Australia is an attractive market for overseas business. However, there are traps for the unwary.
A Treasurer’s Press Release from December 2015 states that “the Australian Government welcomes foreign investment. It has helped to build Australia’s economy and will continue to enhance the wellbeing of Australians by supporting economic growth and innovation into the future. Without foreign investment, production, employment and income would all be lower.”
With the door being opened for foreign investment, the legislative framework for investors must be worked through as a condition precedent to all transactions.
The Foreign Acquisitions and Takeovers Act 1975 and the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 apply along with investors needing to be aware of State based duties.
For business acquisitions, foreign persons must get approval before acquiring a substantial interest (as least 20%) in an Australian entity that is valued above $252 million. A $1,094 million threshold applies to non-sensitive businesses for investors from Chile, China, Japan, Korea, New Zealand and USA.
For agribusiness, foreign persons must get approval before acquiring a direct interest (generally at least 10%, or the ability to influence, participate in or control) in an agribusiness where the value of the investment is more than $55 million (regardless of the value of the agribusiness). A $1,094 million threshold applies to investors from Chile, New Zealand and United States.
Foreign persons must get approval for a proposed acquisition of an interest in agricultural land where the cumulative value of agricultural land owned by the foreign person (and any associates), including the proposed purchase is more than $15 million. A $50 million threshold applies to Singaporean and Thai investors.
All foreign persons must get approval for a proposed acquisition of vacant commercial land, regardless of the value of the land. Such acquisitions are normally approved subject to development conditions. Agreement country investors only need to apply for developed commercial land where the value of the interest is more than $1,094 million. Other foreign persons must get approval for a proposed acquisition of an interest in developed land if the value of the interest is likely to exceed $252 million. A lower threshold applies to certain types of commercial land deemed as essential infrastructure such as airports and ports.
Foreign persons must get approval to acquire an interest in residential real estate regardless of value. The rules with respect to granting approval differ depending on whether the foreign person is a temporary resident in Australia or is a non-resident.
In Western Australia, all acquisitions of business and land attract duty payable. Duty is payable within 12 months of the date of assessment, however with respect to land, duty will need to be paid prior to the settlement date of the transaction.
Applications for foreign investment approval need to be lodged in advance of any transaction and usually contracts are made conditional to the granting of the approval. Under the Foreign Acquisitions and Takeovers Act 1975, the Treasurer has 30 days to consider an application and make a decision. The time frame for making the decision will not start until the correct application fee has been paid in full.
Application fees start from $5,000 and are based on the consideration under the relevant contract.
Criminal and civil penalties apply for foreign acquisitions being made without approval.
Taylor Smart has the experience and are well-equipped to assist overseas entities and residents to safely navigate the complex legal minefield that is the Australian foreign investment rules and regulations.