2015 FIRB Reforms: A new regime for foreign investment in Australia
The most significant reforms to Australia’s foreign investment framework in over 40 years will take effect from 1 December 2015. The Commonwealth Government has introduced a package of legislation into parliament which is intended to strengthen the integrity of the foreign investment framework by reforming the Foreign Acquisition and Takeovers Act 1975 (Cth) (Act).
In summary, the reforms see the introduction of application fees, increased penalties for non-compliance, a land register and increased scrutiny surrounding foreign investment in agriculture.
Australia’s legislative framework underpinning foreign investment was regarded as complex and out-dated. The aim of the FIRB reforms was to modernise and simplify the foreign investment framework to:
The Foreign Investment Review Board (FIRB) considers proposals by foreign persons to invest in Australia in the context of the Act and Australia’s foreign investment policy. In considering a proposal, the FIRB must be satisfied that the proposed investment is not contrary to the national interest. National interest considerations can include national security, competition, Australian Government policies, impact on the economy and the character of the investor.
The FIRB reforms will be introduced through a host of legislation:
Set out below are the key changes arising from the FIRB reforms that foreign investors will need to be aware of if seeking to invest in Australia.
1. Application fees
The administration of the system will now be funded via application fees imposed on all foreign investment applications. It is expected that the additional resourcing will be utilised by the Treasury and the ATO to improve service delivery to foreign investors.
Application fees will be indexed to CPI and initially will range from $5,000 to $100,000 depending on the type of application and value of the acquisition. An application to acquire an interest in residential land valued at $1 million or less will attract a fee of $5,000. For an interest valued at over $1 million, the fee increases to $10,000 plus $10,000 per additional $1 million in property value. Business acquisitions will attract a fee of $25,000 increasing to $100,000 where the value of the investment is greater than $1 billion. If an application falls within multiple categories, the highest fee will be applicable. For further information on application fees, head to the FIRB website.
The FIRB reforms introduce stricter and additional penalties to deter foreign investors and intermediaries (including real estate agents and lawyers) from profiting by breaching foreign investment rules.
Previously, a breach of foreign investment rules in respect to residential real estate would attract divestment orders and criminal penalties. As at 1 December 2015, existing penalties will be supplemented by financial penalties and infringement notices. Some of the penalties under the new regime are summarised in the following table.
3. Australian Taxation Office Monitoring
The Australian Taxation Office (ATO) will monitor and enforce compliance of foreign investment rules surrounding residential real estate, utilising its capabilities to match taxpayer data with a range of third party sources such as State and Territory land titles data, immigration and AUSTRAC.
A register of foreign ownership of agricultural land was established by the ATO on 1 July 2015. A further register capable of capturing all land transactions, including residential real estate, will be established on 1 July 2016. Discussions are underway with State and Territory Governments to utilise their land titles data in connection with these registers. Foreign investors are required to disclose information about their existing and subsequent acquisitions.
The screening threshold for agricultural investment was reduced from $252 million to $15 million on 1 March 2015. Foreign investors are required to obtain approval for any proposed investment in agricultural land where the cumulative value of agricultural land owned by the investor is $15 million or more (including the proposed investment).
The FIRB reforms also introduce a $55 million threshold for direct investment in agribusiness. The definition of ‘agribusiness’ will capture primary production businesses including meat, seafood, dairy, fruit and vegetable processing and grain, sugar and oil manufacturing.
What the FIRB reforms mean for you
The FIRB reforms seek to provide foreign investors with greater certainty and better service delivery through a simplified foreign investment system. Non-compliant investors will be subject to a stronger compliance and enforcement regime. It is anticipated that the Australian community will have greater confidence in the foreign investment framework with increased scrutiny surrounding agricultural investment and a stronger compliance regime.
The FIRB reforms aim to strike a balance between strengthening the integrity of Australia’s foreign investment framework and ensuring that framework remains conducive to foreign investment that is not contrary to its national interests. Whether this balance will be achieved remains to be seen.