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The Australian Government’s foreign investment regime, generally speaking, encourages foreign investment in Australia.
The regime consists of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), associated legislation and various regulations. The regime is also supported by Australia's Foreign Investment Policy (Policy) and around 50 guidance notes released by the Foreign Investment Review Board (FIRB), which are updated from time to time. The Australian Treasurer administers the FATA with the advice and assistance of FIRB.
Foreign persons are required to notify FIRB of certain transactions and obtain clearance before proceeding with the transaction. Voluntary notifications can also be made in certain circumstances.
FIRB provides advice to the Australian Treasurer, or a nominated representative of the Australian Treasurer, who makes a decision on whether or not to allow a foreign investment proposal to proceed by considering whether or not it is 'contrary to Australia's national interest'. Proposals that may require prior notification to
FIRB and approval decision from the Treasurer may include:
The current relevant financial thresholds were set on 1 January 2018 and are indexed annually for inflation increases.
In most industry sectors, foreign investment proposals that require notification to FIRB are granted FIRB clearance either unconditionally or on conditions unless determined to be contrary to the national interest. However, the Treasurer has the power to block an investment considered to be contrary to the national interest and to make adverse orders (including ordering divestment) if FATA is breached.
Foreign persons includes private foreign investors as well as foreign government investors, with the regime applying differently to each type of investor. A private foreign investor is an entity which is not a foreign government investor and in which a foreign person, together with its associates, holds a direct or indirect interest of 20% or more or multiple foreign persons, together with their associates, hold a direct or indirect interest of 40% or more (in aggregate). A foreign government investor is an entity controlled by a foreign government (at any level of government) or their related bodies, including corporations in which a single foreign government and its associates (defined broadly) has a direct or indirect interest of 20% or more, or multiple foreign governments and their associates have a direct or indirect interest of 40% or more (in aggregate). There are tracing provisions in the FATA which have the effect that the foreign person characterisation of an entity is determined by the status of the ultimate legal and beneficial interest holders of the entity.
There are application fees associated with foreign investment applications. These range from A$2,000 to A$103,400 though can be much higher for residential land as there is no cap on the fee payable. The fee is based on the transaction value. Furthermore, the government has introduced a standard set of tax-related conditions that will apply to foreign investment clearances as part of the assessment of whether a transaction is ‘not contrary to Australia’s national interest’. These conditions require applicants to provide confirmation of their tax affairs, pay outstanding tax debts, and provide a range of information to FIRB and the ATO about the proposed transaction.
While there is a 30 day timeframe stated for FIRB clearance, the process can in practice take longer in particular if there are sensitivities associated with the proposed transaction.
Most dealings in foreign currencies in Australia must be transacted with an institution holding an authority from the Reserve Bank of Australia or licensed to do so by the Australian Securities and Investments Commission.
Inward investment is not subject to exchange controls, although this does not preclude the need to obtain FIRB clearance in certain situations (see earlier). Outward exchange flows are not restricted. However, both outward bound and inward bound exchange flows are subject to cash transaction reporting guidelines imposed on ‘cash dealers’ and other persons who send or receive international fund transfer instructions.
Cash dealers, which include banks, financial institutions, insurance companies, currency and bullion dealers and others, must report to the Australian Transaction Reports and Analysis Centre details of certain transactions, including:
It is possible to do business in Australia without setting up formal structures, although having some form of legal identity or other formal arrangement is often advisable.
The Australian Government’s trade policy combines multilateral, regional and bilateral approaches. Australia pursues every opportunity to open up global markets for exporters and to encourage investment flows across all sectors. As part of this commitment, the Australian Government has negotiated special access for Australian suppliers of goods and services to key export markets through free trade agreements (FTAs).
