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AUSTRALIA
FOREIGN INVESTMENT REGULATION
In general, Australia has a liberal foreign investment and exchange control regime. Foreign investment is governed by Federal legislation and Federal Government policy. Exchange control is governed by Federal legislation and regulations. FOREIGN INVESTMENT REGULATION FATA and the Policy apply to foreign persons. For the purposes of FATA and the Policy, foreign person means: - a natural person who is not ordinarily resident in Australia (ordinarily resident, for a person other than an Australian citizen, means that person has resided in Australia for 200 days or more in the immediately preceding 12 months), or - a corporation in which a natural person not ordinarily resident in Australia or a corporation incorporated overseas holds 15% or more of the corporation, or - a corporation in which two or more of those persons or corporations hold 40% or more of the corporation, or - the trustee of a trust in which a natural person not ordinarily resident in Australia or a corporation incorporated overseas holds a beneficial interest of 15% or more of the assets or income of the trust, or - The trustee of a trust in which two or more of those persons or corporations hold a beneficial interest of 15% or more of the assets or income of the trust. As a result of the implementation of the Australia-US Free Trade Agreement, certain US entities (prescribed foreign investors and prescribed foreign government investors) are exempt from the application of FATA and the Policy in respect of certain transactions (see below for further details). NOTIFICATION - A substantial shareholding (15% by an individual, or 40% where two or more persons act together) in an Australian company with total assets valued in excess of A$50 million (A$800 million for prescribed foreign investors in non-sensitive sectors), or There are some further limited exemptions to notification in FATA’s regulations. The Federal Government also provides for notification of any proposed acquisition of the assets of an Australian business (including rural land) valued in excess of A$50 million (A$800 million for prescribed foreign investors). The Policy also requires notification to the Treasurer of proposals to establish new businesses where the total amount of the investment is A$10 million or more. Total investment means the total expenditure expected to be associated with the new business, including the value of any leased assets. (A prescribed foreign investor is not subject to this requirement.) A new business requiring notification includes: - The establishment of a business by a foreign interest not already operating in Australia The Federal Government also requires, under the Policy, notification of acquisitions of interests in the media sector of greater than 5%. All proposed acquisitions by a foreign government, direct or indirect, must be notified (except for diplomatic representation). Notification must be made to the Federal Treasurer through FIRB using a prescribed form. The Federal Treasurer has power in certain circumstances to order divestment of notifiable acquisitions which have not been notified. ASSESSMENT Normally, where an acquisition is within the Policy, FIRB will promptly advise that the Treasurer has no objections to the acquisition, and it may not be necessary to wait the full 30 days before proceeding. Where an acquisition is examinable, FIRB will circulate the proposal among relevant Federal and State government departments and other bodies, such as the ACCC, to ascertain their views. Under the current Policy, proposals in non-sensitive sectors involving total assets or investment of less than A$100 million generally will not be subject to detailed examination. Previous announcements to expand foreign investment policy regarding acquisitions of Australian icons have not been formally adopted. However, if an acquisition is proposed that does involve an Australian icon, regardless of the industry sector, the proponent should proceed with the knowledge that FIRB will examine the proposal with that sensitivity in mind. Additional restrictions apply to acquisitions in certain industries under the Policy (eg residential real estate, airlines and newspapers). FIRB not only accepts the notification of proposals on behalf of the Treasurer and undertakes the assessment of them, but it also monitors compliance with conditions imposed by the Treasurer on statements of no objection. This is particularly so in relation to property conditions such as the commencement of continuous construction on a property within 12 months of approval. Non-compliance with a condition can result in the exercise of the Treasurer’s power of divestiture. In addition to approvals under FATA, certain types of acquisitions may require other special approvals (eg acquisitions in the banking and media industries). Also, where a target has a substantial market share in an Australian market for goods or services, authorization may need to be obtained from the ACCC. Land in the State of Queensland is affected by the Foreign Ownership of Land Register Act 1988 (Qld). This legislation does not prevent foreign ownership of land but merely records it. It does require registration by foreign persons who already own an interest in land. The Queensland Government policy on foreign investment is to ensure an approach consistent with that adopted by FIRB. FATA AND US INVESTORS Prescribed foreign investors Prescribed foreign investor is either a US national (being a national or permanent resident of the United States of America) or a US enterprise (being an entity, or branch of an entity, which is constituted or organized under a law of the US. A branch of that entity must be located in the US and carrying on a business there), and Prescribed foreign government investor is a body politic of the US. Note that future agreements between Australia and other countries may result in other countries becoming prescribed foreign investors for the purposes of FATA. Exemptions from notification for US entities Direct investments or acquisition by US entities in: Takeovers by US entities of offshore companies whose Australian subsidiaries or assets are valued at under A$800 million, or account for less than 50% of the target company’s global assets Direct investment by US entities in new business, irrespective of value, and Direct acquisition by US entities of interests in financial sector companies irrespective of value (although an application may still be required to be given to the Treasurer under the Financial Sector (Shareholdings) Act 1998). Sensitive sectors Urban land (with the exception of acquisitions of interests in developed commercial real estate) - The telecommunications sector What is direct investment? This means, for example, that a Cayman Island corporation which, although it can trace its ownership to a US entity as a wholly-owned subsidiary, will not gain the benefit of the US entity threshold exemptions from notification. This non-tracing provides the strange result that, if a US entity is owned, for example, by a Malaysian corporation, provided that the US entity is the entity making the direct investment in the asset or business, it will have the benefit of the increased threshold. Is the acquisition of a beneficial interest a direct investment? EXCHANGE CONTROL Some international transfers of funds must be reported to the Australian Transaction Reports and Analysis Centre under the Financial Transaction Reports Act 1988 (Cth). This is aimed at detecting tax evasion and identifying the proceeds of crime, rather than at exchange control.
OFFSHORE INCORPORATION SERVICES FREE CONSULTANCY
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