In the first two issues of the investment guide to Australia, we introduced the relevant background of investment in Australia, including Australia's mineral, fishery and other natural resources, infrastructure and so on. After the outbreak, the Australian economy is recovering, GDP growth continues to rise, and the overall economic outlook is optimistic. In addition, in terms of investment attractiveness, Australia has given foreign investment greater convenience through a series of preferential policies for major projects, technical talent support programs and tax incentives.

This article will explain the foreign investment review system in investing in Australia to help you better understand the relevant review process and policies before investing in Australia, make reasonable investment planning, and improve investment efficiency.

Author/Huixiang Sydney Law Firm

Foreign Investment Review Board

The Australian government has always welcomed foreign investment. Foreign investment not only plays an important role in promoting Australia's economic development and improving people's livelihood, but also brings many benefits to Australia, including: supporting existing jobs and creating more jobs; encouraging technological innovation; introducing new technologies and skills; Bring access to overseas markets and enhance the competitiveness of all walks of life. But Australia's foreign investment needs to be scrutinized. The Foreign Acquisitions and Takeovers Act 1975 (FATA) provides the legal framework for censorship. The Foreign Investment Review Board (FIRB) is responsible for the specific approval of foreign investment.
FIRB is a non-statutory body established in 1976 to advise the Treasurer and the government on Australia's foreign investment policy and its implementation. Its functions are limited to providing advice. Decision-making on investment policies and investment proposals is vested in the Minister of Finance. The Department of Foreign Investment (Foreign Investment Division) of the Treasury manages Australia's regulatory framework for foreign investment and supports the work of FIRB.

Review object and standard

Under the FATA, foreign investors and foreign government investors must submit an investment proposal before they can engage in certain actions known as "notifiable actions" or "notifiable national security actions.

(I) foreign investors[1]]

Foreign investors can be:

Individuals who are not permanent residents of Australia (I. e. non-Australian citizens or permanent residents who have not lived in Australia for 200 days or more in the past 12 months)

2. A company with a material interest in an individual, foreign company or foreign government that is not resident in Australia

Companies with a cumulative substantial interest in one or more individuals, foreign companies or foreign governments not resident in Australia

4. The trustee of a trust fund in which an individual, foreign company or foreign government that is not resident in Australia holds a substantial interest.

5. Trustees of a trust fund holding a cumulative substantial interest in one or more individuals, foreign companies or foreign governments who are not resident in Australia.

6. Individuals, foreign companies or foreign governments not resident in Australia with at least 20% interest in a limited partnership

7. Two or more individuals, foreign companies or foreign governments not resident in Australia holding up to 40% interest in a limited partnership

(II) foreign government investors[2]]

Foreign government investors are:

1. Foreign governments or independent government entities

2. A general partner of a company, trustee of a trust fund or limited partnership, of which:

(a)20% or more of the ownership is held by a Chinese government or its affiliates;

(B) 40% or more ownership is held by more than one foreign government or its affiliates

In determining the investor's share of equity in the relevant entity, the retroactive principle (tracing rules) will be applied, I .e. the interest will be retroactive through the chain of companies, trusts and unincorporated limited partnerships. [3]]

In addition, the law defines "related parties" very broadly. Therefore, many entities that retroactively have a partial shareholding by the Chinese government may be counted as Chinese government investors under this definition.

Simply put, an enterprise with more than 20% of its shares held by one or more state-owned enterprises meets the FIRB definition of "foreign government investor.

(III) action (notifiable action)[4]]

A reportable act is an investor act by a foreign investor:

1. Obtain more than 20% of the interest in Australian enterprises (10% in the case of Australian agricultural enterprises, 5% in the case of media enterprises), or invest in any land interest; and

2. Exceeding the investment approval threshold (see table below)

Then the investment behavior constitutes a reportable behavior and must be submitted to FIRB for approval.

(IV) must declare national security acts (notifiable national security action)[5]]

If the content of the transaction involves obtaining:

1. Direct interest in national security business (generally, 10% or more interest);

2. Direct interests of entities engaged in national security operations (generally, 10% or more);

3. Interest in Australian land that was National Security Land at the time of purchase

4. An interest (including a legal or equitable interest) in the exploration of Australian land that is National Security Land at the time of purchase.

The transaction must be submitted to FIRB for approval if it meets the definition of a reportable national security act.

(V) approval threshold

FIRB adjusts the threshold amount for approval of foreign acquisitions on January 1 each year. From 2021, the main approval thresholds for Chinese investors include: agriculture, commerce, mining, residential land, and national security.

National security land includes defense facilities, such as all land (including buildings and structures) owned or occupied by the Ministry of Defense, restricted areas of defense, and land in which the agency of the National Security Information Board has an interest, and the existence of the interest is known to the public or can be known by reasonable inquiry. [6]]

Agricultural land refers to land that is used for agricultural production or can be used for agricultural production under reasonable circumstances. [7]]

Commercial land is defined as Australian land (including any building on the land) or the seabed of the sea, except for: [8]]

1. Land entirely dedicated to agricultural production

2. The number of residential buildings allowed to be built is less than 10, and does not include commercial residential land

At least one residential building, but not including commercial residential land

Commercial land is further divided into vacant commercial land and developed commercial land. If there is no substantial permanent building on the land that can be legally occupied by people, goods or livestock, it is considered to be vacant commercial land. Does not meet the above definition, for the development of commercial land. [9]]

A mining or production right is a right under the laws of the Commonwealth, State or Territory of Australia to extract minerals (such as coal or ore), oil or gas (in any specific form) in the waters or sub-topsoil of Australia, but does not include rights acquired for the purpose of exploring or ascertaining minerals, oil or gas. [10]]

The thresholds for land and non-land investments are collated below for reference, and once the amount of investment by foreign investors exceeds the required amount, they are required to submit an investment proposal to FIRB.

Land investment approval threshold [11]]

Investors	Investment land type	Approval threshold (Investment amount is higher than the following number, need to submit investment proposal)
All investors	national security land	AUD 0
	Residential land	AUD 0
	Vacant commercial land	AUD 0
Foreign investors from specific FTA partners (China, Hong Kong SAR, Chile, Japan, New Zealand, Peru, Singapore, South Korea, United States, United Kingdom)	agricultural land	Chile, New Zealand, United States: $1.339 billion
		Other countries: A $15 million (cumulative)
	Developed commercial land	AUD 1.339 billion
	Mining and Processing Leases	Chile, New Zealand, United States: $1.339 billion
		Other countries: $15 million
foreign government investors	All land	AUD 0

Non-land investment approval threshold [12]]

Investors	investment industry	Approval threshold (Investment amount is higher than the following number, need to submit investment proposal)
All investors	National Security Industry	AUD 0
	Media Industry	AUD 0
Foreign investors from specific FTA partners (China, Hong Kong SAR, Chile, Japan, New Zealand, Peru, Singapore, South Korea, United States, United Kingdom)	Non-sensitive industries	AUD 1.339 billion
	Sensitive Industries	AUD 0.31 billion
	Agribusiness	Chile, New Zealand, United States: $1.339 billion
		Other countries: A $67 million (cumulative)
foreign government investors	All investments	AUD 0

Note: National security operations refer to activities that may be dangerous to national security if interfered with or conducted in a specific way. [13]]

A media enterprise is an enterprise that operates a newspaper publishing business, a television or radio broadcasting business, or an electronic service business. [14] Includes traditional media businesses as well as media businesses that specialize in online publishing or broadcasting.

The sensitive category includes businesses involved in the media; telecommunications; transportation; defense and military-related industries and activities; encryption and security technologies and communications systems; and uranium or plutonium extraction; and the operation of nuclear facilities. [15]]

In addition, it should be noted that in addition to the above thresholds, foreign government investors also need to obtain approval under the following circumstances: [16]]

1. The acquisition of a "direct interest" (usually a 10 per cent interest) in an Australian company, unit trust or enterprise, regardless of the actual value of the investment;

conducting business in Australia;

3. Acquiring a legal or equitable interest in mining, production or exploration land, or more than 10 per cent in the securities of a mining, production or exploration unit.

(VI) exemption

A foreign investor is not required to submit an investment proposal to FIRB in the following cases: [17]]

1. Securities, assets, trusts or interests in Australian land acquired by inheritance in accordance with the law;

2. the acquisition of an Australian business operated by the Australian Government or an interest in land acquired by the Australian Government;

3. Mandatory acquisition and mandatory repurchase;

4. Certain interests acquired under pre-emptive rights or dividend reinvestment plans;

5. The acquisition of Australian land by an Australian citizen (whose permanent residence is not Australia);

6. A foreign citizen and his or her Australian citizen, New Zealand citizen or permanent resident spouse jointly purchase residential property rights (excluding joint purchase of property rights);

7. Investors who are usually in the lending business.

For foreign government investors, such as the purchase of residential land or commercial land for diplomatic purposes, can be exempted from approval.

