not available for a number of private equity funds that are classified as foreign government investors.

Timing

In order to commence FIRB’s statutory timeframe, the FIRB filing fee should be paid as soon as possible.

The filing fee is based on the consideration value of the relevant transaction. The statutory timeframe of 30 days for making a decision will not start until the correct fee has been paid.

Where an application does not proceed (for whatever reason), there is limited ability for a foreign investor to receive a refund for all or part of the filing fee. Under the new reforms, foreign investors who submit an application to FIRB before being shortlisted or becoming the preferred bidder of a competitive bid process and are ultimately unsuccessful in their bid may be provided a fee refund. If an investor submits an application and the Treasurer considers that the foreign investor did not need to notify – and the investor does not wish to submit a voluntary application – the foreign investor may receive a fee refund.¹³

Once the relevant notice has been provided and the correct FIRB application fee has been paid, the Treasurer has 30 days to consider an application and make a decision. However, the decision period may be extended by:

• an applicant voluntarily requesting an extension in writing;
• the Treasurer unilaterally extending the decision period for up to 90 days; and
• the Treasurer publishing an interim order, which has the effect of extending the period by 90 days.

It should be noted that FIRB engages extensively with various government departments and agencies at the Commonwealth, state, and territory levels which inevitably may impact upon timing. Applicants should have regard to these time frames when considering their project timeline.

Under the new policy a broader range of departments may need to be consulted, which in practice is extending the timeline for sensitive matters.

Penalties

General

A failure to obtain FIRB approval before proceeding with an acquisition or entering into an unconditional agreement (where a FIRB no-objection notice is mandatory or where voluntary approval has been sought and not yet obtained) is a criminal offence.

Where investments have already been implemented without prior FIRB approval, the Treasurer can make a divestment order requiring disposal (or can retrospectively impose conditions).

In instances where the matter is a reviewable action and a FIRB application is not mandatory, and no FIRB application has been made, the Treasurer possesses ‘call-in’ powers to review the relevant action retrospectively for a period of up to 10 years as discussed in the section above.

Under the Act, penalties can apply including but not limited to, the following:

(a) failure to give notice of a ‘notifiable action' or 'notifiable national security action';

(b) taking an action notified to FIRB prior to receiving FIRB approval;

(c) contravening an order made by the Treasurer or a FIRB approval condition;

(d) giving of false or misleading information relating to a FIRB application.

The penalties differ between residential land transactions and non-residential land transactions.

Residential land transactions

The maximum criminal penalty for an offence like those listed in the section above in relation to residential land transactions is 10 years imprisonment or a monetary penalty of 15,000 penalty units for a foreign person or 150,000 in relation to corporations.

The maximum civil penalty is the greater of:

(a) the amount of the capital gain that was made or would be made on the disposal of the relevant residential land;

(b) 25% of the consideration; and

(c) 25% of the market value of the relevant residential land.

Non-residential land transactions

The maximum criminal penalty for an individual or corporation is the same as residential land transactions.

The maximum civil penalty is the lesser of the following:

(a) 2.5 million penalty units; or

(b) the greater of the following:

1. 5,000 penalty units (or 50,000 penalty units for a corporation); and
2. a specified amount referable to the value of the relevant action (the legislation contains a table setting out exactly how to calculate the specified amount).

Currently, one penalty unit equates to AU$313.

The Act also contains a 3-tier infringement notice regime for contraventions of the Act which apply as follows:

• tier 1 penalties apply if the person self-discloses an alleged contravention of the Act before the person is notified by the Commonwealth that the conduct is being investigated;
• tier 2 penalties apply in all other cases, except (generally) for high-value acquisitions that are captured by tier 3; and
• tier 3 penalties apply for non-compliance in relation to high-value acquisitions (i.e. those above AU$5 million for acquisitions of residential land or above AU$275 million in other instances).

The penalty is 15,000 penalty units (approximately AU$3.33 million) for an individual or 150,000 penalty units (approximately AU$33.3 million) for corporations.

Proposed reforms

On 1 May 2024, the Australian Treasurer announced major reforms to the FIRB framework which are intended to make it stronger, more streamlined and more transparent.  On the same day, the government released an updated Foreign Investment Policy document,¹⁴ setting out the proposed reforms.

