The Foreign Investment Review Board (FIRB) is a non statutory advisory body whose role is to examine foreign investment proposals on behalf of the national treasurer.
How does the FIRB Work
Australia has a foreign investment approval regime which regulates acquisitions from certain foreign investors in an Australian company.
The FIRB operates within the following legislative framework:
- Foreign Acquisitions and Takeovers Act 1975 (the FATA)
- Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (the FATR)
- Foreign Acquisitions and Takeovers Fees Impositions Act 2015 (Cth)
- Register of Foreign Ownership of Water or Agricultural Land Act 2015 (Cth)
It is worth noting that the FIRB does not make decisions on whether or not to approve a foreign investment proposal. This is done by our National Treasurer, who takes into consideration an approval put forward by the FIRB. Hence, that is why the process is referred to as seeking “FIRB approval”.
This article will look at the FIRB approval processes for foreign entities and Australian businesses. Alongside how Australia’s property market is governed by the FIRB.
FIRB Approval for Australian Businesses and Foreign Persons
Foreign persons require approval from the FIRB before they can acquire a substantial interest in a local company.
A ‘Foregin Person’ is:
- An individual that is not ordinarily resident in Australia
- A foregin government or foreign government investor
- Corporations in which an individual not ordinarily resident in Australia or foreign corporation hold “substantial interests”
- Corporations in which two or more person, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government together hold “substantial interests”
Tracing
The FIRB generally considers a substantial interest to be at least 20% in an Australian equity that has value above the relevant monetary threshold.
The FIRB in order to determine, whether an entity is a foreign person will trace up interests of 20% or more. If entities have sufficient upstream foreign holders they will be characterised as a foregin person and subject to FIRB approval.
For example if USAco holds 21% of the shares in Ozco1 and Ozco1 holds 21% of the shares in Ozco2, Ozco2 is deemed to be foreign person. Also, it is irrelevant if Ozco2 or Ozco1 act independently from USAco.
Therefore, FIRB approval will need to be sought when there is an upstream of foreign holders.
Sensitive Businesses
Additionally, special rules apply to certain industries in regards to foreign investment.
For example Australian Businesses that operate in the media, agricultural sector, land-rich entities, mining or oil and gas are sensitive businesses industries.
This is important because, there are significantly different rules for sensitive businesses when it comes to foreign investment. Thus, the government needs to ensure the above industries are protected in order to maintain our national interests.
The FIRB and Purchasing Property
For foreign investors the FIRB has in places restrictions pertaining to the types of property you can purchase.
Existing Residential Dwellings
As a general rule of thumb foreign investors are not allowed to purchase residential established dwellings. For individuals who hold a permanent or temporary visa they can purchase one established dwelling to live in as their home.
As long as they meet the following requirements:
- They sell the property within 3 months from ceasing it to be their residence
- They do not rent out any part of the property.
Residential Vacant Land or New Dwellings
Foreign persons will generally be able to purchase vacant land for development or new property to use as an investment or home. The government and the FIRB allow this to encourage property development within Australia.
The tests that dictate whether an investor is a foreign person or not are difficult to navigate and complex. The circumstances differ on a case by case basis.
That is why if you need any help or guidance in seeking FIRB approval our business lawyers are here to help.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
Phillip is completing his law degree at the University of Technology (Sydney). He worked previously with Lawpath, and Justice Action. His interests are with construction and technology law.