Audit procedures and time requirements

After determining the approval threshold of the investment project, if approval is required, the investor shall prepare the corresponding information and complete the corresponding approval procedures.

For real estate investments, investors can log on to the Australian Taxation Office (Australia Taxation Office) official website to submit investment proposals. For other types of investments, investors can submit their investment proposals online on FIRB's official website.

(I) Approval Process

The FIRB review mechanism is complex and has many conditions, and the following flow chart allows foreign investors to determine whether their transactions require FIRB approval procedures:

(II) application materials

Foreign investors are required to provide various types of information, including the applicant and the investment entity, the asset or land, details of the proposed transaction, the nature of the interest to be acquired and the basis for the type of declaration, the approval required by law and the specific legal basis. The foreign investor should also demonstrate in the declaration that the proposed transaction will not be contrary to Australia's national interest or national security.

All filings to the FIRB will not be made public and will only be disclosed to other Australian government departments and agencies when the FIRB solicits comments on the filings. Under FATA rules, the Commission can only restrict disclosure of "protected information," which includes confidential information obtained from application materials.

Australia has a high degree of marketization and the government's direct involvement in industry management is relatively limited. For example, in the field of energy and mining, the investment may involve reclamation, biodiversity, indigenous people and other matters, and it is necessary to submit environmental assessment reports and other materials to the federal government's Ministry of environment and energy for approval; in the financial field, foreign banks need to apply to the Australian Prudential Supervision Bureau for approval and apply to the Australian Securities and Investment Commission for financial service license; If it meets the declaration standard of concentration of business operators, it needs to apply to the Competition and Consumer Commission for approval.

(III) Approval Duration

For transactions that require mandatory reporting, foreign investors need to obtain reporting approval before conducting the relevant transaction. After the applicant submits the application and pays the application fee, the Foreign Investment Review Committee will begin the review. During the review process, the committee may require the applicant to provide additional materials.

According to FATA, after the foreign investor has paid the corresponding application fee, the Minister of Finance shall complete the review within 30 days. In practice, however, the FIRB can (and usually does) recommend an extension. If the applicant does not apply for an extension, the FIRB may issue an interim order prohibiting the foreign investor from carrying out the proposed transaction, giving the FIRB an additional 90 days to complete the review or a similar declaration by the Minister of Finance.

The deadline for approval of the declaration will vary depending on a number of factors, such as the complexity of the potential proposed transaction, whether the acquisition takes place in sensitive areas, the identity and country of nationality of the applicant, the applicant's past history with the FIRB, whether the acquisition will raise potential antitrust (competition), national interest or national security issues, whether the declaration is in the non-office period of the FIRB from late December to mid-January, and whether the declaration is in a period of FIRB-assisted federal election. Taking these various variables into account, the approval period can be as short as six to eight weeks for simple applications, while it can take many months for more complex or sensitive applications.

There are no expedited procedures for the review of declarations. However, any urgent matters relating to the declaration may be referred to FIRB for consideration.

Factors considered in (IV) audit

national security]

The Government will consider the extent to which the investment affects Australia's ability to protect its strategic and security interests. The government relies on the advice of relevant national security agencies to assess whether the investment triggers national security concerns.

Impact on the competitive environment]

To promote healthy competition, it is best to diversify ownership across industries and sectors. In reviewing an investment application, the Government considers whether the investment will result in the investor gaining control over Australian market prices and production of products or services. For example, the Government will carefully consider the investment of customers involved in products to gain control of existing Australian manufacturers of the product, especially important manufacturers. Governments will consider the impact of investment applications on relevant global industries, especially if concentration leads to distortions in competitive market output, with particular attention to investments that may give investors control over a global product or service. The Australian Competition and Consumption Commission is responsible for examining issues relating to market competition under Australian competition policy, independent of the foreign capital regulatory regime.

economic and social impact]

The Government will weigh the impact of the investment on the overall economy, including the impact of any restructuring plan following the acquisition of an Australian business by a foreign investor, the nature of the financing acquisition and the extent of Australian participation in the business following a foreign acquisition, as well as the interests of Australian employees and other shareholders. The Government will consider the extent to which the investor develops the project to ensure a fair return to the Australian people. Foreign investor investment should also reassure the Government that the future is consistent with the objectives of the supplier of products that all Australian customers can rely on.

nature of investors]

The government will consider the extent to which investors operate on an open and transparent basis, with investments being sufficiently transparent and regulated. The Government also considers the corporate governance of foreign investors. Where the investor is a fund manager (including a sovereign fund), the government will consider the policy of investing in the fund and how to implement voting rights in Australian companies in which the fund acquires interests. Investment applications by foreign-owned or foreign-controlled investors that operate transparently and independently commercially do not generally raise national interest concerns, compared to investments that are not transparent and do not operate independently commercially.

