Under Australia’s foreign investment regime, acquisitions by a “foreign person” are subject to governmental control for reasons of “national interest” or “national security” if they fall into one of four categories:
(i) mandatory filing for transactions where certain valuation thresholds are met (notifiable actions);
(ii) voluntary filing where a transaction does not meet the valuation thresholds but raises “national interest” concerns (significant actions);
(iii) mandatory filing where a transaction involves the acquisition, or the starting of a ‘national security business’ (see below) or acquisitions of Australian land used for defence or national intelligence purposes (notifiable national security actions);
(iv) the Government also has a right to “call in” transactions that raise national security concerns (reviewable national security actions).
A pre-completion foreign investment filing with the Australian Foreign Investment Review Board (FIRB) is mandatory for notifiable actions and notifiable national security actions.
Filing thresholds are separated according to whether a transaction involves the acquisition of Australian shares or assets on the one hand or an interest in Australian land on the other. In general, the thresholds vary by acquirer type – principally whether an acquirer is from a country that has a free trade agreement with Australia or not (higher valuation thresholds for free trade countries) – and for sensitive sectors. Foreign government investors (including State-Owned Enterprises) also have separate thresholds.
Notifiable national security actions
All acquisitions of direct interests (10%+) in a national security business, starting a national security business or acquiring an interest in national security land, are notifiable. The focus is on the activities of the Australian business being acquired or established and not its value. This also captures acquisitions of interests in regulated ‘critical infrastructure’ (e.g. electricity, gas, water, ports) and regulated telecommunications businesses.
Significant actions and reviewable national security actions
For significant actions, parties must self-assess whether a transaction raises “national interest” concerns and FIRB approval should therefore be sought voluntarily. This is not defined, however typically includes considerations regarding national security, competition, other Australian government policies (e.g. tax), the impact on the economy and the character of the investor.
Since 1 January 2021, the Treasurer has a new “call in power” to review transactions which are not notified to FIRB where they pose a national security concern. The risk of being called in can be removed by voluntarily applying for FIRB approval.
Transactions covered by the rules
A 20% interest is typically deemed to grant control for foreign investment purposes. However, lower thresholds apply for foreign government investors, certain sensitive sectors and for the acquisition of national security businesses (see notifiable national security action above).
Key sensitive sectors
Sensitive sectors currently include: Media, telecommunications, transport, defence, military-related industries, nuclear-related activities, critical infrastructure and data and personal information. Acquisitions of land (particularly agricultural, residential and mining tenements) are also considered sensitive.
For a summary of the key changes to Australia’s foreign investment framework, please see this client alert from our Alliance firm Allens: