Australia’s foreign investment policy has recently been labelled as ‘outstandingly racist’ and discriminatory, particularly towards Chinese investors. Despite these widely reported accusations, the Australian Government has a stated policy of welcoming foreign investment, and recognises that foreign investment is critical to maximising growth in the Australian resources sector.
This article sets out the facts and requirements relevant to foreign investment in the Australian resources sector.
The facts about FIRB approval
The Foreign Investment Review Board (FIRB) noted in their latest Annual Report that the overwhelming majority of business applications received by FIRB were in the resources sector, with mineral exploration and development applications accounting for approximately 60 per cent of the number (excluding real estate applications) and 67 per cent of the dollar value, of all proposals submitted to FIRB for review. FIRB also confirmed that the value of approved investment in the mineral exploration and development sector was A$80.9 billion for 2009 – 2010.
Despite the sentiments being touted in the press, it is clear that the vast majority of FIRB applications are approved by the Federal government. The number of applications FIRB considered during 2009-2010 was 4,703. All but three of these proposals were accepted, representing more than 99.9 per cent of all proposals considered (all three rejected proposals were related to real estate acquisitions). 1,729 proposals were approved subject to conditions, with all but two of the conditional proposals restricted to the real estate sector. A caveat to these statistics is, perhaps, that some proposals made to FIRB are withdrawn prior to FIRB making a ruling.
When do you need FIRB approval?
Foreign investment in Australia is principally regulated by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and the Federal government’s foreign investment policy (Policy). The FATA allows the Federal government to review investment proposals to determine whether they are contrary to the national interest.
Under the FATA the government has 30 days to consider an application, unless it extends the period, which it may do so by up to 90 days. The government may accept or reject a proposal, or approve a proposal subject to certain conditions being met.
All foreign governments and their related entities (for example, state-owned enterprises and sovereign wealth funds) are required to seek FIRB approval before making a ‘direct investment’ in Australia, regardless off the monetary value of the investment. A ‘direct investment’ is generally understood to be any investment of 10 per cent or more in a business or corporation, however, FIRB will also wish to review investments of less than 10 per cent where foreign governments and their related entities can utilise their investment to influence or control the enterprise.
In comparison, for non-government entities, FIRB approval is required before acquiring an interest of 15 per cent or more in an Australian business or corporation that is valued at above $231 million (indexed annually). Due to the Australia/US Free Trade Agreement, a higher threshold of $1005 million applies to US investors.
An acquisition of an interest in Australian urban land requires FIRB approval, irrespective of the value of the investment. ‘Urban land’ essentially includes all Australian land which is not used wholly or exclusively for carrying on a business of primary production. Primary production includes production resulting directly from the cultivation of land, animal husbandry, horticulture, farming, fishing, forestry or viticulture. Relevantly, for off shore mining tenements, urban land includes the entire seabed within Australia’s Exclusive Economic Zone.
An acquisition of an interest in a mineral right, mining lease, mining tenement or production licence will be captured where:
• the relevant lease or licence gives rights to occupy Australian urban land and the term of the lease or licence (including any extension) is likely to exceed five years; or
• the transaction provides for the investor to acquire an interest in an arrangement involving the sharing of profits or income from the use of, or dealings in, Australian urban land.
Accordingly, the acquisition of an interest in exploration or production titles may, depending on the circumstances and facts, constitute the acquisition of an interest in Australian urban land which in turn will require FIRB approval.
Further, FIRB approval is now required where a foreign person acquires an interest in an operational mine valued at $50 million or more ($1005 million for US investors).
At a corporate level, investments in an Australian company which has urban land assets exceeding 50 per cent of its total assets will also require FIRB approval.
If you would like any further information please contact:
Kym Livesley Partner t (02) 9931 4894 e firstname.lastname@example.org
Sally Weatherstone Senior Associate t (02) 9931 4862 e email@example.com
This article is provided for information purposes only.
It represents a brief summary of the law applicable as at the date of publication and should not be relied on as a definitive or complete statement of the relevant laws.