FIRB Your Enthusiasm: Reforms Announced to Australia’s Foreign Direct Investment (FDI) Framework
Written By
Special Counsel
Australia
I am a Special Counsel in our Corporate Group, based in the Sydney office. I have experience in a broad range of corporate transactions, covering both mergers and acquisitions and equity capital markets.
Senior Associate
Australia
I am a senior associate in our Corporate group in Sydney. I advise clients on a range of corporate and commercial matters, most notably local and cross-border M&A transactions, public company M&A, and corporate restructures.
Summary
Earlier this year, the Treasurer of Australia announced reforms that aim to strengthen and streamline Australia’s foreign investment framework in order to deliver a risk-based, faster and more transparent approach to assessing foreign investment proposals.
Treasury has subsequently released an update to Australia’s Foreign Investment Policy. Further changes to the Guidance Notes reflecting these changes are in development.
What has changed
At this stage, the reforms are mainly changes to the Australian Government’s internal processes applied to assessing foreign investment proposals. The legislation underpinning Australia’s foreign investment framework currently remains largely unchanged, although further legislative changes may follow.
To give effect to a stronger system that protects Australia’s national interest, the Government has announced that it seeks to ensure that the balance between economic benefits and security risks arising from foreign investment is appropriately addressed by:
- Dedicating greater resources and applying more scrutiny to foreign investment proposals in critical and sensitive sectors of Australia’s economy;
- Strengthening monitoring and enforcement activity;
- Increasing scrutiny of tax arrangements which pose a risk to revenue; and
- Future-proofing the system’s ability to deal with emerging risks, including regularly reviewing policy and legislative settings and undertaking more analysis of sensitive sectors.
To give effect to a streamlined system that attracts the types of investment that Australia needs, the Government will seek to implement consultation and assessment processes that enable low-risk capital to flow quickly. This will involve a “risk-based approach” informed by the identity of the foreign investor (who), the target of its investment (what), and the structure of the transaction (how). To support this streamlined process, from 1 January 2025 Treasury will adopt a new performance target of processing 50 per cent of investment proposals within the 30-day statutory decision period, with the Government anticipating that “most” foreign investors will see improvements in processing speeds from 1 July 2024.
How these changes affect foreign investors
Transparency and improvements in the efficiency of Government processes are always welcome. That said, at this stage, the announced reforms are less of a “major overhaul” of Australia’s FIRB framework and more of a confirmation of the direction of FIRB policy and resource allocation.
Despite the Government’s enhanced focus on critical and sensitive sectors and Treasury’s new performance targets and expectations that processing speeds will improve, there remain no guarantees on assessment timeframes for investments in non-sensitive sectors or otherwise. Each investment will continue to be considered on a case-by-case basis.
The updated Policy anticipates that faster approvals may occur for the following types of foreign investment proposals:
- Who:
- Investors with a strong track record of compliance with the foreign investment framework and other Australian laws.
- Repeat investors who are well known to Treasury, investing alone and not in a consortium with unknown investors.
- Investors who are genuinely passive in nature and can demonstrate no control or influence over an asset.
- What:
- Investments in non-sensitive sectors, including manufacturing, professional services, commercial real estate, new housing and mining of non-critical minerals.
- Investments not near sensitive Australian Government facilities.
- How:
- Transactions in which the ownership structure is transparent, and a clear articulation is provided of who will ultimately control the asset, land or entity once the proposed transaction completes.
- Transactions where the transaction structure is not complex or convoluted.
Moreover, where a repeat foreign investor advises Treasury early in the process that its information and circumstances have not changed since the lodgement of its previous foreign investment application, Treasury will reduce the need for the foreign investor to provide duplicate information.
In summary, while there are no guarantees, these changes appear to mean that foreign investors engaging in lower risk investments and providing more information in their foreign investment applications (ensuring to clearly address the who, the what and the how) could face fewer follow up requests for information and a faster assessment of their application.
That, in the context of occasional delays experienced by foreign investors in the past, is a cause for enthusiasm.
Contact us
Our expert team at Bird & Bird in Sydney is happy to assist with any questions relating to foreign investment applications in Australia.
For queries, please contact Aaron Chan and Alex Lazar.
The authors also acknowledge Benjamin McDermott and Tia Khan for their contributions to this article.
