Following on from our alerts where the Treasurer announced that all thresholds associated with foreign investments into Australia subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the Act) will require approval by the Foreign Investment Review Board (FIRB) and the practical impacts of this announcement, this alert highlights key messages from the Treasurer’s guidance surrounding these legislative changes.
Application review process
The Treasurer has announced the extension of statutory time frames to review a FIRB application from 30 days to six months. Guidance has revealed that the government will continue to prioritise urgent applications for investments, to support Australian business and jobs.
To deal with the significant increase in FIRB applications, the Treasury and the Australian Taxation Office (ATO) are triaging cases using a risk-based approach. While not specifically set out in the guidance note, the general principle when assessing risk with FIRB applications relates to the risks to national interest and security.
The Treasury has advised that it is committed to meeting commercial deadlines wherever possible during these times of economic crisis.
The Treasury has advised that priority will be given to processing applications for investments that protect and support Australian businesses and jobs and for more routine transactions, such as entering into a new lease agreement for developed commercial land.
The Treasury has encouraged applicants to provide relevant information in their cover letter which specifically addresses their claim for a prioritised application, which could include:
- that the investment is low risk (with regards to national interest and security);
- an indicative time frame of when the FIRB approval or exemption is needed to guide the Treasury; and
- the impact of the transaction on potential job opportunities.
Timing of application
FIRB has encouraged applicants to contact FIRB early in the process of developing an application, as the earlier the application is submitted and the payment of the correct fee, the earlier the screening process will commence.
FIRB has advised that the payment of the incorrect fee or the provision of inadequate information may delay the application process.
Further, that the statutory time frame (which is now six months) does not commence until the correct fee has been paid. Applicants should clearly and accurately describe their proposed action in their application to determine the expected fees. FIRB have released a comprehensive checklist to ensure that an application is sufficiently detailed.
Fees
Fees are payable for all investments that require FIRB approval.
The Treasurer will consider refunding a fee paid where the measures being implemented globally and in Australia by governments, businesses and individuals in relation to the COVID-19 pandemic have resulted in delays or deferrals of investment decisions that are currently the subject of a FIRB application and the applicant wishes to withdraw that application.
The Treasurer will consider fee waivers on an application basis for non-government foreign investors (in line with concessional treatment of foreign government investors).
Conditions
Given the uncertainty surrounding the duration of COVID-19, the Treasurer has advised that FIRB proposals will be reviewed against national interest on a case-by-case basis and where appropriate, conditions will be applied proportionately to address identified risks on a non-discriminatory basis.
The Treasurer has forewarned that this may continue even after the health risks of COVID-19 have receded and after the expiry of the temporary measures.
Pre-existing agreements and Options
The Treasurer has advised that the changes to the monetary thresholds apply to actions taken after 10:30PM AEDT on 29 March 2020. An Option exercised after this time is considered not to give rise to a new significant or notifiable action as under the Act the person is taken to have acquired the interest at the time they acquired the option (and not when it was exercised).
In assessing whether an agreement has been reached before the announcement, the agreement will need to be one where the negotiations have been completed and the parties have arrived at a mutual understanding of all the essential elements of their bargain.
It does not include preliminary stages of negotiations or circumstances short of a mutual understanding of all essential elements of a bargain.
Existing no-objection notification
Where a foreign person held a no-objection notification prior to 10:30PM AEDT on 29 March 2020, the foreign person does not need to apply to FIRB again when taking the action as contemplated under the no-objection notification.
Where the action is not within the no-objection notification, the foreign person would be required to notify FIRB.
Existing Exemption Certificates
Exemption Certificates granted prior to 10:30PM AEDT on 29 March 2020 are still valid providing the conditions in the certificate continue to be met. There have been amendments to the Foreign Acquisitions and Takeovers Regulations whereby provisions have been repealed with transitional measures introduced and it is recommended that existing certificates be carefully reviewed to ensure compliance.
Acquisitions of residential land for residential care, retirement villages and certain student accommodation
Prior to the $0 threshold as announced by the Treasurer, acquiring an interest in an aged care facility, retirement village or certain student accommodation were subject to the applicable developed commercial land screening thresholds. This section has now been repealed. This means all foreign persons proposing to acquire an interest are taken to be acquiring residential land and must notify the Government prior, unless it falls under an exemption.
Offshore acquisitions
Given the monetary threshold is now $0, more low-value offshore transactions are likely to be significant actions under the Act. Where an applicant notifies such an action, and such notifications require urgent handling in order to facilitate broader offshore transaction, FIRB should be advised accordingly.
Land acquisitions
Acquisitions of interests in Australian land by all foreign persons are notifiable and significant actions regardless of value, type of land (agricultural, commercial, residential, or mining or production tenement) or whether the land is vacant or developed land. The distinction in the type of land is important for considering the conditions that may be imposed to protect national interest.
Interestingly, the Treasurer has advised that the acquisition of car parking space, bike locker or storage space which is incidental to the developed commercial land will not be treated as a separate acquisition where it is being acquired under the same contract for sale and takes up a small portion of the total area of the land to be acquired. However, proposed acquisitions of interests in car parks, storage spaces or bike lockers that are not in conjunction with a residential land acquisition under the one contract will be considered to be commercial land with a threshold of $0 and FIRB approval will be required.
Leases
Acquisitions of foreign persons of leasehold interests in Australian land require FIRB approval where the term of the lease or likely term of the lease is likely to be more than five years. The term includes any right or option to renew after the initial term. Where landlords are simply extending leases under existing options to renew, it is likely that, of itself, will not give rise to any new significant action under the Act.
An adjustment to rent payable under a lease (including reduction, deferment or delay) particularly due to COVID-19, is not of itself likely to be considered a material variation to a lease agreement for the purposes of the Act.
An agreement to a lease (AFL) differs from a lease and as such, entering into an AFL and entering a lease are generally considered to be two separate actions for the purposes of the Act, meaning that two applications to FIRB are required.
New entities
The establishment of companies by a foreign person in anticipation of and for the purposes of executing future transactions will generally not be a notifiable action. In light of the $0 monetary threshold, their subsequent contract and proposed activities is likely to require FIRB application.
For further information or discussion, please contact a member of our Corporate Governance team.