The proposals include:

• New policies, processes and resources: The reforms will largely be implemented through changes to the Government's FIRB policies, processes and resources, rather than through immediate legislative changes (other than for the interfunding exemption). The Treasurer announced, “there will be financial incentives, regulatory changes, and other enablers”. One example of the proposed financial incentives is the reduction in the FIRB filing fee specifically on ‘build to rent’ projects. For example, on a AU$40 million acquisition of land for ‘build to rent’ use, the FIRB fee will reduce from c. AU$1.1 million to c.AU$14,000.
• Streamlined process: There will be a new streamlined assessment process for lower-risk foreign investment applications.  With effect from 1 January 2025, a new performance target will be introduced - processing 50% of investment applications within the 30-day statutory decision period.
• Low risk sectors: Manufacturing, professional services, commercial real estate, new housing, and mining of non-critical minerals were identified as low risk sectors.
• Sensitive sectors: The Treasury identified critical infrastructure, critical minerals, critical technology, investments in proximity to sensitive Australian Government facilities, and investments that involve holding or having access to sensitive data sets, as sensitive sectors; as such, these sectors will be subject to greater scrutiny but the Government intends to dedicate more resources to screening foreign investment in these areas to ensure that all risks are identified, understood and can be managed.
• Tax implications: the Government intends to also tighten up the tax guidance – please refer to our note specifically detailing the proposed tax reforms.

This note is intended to be a high-level quick reference guidance only.

Dentons Australia would be delighted to support you and your business with international compliance and foreign investment into Australia.

For further information on the requirements of FIRB, the Act or whether or not it is appropriate to make an application, please do get in touch and our experienced team of specialist lawyers would be delighted to assist you.

1. Reforms to strengthen Australia’s foreign investment framework | Treasury Ministers
2. Other consultation agencies advise and support the Treasurer and/or FIRB, including the Australian Competition and Consumer Commission from a competition perspective and the Australian Taxation Office from a taxation perspective
3. The term used within this note and the chart (eg ‘foreign person’ or ‘notifiable action’) are legislative terms defined within the Act.
4. foreign person means: (a) an individual not ordinarily resident in Australia; or (b) a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or  (c) a corporation in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or (d) the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or (e) the trustee of a trust in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or (f) a foreign government; or (g) any other person, or any other person that meets the conditions, prescribed by the regulations. Note: In certain circumstances, an associate of a foreign person may be taken to be a foreign person even if the associate is not a foreign person (see subsection 54(7)).
5. notifiable action has the meaning given by Division 3 of Part 2 of the Act.
6. Note that the definition of ‘foreign government’ is expansive under the Act. FIRB also takes a broad interpretation of foreign government investors and its agencies such that public pensions funds, sovereign wealth funds, state-owned enterprises and public university endowment funds are captured within the definition.
7. A guidance note regarding national security can be found here: Guidance Note 8: National Security (foreigninvestment.gov.au)
8. Within the meaning of section 71A of the Defence Act 1903. For the purposes of working out the scope of Defence premises under the foreign investment 
   framework, Defence is taken to occupy land, if it has the legal right to use the land at the exclusion of others, at the time when the foreign investor is acquiring the interest in the land.  The mere presence of Defence on the land will not amount to occupation. The definition excludes subparagraph (a)(iii) of the definition which relates to vehicles, vessels, or aircraft.
9. Agencies in the NIC are defined within the meaning of section 4(1) of the Office of National Intelligence Act 2018
10. For example, an interest in a security in an entity that owns Australian land, being a security that entitles the holder to a right to occupy a dwelling of a kind known as a flat or home unit situated on the land.
11. This exemption does not apply to ‘national security businesses’ or ‘national security land’ which are also not covered by the moneylending exemption and require prior FIRB approval.
12. The monetary threshold above is subject to indexation and is updated annually in line with the fees, thresholds and other monetary sums indexed under FATR.
13. Guidance Note 1: Overview: Australia’s Foreign Investment Framework
14. foreigninvestment.gov.au