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What do you need to do?Consider whether any proposed investment in Australia will require notification under the new indexed thresholds to be implemented as of September 2009.
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The Australian Treasurer has announced significant changes to Australia’s Foreign Investment rules increasing the notification threshold for private foreign investors and removing the New Business notification requirement. The proposed new threshold and policy change is designed to assist in removing the perception that Australia’s regime is too onerous and difficult to deal with.
It is anticipated the amendments will be introduced into Federal Parliament in September 2009, and that, if passed, the changes will commence immediately.
The changes will mean that many proposals will no longer need to undergo a formal review process by the Foreign Investment Review Board (FIRB). Importantly, proposals that still have to go through the FIRB process should now receive a more timely response.
According to the Treasurer’s announcement the changes are proposed to promote foreign investment as a means to economic growth, and to avoid unnecessary Government involvement in what it considers to be uncontroversial business transactions.
The proposed changes will streamline Australia's foreign investment regime by reducing the number of thresholds and reduce compliance costs. The Treasurer intends the changes to improve Australia's competitiveness as a place to invest.
The changes include:
- replacement of the current thresholds for private business investment with a single threshold of 15% in a business worth A$219 million (US$185 million approx). This means private foreign investment in Australian businesses (including Australian corporations, off-shore corporations with Australian assets, and non-corporate Australian businesses) below A$219 million can proceed without FIRB review. (Note that the threshold will continue to apply to the higher of the gross assets of the target, the consideration (or where appropriate the market capitalisation)).
- indexing the new unified threshold on 1 January every year to keep pace with inflation and to prevent foreign investment screening from becoming more restrictive over time; and
- removal of the existing Policy requirement that private investors notify the Government when establishing a new business in Australia valued above A$10 million (US$8.4 million approx).
The abolition of the New Business notice requirement from Foreign Investment Policy is particularly important in the resource sector, as this will also remove the need for notification of new mine proposals. It also means that foreign investors no longer need to determine whether or not a notification is required and the timing, which have been complex issues to date.
There is no change proposed to the Australian urban land provisions, foreign government investor approach or the media sector rules. These areas clearly remain sensitive and the reduction in private matters being notified will allow for more resources to be deployed in the assessment of sensitive matters. It is hoped that the timing of the review process for such sensitive matters will be reduced as a result.
The new threshold applies only to private-sector foreign investors, with the requirement for a review of all investments by foreign government entities and sovereign wealth funds remaining unchanged.
The proposed changes are in contrast to the Treasurer’s announcement of 12 February 2009, that the scope of the application of the Foreign Acquisitions and Takeovers Act 1975 (FATA) (and Foreign Investment Policy) has been widened to cover all foreign investments irrespective of their structuring. The new changes reflect a significant relaxation of the screening requirements for private investment, regardless of the types of investment structures requiring notification under the FATA.
To bring the threshold changes in to effect, the Government will need to amend the Regulations made under the FATA. It is possible that additional changes will be sought in the Senate by the Opposition, Greens or by independent Senators on the Senate Inquiry into Foreign Investment. The amending legislation is intended to be introduced in the Spring session of Federal Parliament in September.
The timing for removal of the Policy requirement to notify the Government when establishing a new business is set to coincide with the commencement of the new thresholds.