A New Year, a new beginning, and a new foreign investment regime

15 December 2020
Biljana Apostolova, Partner, Melbourne Winnie Sinn, Partner, Melbourne
  • On 5 June 2020, the Treasurer announced major reforms to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA). The reforms are intended to strengthen the foreign investment framework and ensure that the framework keeps pace with emerging national security risks and global developments.
  • On 18 September 2020, the Federal Government released exposure draft legislation for a number of major reforms to Australia’s foreign investment laws.
  • On 10 December 2020, the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 and the Foreign Acquisitions and Takeovers Fees Imposition Amendment Act 2020 received royal assent.
  • The reforms will take effect on 1 January 2021.
  • A summary of the key changes under the reforms is set out below.

New national security test

The reforms introduce a new national security test applicable to foreign investments that give rise to national security concerns, which is narrower than and sits alongside the national interest test.

Notifiable national security actions

Under the new national security test, foreign investors will need Foreign Investment Review Board (FIRB) approval for ‘notifiable national security actions’ regardless of the value of the investment. ‘Notifiable national security actions’ involve foreign persons:

  • starting or acquiring a direct interest (generally, an interest of 10% or more) in a ‘national security business’; or
  • acquiring an interest in ‘national security land’.

A ‘national security business’ includes businesses relevant to sensitive sectors such as energy, utilities, critical infrastructure, defence, national security-related goods, services and technologies and sensitive data. A ‘national security business’ will not be a ‘national security business’ unless it is publicly known, or could be known on the making of reasonable enquires that the entity meets the criteria for being a ‘national security business’. ‘National security land’ means any defence premises or any land in which the Commonwealth has an interest that is publicly known, or could be known by making reasonable enquiries.

If a ‘notifiable national security action’ is not otherwise required to be assessed under the FATA (i.e. it is not a significant action), then the Treasurer will assess the transaction on national security grounds only and there will be no need to satisfy the national interest grounds.

If a foreign investment, regardless of its value is found to raise national security concerns, the Treasurer will have the power to impose conditions, or if necessary, prohibit the proposed investment.

Call in powers

Under the reforms, the Treasurer will have a new ‘call-in’ power to review any transactions which are not voluntarily notified to the Treasurer (but only where the transaction is either a ‘significant action’ or a ‘reviewable national security action’), on national security grounds. ‘Reviewable security actions’ are actions that are expected to give foreign persons potential control and influence.

These powers enable the Treasurer to review the foreign investment and make orders (such as a prohibition or disposal order) where it considers that the foreign investment may give rise to national security concerns. The call in power is valid for 10 years from when the investment is made.

Importantly, the Treasurer cannot use the new ‘call-in’ powers if the investor has already received a no objection notification or has an exemption certificate for its investment. Given the extremely long ‘look back’ period of 10 years and the broad discretion of the Treasurer to seek review, we expect that investors will be more inclined to voluntarily notify FIRB of proposed transactions so as to eliminate the possibility of such transactions being called in for review. However, it is important to note that voluntary notification will not protect against the Treasurer exercising the ‘last resort’ power.

Last resort power

The last piece of the reform which aims to address national security concerns, is the ‘last resort’ power which gives the Treasurer powers to impose conditions, vary existing conditions or force the divestment of any previously approved transaction, where new national security concerns subsequently arise. For clarity, this power will only be available where new circumstances emerge which give rise to national security concerns and the Treasurer is satisfied that the use of other options under the existing regulatory framework would not adequately reduce the national security risk. The broad ambit of the ‘last resort’ power to potentially unwind transactions which have been approved and/or consummated is likely to have an effect on foreign investors’ confidence in the certainty of their investments in particular industries. While a deterrence of foreign investments in certain sectors is no doubt one of the intended effects of the reforms, it begs the question of whether the lack of transaction certainty will have an even bigger impact on foreign investment in Australia than anticipated.