Foreign Governments and Related Entities]

Where an investment involves a foreign government or related entity, the Australian Government will also consider whether the investment is commercial in nature or whether the investor pursues broader political or strategic intentions that are contrary to Australia's national interest. This includes assessing whether the investor's future arrangements for the management of the business (including through financing arrangements) facilitate the exercise of de facto or possible future control by a foreign government. Investment applications from foreign government entities that operate independently and commercially are less likely to raise national interest concerns than foreign investment applications from foreign government entities that do not operate independently and commercially. Where the potential investor is a private enterprise with some capital of a foreign government or related entity, the government will consider its size, nature and composition of the non-governmental interest, including restrictions on the exercise of its rights as an equity holder.

Factors conducive to approval]

The existence of existing external partners or shareholders of the investment plan; the level of all unrelated interests; the arrangements made by the government for the investment; the arrangement plan to protect the interests of the Australian side from non-commercial transactions; whether to maintain the purpose of listing on the Australian Securities Exchange or other recognized trading market, etc.

(V) Approval Results

The results are divided into three categories: no objection, allowing the application to proceed (No Objection Notification); or proposing additional conditions that need to be met (Additional Orders); or prohibiting the application from going through (Prohibit Proposed Significant Actions).

If there is no objection, the applicant will receive an email from the FIRB Secretariat on behalf of the Minister of Finance. If the investment proposal is rejected, the foreign investor may claim a procedural injustice, and the Minister of Finance may claim a review of facts (Merits) in the exercise of the power of last resort to file a request for reconsideration. Since the introduction of the new regulations in Australia on January 1, 2021, the Australian government has become increasingly concerned about national security in the review process of foreign investment. It is expected that more and more applications may be withdrawn or rejected due to national security issues.

(VI) Limitations and Consequences

According to the relevant provisions of FATA, foreign investors who fail to make a compulsory declaration or continue to conduct transactions after making a declaration but before approval shall bear corresponding criminal and civil liabilities in accordance with the law.

In addition, the Australian Minister of Finance has a series of enforcement powers regarding the legal consequences that foreign investors may have to bear, including:

The right to levy administrative fees under the tort notification system

The right to issue an order requiring the acquirer to discharge the relevant act by disposal of the interest.

Access to premises with consent or authorization to collect information to monitor legal compliance

Execute the powers granted by FATA

Current Status of Foreign Investment

According to FIRB's Foreign Investment Report for the first quarter of 2023 released on June 30, the United Kingdom, the Netherlands and the United States are the top three countries with the largest amount of business investment in investment proposals, at A $4.4 billion, A $3.6 billion and A $3.3 billion respectively.

(The top 10 countries for investment in the first quarter of 2023: A $4.4 billion in the United Kingdom; A $3.6 billion in the Netherlands; A $3.3 billion in the United States; A $2.7 billion in Malaysia; A $2.2 billion in Canada; A $1.1 billion in the United Arab Emirates; A $0.9 billion in Japan; A $0.9 billion in New Zealand; A $0.8 billion in Singapore; A $0.4 billion in Germany) [18]]

The number of business investment proposals approved in the quarter was 272, a decrease of 65 from the 337 approved in the previous quarter. This is in line with the reduction in the number of previous approvals during the Christmas and summer holidays each year. In contrast, the quarterly average number of business investment proposals for 2021-2022 was 391, compared with 581 for 2020-2021, due to the temporary zero-threshold policy introduced at the time in response to the new crown epidemic.

(Statistics on the number of business investment proposals in the first quarter of 2023) [19]]

The value of business investment proposals approved in the quarter was A $29.3 billion, a decrease of A $29.4 billion from A $58.7 billion in the previous quarter, reflecting the volatility of total foreign investment from quarter to quarter. The quarterly average value of business investment proposals for the year to date is A $45.5 billion, compared to A $82.6 billion in 2021-22 and A $56.8 billion in 2020-21. A total of 30 business investment proposals were withdrawn during the quarter, down from 36 in the previous quarter and smaller than the quarterly average for fiscal 2021-22 (51) and the quarterly average for fiscal 2020-21 (109). The number of real estate investment proposals approved by the Australian Taxation Office during the quarter was 1,447, an increase of 223 from 1,224 in the previous quarter.