Australia has ten FTAs currently in force with China, Japan, Republic of Korea, New Zealand, Singapore, Thailand, US, Chile, the Association of South East Asian Nations (ASEAN) (with New Zealand) and Malaysia. Australia is also currently engaged in nine FTA negotiations, including the Regional Comprehensive Economic Partnership Agreement and the Trade in Services Agreement. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) has also been signed but not yet entered into force. The TPP-11 provides new market access opportunities for Australian exporters and investors, more seamless regional trade and addresses contemporary trade challenges such as state-owned enterprises, e-commerce and the development of small and medium sized enterprises.
The following issues should be considered:
Other legal issues that may arise include:
There are two types of sanctions enforced under Australian law:
UNSC-based sanctions generally mirror those imposed by other UN members in terms of the scope of measures imposed and the countries, individuals and entities to which they apply. However, to address situations of concern to Australia where there is no UNSC Resolution (or to further supplement UNSC-based sanctions that are in place), Australia may impose ‘autonomous’ sanctions.
Measures imposed under these regimes tend to be ‘targeted’ sanctions rather than outright trade embargoes on particular countries. Sanctions almost always focus on prohibiting trade in goods and services that relate to military or paramilitary activities, as well as nuclear, chemical or biological weapons programs. Australian sanctions also usually prohibit certain financial transactions by restricting dealings with the assets of designated individuals or entities.
Permits may be sought for trade that is affected by sanctions, but permits are frequently denied.
It is an offence for corporations to engage in conduct that contravenes a sanctions law. As this is a strict liability offence, the prosecution does not need to prove the company intends to engage in the prohibited conduct. However there is a defence where a corporation can prove it took reasonable precautions, and exercised due diligence, to avoid contravening a sanctions law. This makes it important for corporations to have in place an effective compliance program.
Although it is relatively straightforward to export most goods and services from Australia, for some defence and dual military-civilian use products and technologies, Australia maintains strict export controls.
Certain defence and dual-use goods may not be exported from Australia without a permit. Dual-use goods to which these rules apply include certain computing and telecommunications equipment.
This means the scope of Australian export controls goes well beyond the defence sector. Particularly strict controls apply to goods and services that may assist in the development of weapons of mass destruction and weapons delivery systems.
Under 2012 legislation, the scope of Australian export controls was expanded to control ‘intangible’ exports of controlled technology (for example, through emailing plans or discussing know-how with foreign persons). The legislation also controls ‘brokering’ of controlled technologies whereby an Australian national or an entity present in Australia arranges for controlled products to be traded between points outside of Australia.
Under this legislation, a special regime has been created for US-Australia defence trade. Certain entities engaged in this trade will be able to gain accreditation to an ‘approved community’. Such accreditation is intended to streamline access by community members to highly controlled US defence technologies.
The key offence provisions under the 2012 legislation came into effect in May 2015 (two years after the entry into force of the Australia-US Defence Trade Cooperation Treaty, which occurred in May 2013) . This allowed a ‘transition period’ during which affected corporations familiarised themselves with the new requirements, and developed appropriate compliance programs.
Australia is a signatory to the United Nations Convention Against Corruption and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. These require steps to be taken to combat corruption in both the public and private sectors. Bribery of foreign public officials is prohibited under the Criminal Code Act and involves the following elements:
Bribery of Australian officials is also an offence. Australian laws also address other corrupt conduct, in some cases dealing with private bribery, for example through the giving of secret commissions.
Unlike some legislation overseas, such as the UK Bribery Act 2010, Australia’s foreign bribery laws allow for the payment of ‘facilitation payments’ to secure minor government actions (although the Australian Government has consulted on and continues to consider the abolition of the defence). It is also a defence if it can be proved that the conduct in question was permitted under a written law of the country where it takes place.
In order to address corruption risks, it is appropriate for businesses in Australia to promote a corporate culture that discourages bribery and other corrupt practices. As other Western countries also become ‘active enforcers’ of their own foreign bribery laws, multinationals operating in Australia are frequently integrating aspects of Australian law compliance into their global anti-bribery and corruption programs. This typically involves an actively enforced anti-bribery and corruption policy, and organisation-wide training and compliance programs.
© 2019 MinterEllison