Passive foreign government investors

Currently, investment funds that have more than 20% foreign government ownership or at least 40% foreign government ownership in aggregate are considered to be a ‘foreign government investor’ (FGI) for the purposes of the FIRB rules.

The reforms provide that investment funds which have only passive FGIs will no longer be characterised as a FGI where the fund has more than 40% foreign government ownership in aggregate, but less than 20% from any single foreign government and provided that the following conditions are met:

  • no FGI can access any non-financial ‘sensitive information’ (i.e. non-public information about the investments that may affect the financial performance); and
  • where their FGIs have no ability to influence or control any specific investments or management of any individual investments.

Enhanced compliance measures and enforcement powers

The reforms will also improve compliance through the introduction of stronger penalties and compliance measures as well as increased enforcement powers.

The reforms include:

  • standard monitoring and investigative powers in line with other business regulators, including access to premises with consent or by warrant to gather information;
  • increased civil and criminal penalties under the FATA to ensure that penalties act as an effective deterrent;
  • powers to remedy situations where foreign persons are given a no objection notification or an exemption certificate based on an application which makes an incorrect statement or omits an important piece of information;
  • powers with respect to investments that were made in breach of the FATA and where the interest has subsequently been transferred to another foreign person by will or devolution by operation of law; and
  • powers to accept enforceable undertakings from foreign persons.

Moneylending exemption

Currently, the entry into and enforcement of security interests by foreign moneylenders are exempt from the foreign investment regime. The reforms remove the ability for foreign moneylenders to apply the moneylending exemption where obtaining an interest in a ‘national security business’ or ‘national security land’. This could be prove challenging for foreign banks who provide an important source of funding to Australian businesses who operate in the critical infrastructure sector. It is expected that further guidance on the moneylending exemption will be released in the coming weeks.

Monetary thresholds reinstated

As a result of COVID-19, the monetary threshold for all acquisitions subject to the FIRB regime was temporarily reduced to $0 in April 2020. As of 1 January 2021, the monetary thresholds previously in place will be reinstated.

Fee framework

The amendments will see an increase in fees as of 1 January 2021 for higher value and agriculture deals. However, industry and stakeholder feedback has been critical of the new fee framework and have noted the lack of clarity around how the incremental fee increases (based on deal value) will be applied. We expect that FIRB will release further guidance around how the fees will apply in practice.

Fees for commercial land, entities and business

Acquisition value Current Fees Acquisition value New Fees
≤$10m $2,100<$75,000$500 fee if reviewable national security action[1] or $2,000
>$10m and ≤ $1bn$26,700 >$75,000 and ≤$50m$6,600
>$1bn$107,100>$50m and <$1.9bn$13,200 per $50m consideration above $50m
-->$1.9bn$500,000 cap

Based on the Exposure Draft, transactions which are subject to the FIRB regime and which are valued at less than $100m will benefit from lower fees, however, transactions which are valued at $100m or more will be subject to increased fees from 1 January 2021.

Fees for agricultural land deals

Acquisition value Current Fees Acquisition value New Fees
≤$2m $2,100<$75,000$2,000
>$2m and ≤$10m$26,700 >$75,000 and ≤$2m$6,600
>$10m$107,100>$2m and <$76m $13,200 per $2m consideration above $2m
-->$76m $500,000 cap

Based on the Exposure Draft, agricultural land transactions which are subject to the FIRB regime and which are valued at less than $16m will benefit from lower fees, however, agricultural land transactions which are valued at $16m or more will be subject to increased fees from 1 January 2021.

In addition, fees for agricultural land will now be imposed on the whole consideration rather than the highest title value. This is a significant change to the existing regime and appears to be a deterrent for foreign investors to invest in the agricultural sector.

For more information please contact our Corporate Advisory Team.


Authored by:

Winnie Sinn, Special Counsel
James Birnie, Associate
Elizabeth Gregory, Lawyer


[1] and not otherwise assessable under the FIRB regime.

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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