(Statistics on the number of real estate investment proposals in the first quarter of 2023) [20]]

In this quarter, Chinese investors mainly invested in real estate, submitting 606 investment proposals with a total value of 0.7 billion Australian dollars, which is consistent with the investment direction of last year and the year before. The Hong Kong Special Administrative Region ranked second, submitting 123 investment proposals with a total value of A $0.1 billion, while Vietnam ranked third, submitting 81 investment proposals with a total value of A $0.1 billion. Compared with commercial investment proposals, the time for reviewing and approving real estate investment proposals is shorter, with an average of 6 days.

(Country Ranking Table of Real Estate Investment Value for the First Quarter of 2023) [21]]

 

FIRB Regulatory Update

Chinese investors can also pay close attention to FIRB's official website for the latest foreign investment approvals. Effective July 1, 2023, FIRB will implement a new foreign investment application fee adjustment. In addition, FIRB has launched a new investment approval online platform (https://foreigninvestment.gov.au) to provide more convenient investment approval services.

From 1 July 2023, in addition to the FIRB approval mechanism, Australia will also implement the Australian Taxation Office's registration mechanism for foreign investors holding Australian assets (Register of Foreign Ownership of Australian Assets). [22] The move aims to give the Government a better understanding of foreign capital holdings of Australian assets. The registration mechanism consolidates and replaces a number of tax registers covering commercial land-related interests (including the acquisition and divestment of certain interests, changes in interest in assets and changes in investor circumstances). Under this new mechanism, foreign investors are obliged to register their interests with the Australian Taxation Office, which is independent of FIRB's reporting obligations.

The changes underscore stricter regulatory and disclosure requirements for foreign investment. Therefore, when planning investments, Chinese investors not only need to pay attention to the requirements of the FIRB approval mechanism, but also keep an eye on changes in relevant policies and registration requirements to ensure compliance with Australian investment regulations.

Conclusion

In recent years, as FIRB's supervision of Chinese-funded investors has become stricter, Chinese investors planning to invest in Australia will face increasingly severe challenges. On July 21, 2023, a spokesperson for the Australian Minister of Finance disclosed that a Chinese-linked company's acquisition plan was rejected. The company intends to acquire the financially troubled Australian lithium mining company Alita Resources Ltd. This is the second time this year that FIRB has blocked Chinese companies from investing in key minerals in the country. In February this year, the Australian government vetoed China's plan to increase investment in Northern Mining, Australia's largest heavy rare earth miner, on the grounds of national interest. [23]]

Although Australia has been committed to providing more opportunities for Chinese investors, it remains very cautious about investment from China, especially government investors and investments involving sensitive industries or assets. As a result, the investment approval cycle is prolonged, and the difficulty of investment access is increasing.

In view of this, Chinese investors should pay special attention to the risks and policy changes related to regulatory approvals. Before making a decision, it is particularly important to discuss the regulatory and trading risks that an investment may bring with an experienced legal adviser in advance. Under the uncertainty of the current global economic and political situation, Chinese investors need to adopt flexible investment strategies and adjust their investment plans at any time to find new opportunities in the challenges.

 

References:
[1]https://foreigninvestment.gov.au/guidance/general/key-concepts 。 Last visit time: 2023-08-08.
[2] Same as note [1].
[3]FIRB Guide Note 36, 第1页。
[4] Same as note [1].
[5] Same as note [1].
[6] Defense Act of Australia, section 71A.
[7] Australia's Foreign Acquisitions and Takeovers Act 1975, section 4.
[8]FIRB Guide Note 4,第3页。
[9] Same as note [8].
[10] Same as note [8].
[11]https://foreigninvestment.gov.au/guidance/general/monetary-thresholds 。 Last visit time: 2023-08-09.
[12] Same as note [6].
[13] FIRB Guide Note 8, 第3页。
[14] Same as note [8], Article 13A.
[15] Australia's Foreign Acquisitions and Takeovers Regulations 2015, section 22.
[16] Same as note [6].
[17]FIRB Guide Note 9, 第4页。
[18]Quarterly Report on Foreign Investment (January 1-May 31, 2023), p. 6.
[19] Ibid., note [18], p. 8.
[20] Same note [18].
[21] Same note [18], p. 10.
[22]https://foreigninvestment.gov.au/guidance/conditions-and-reporting/register-foreign-ownership-australian-assets 。 Last visit: August 8, 2023.
[23] "The United States and Australia have sent an invitation to Wang Yi", Observer Network, August 3, 2023.

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