As part of the Federal Government’s response to the COVID-19 pandemic, the federal government recently announced temporary changes to Australia’s foreign investment regime. This guide serves as an introduction to property investment in Australia from a foreign investor’s perspective, along with the regulations and processes involved should a foreign investor decide to purchase an Australian property. Relevant transaction types: Under Australia's foreign investment laws, foreign persons are required to seek approval from the Treasurer―via applications submitted to FIRB―prior to undertaking certain types of transactions involving Australian entities or businesses. In amongst the rapid fire of legislation responding to Covid-19 came some subtle changes to the Foreign Investment Review Board (FIRB). The FIRB Application Portal will be unavailable due to maintenance on Friday 12 March 2021 from 9.00pm to 10.30pm AEST. In response to the unprecedented economic implications of the COVID-19 pandemic, the Australian Federal Government (Federal Government) announced via the Treasurer new Foreign Investment Review Board (FIRB) temporary measures, effective from 10:30 pm on 29 March 2020, in pursuit of protecting the national interest. However, this will not be the case if the fund has obtained a Business EC issued by FIRB prior to 10:30 pm AEDT on 29 March 2020 and the acquisition falls within the ambit of investments permitted by the Business EC. This will particularly be the case if the target business is either in administration, receivership or liquidation because for businesses in distress, a quick sale with minimal conditionality is often of paramount importance. Foreign investment supplements domestic savings; without foreign investment, production, employment and income would all be lower. Foreign Investment rules change for property investors. Business ECs allow foreign persons (including FGIs, such as certain PE funds) to undertake multiple acquisitions of Australian businesses and securities in Australian entities without having to obtain separate approvals from FIRB for each transaction. In particular, the potential impact on the community and employment will be considered when screening applications.”. Credit: AAP. 53) issued by the Foreign Investment Review Board (FIRB) on 24 April 2020. Businesses are increasingly under pressure. Australia | In this article, we discuss some of the changes of particular relevance to acquisitions of Australian businesses or companies by private equity (PE) funds. What is the main impact of these changes? Background on FIRB Thresholds and Timelines. When is a PE fund deemed a ‘foreign person’? This has meant that FIRB’s resources have been tied up reviewing a high volume of investments that are routinely low risk. Have There Been Any Recent Changes to The Foreign Investment Rules in Australia? $275 million for acquisitions in non-sensitive businesses for other foreign investors. These changes will mean the Australian government will, for the foreseeable future, treat all foreign investors as ‘foreign government investors’ (FGIs). May 21, 2021. Even PE funds holding Business ECs may be impacted to some extent by the changes. Applications for Business ECs are considered by FIRB on a case-by-case basis, but are perfectly suited to PE funds, particularly those looking to make low risk investments. As the impact from the COVID-19 pandemic and the resulting economic fallout could be felt for a number of years, PE funds deemed to be foreign persons should consider applying to FIRB for a Business EC as soon as practicable to give themselves the best chance to remain competitive in the current landscape, even though from application a Business EC could take up to six months to obtain. Despite Australia being generally open to foreign investment, it was the fifth-most restrictive out of 36 advanced countries because of its … Although Section 42 of the Regulations – which gives the Treasurer powers to grant a Business EC – is intentionally broad, the more specific an applicant looking to obtain a Business EC can be in terms of the nature and scale of the intended acquisitions (including target businesses or industries) and duration, the more likely the Treasurer will grant a Business EC. When asked about tensions with China, he says investment … Such acquisitions may be covered by Business ECs that are already held by a PE fund and, where this occurs, those acquisitions may now be taken into account in determining whether the holder of the Business EC has exceeded the financial limit specified in their Business EC. In accordance with section 4 of the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020, the Treasury is conducting an evaluation of the foreign investment reforms that commenced on 1 January 2021. The extension to construction working hours implemented by the NSW Government last year in response to the COVID-19 pandemic will be revoked on 7 June 2021. In a competitive process for a distressed business where an administrator is seeking a quick sale to preserve value, this could be a critical factor. Australia welcomes foreign investment. Any potential investments made by a fund deemed to be an FGI already required FIRB approval prior to the recent changes and FIRB approval will continue to be required unless the investment is covered by a Business EC held by the fund – as detailed below. This will be in effect from 9.00am Monday 24 May. The Register, which is maintained by the Australian Taxation Office, has been established to provide greater transparency about levels of foreign ownership of agricultural land in Australia. Australia tightens foreign investor rules. These temporary changes were announced and effective from 29 March 2020 and are explained in detail in a guidance note (Guidance Note No. Firms with significant overseas investment in their funds are often regarded as foreign investors. Australia’s FIRB is the government body that advises the Treasurer on inbound foreign investment. Publication | All Rights Reserved. Watch the video above Frydenberg said one in 10 Australian jobs were created by foreign investment. Sales or re-financings by administrators, receivers and liquidators will be inevitable and PE funds holding Business ECs will be ideally placed to move quickly to take advantage of these opportunities. The main change is reducing the monetary screening thresholds to nil for any transactions which are classified as ‘significant actions’ or ‘notifiable actions’ for the purposes of the Foreign Investments and Takeovers Act 1975 (Cth) (the Act) – the main pillar of Australia’s foreign investment regime. Australia put into force a robust new investment regime Tuesday cracking down on foreigners who unlawfully own residential properties and tightening scrutiny on purchases of farmland from overseas. A foreign person must apply for foreign investment approval before they purchase Australian residential real estate and vacant land unless they purchase it as joint tenants with a permanent resident or Australian citizen. However, the purchase of a local firm by a foreign company can always be refused by the controlling authority, on the grounds that it would be contrary to national interests. The above is sometimes referred to as the 20/40 rule and applies to not only interests in limited partnerships, but also through shareholdings in foreign corporations or through beneficial interests in the income or property of a trust. Australia has temporarily tightened its rules on foreign takeovers on concerns that strategic assets could be sold off cheaply as a result of the coronavirus crisis. All foreign investment in Australia will now require approval in a Federal Government move designed to prevent international raids on struggling companies hit by the coronavirus pandemic.
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