Foreign Direct Investment Update

The new Register of Foreign Ownership of Australian Assets (the Register) is imminent, with the Australian Taxation Office (ATO) having announced that it will be introduced on 1 July 2023.

The Register was established in 2021 under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (Act) to record certain actions relating to foreign interests in land, water, entities, businesses, and other assets in Australia. Following the commencement of the Register, the existing Register of Foreign Ownership of Water Entitlements, Register of Foreign Ownership of Agricultural Land, and the Foreign Ownership Register of Residential Land will be replaced.

Additionally, the Foreign Investment Division of the Treasury has released Exposure Draft Regulations titled "Treasury Laws Amendment (Measures for Future Instruments) Instrument 2023: Register of Foreign Ownership of Australian Assets" (Draft Regulations) to support the operation of the Register.

Recap: What are the key Provisions of the Register?

From the date of the commencement of the Register, a foreign person must give a register notice if they:

• Acquire an interest (other than an equitable interest):
  • In Australian land (specifically a freehold interest, an interest in mining or production tenements or an interest as lessee in a lease giving rights to occupy Australian land likely exceeding five years);¹ or
  • In an exploration tenement;²
    
    regardless of the value and whether the acquisition would require Foreign Investment Review Board (FIRB) approval under the Act.
• Acquire an equitable interest in a lease or licence reasonably likely to exceed five years in Australian agricultural land³ regardless of the value and whether the acquisition would require FIRB approval under the Act.
• Acquire a registerable water interest during a financial year and still hold the interest at the end of the financial year.⁴
• Take a significant action or reviewable national security action in relation to an entity or business⁵ and any of the following applies:
  • The action has been notified to the Treasurer and if a change in control condition was required to be met, the foreign person ought reasonably to be aware that this condition is met in relation to the action;
  • Before the action was taken, the Treasurer has given notice that they will review the action due to national security concerns;
  • A no objection notification or a notice imposing conditions has been given in relation to the action, and has not been revoked; or
  • A no objection notification or notice imposing conditions is given for the action and that action has already been taken by the foreign person; or
• Take a notifiable action or notifiable national security action in relation to an entity or business.⁶

A foreign person is only required to give a register notice for the actions detailed above if the action is taken on or after the Register commencement date (i.e. 1 July 2023).

The following also applies in relation to the Register:

• If a person becomes a foreign person while:
  • Holding an interest in Australian land, exploration tenement, registerable water interest, or an entity or business that would have been subject to mandatory notification under the Act; or
  • Carrying on or holding an interest in a national security business,
    then they must give a register notice;⁷ and
• A foreign person has to give a register notice once a registered circumstance ceases (i.e. they dispose of their interest) or the foreign person ceases to be a foreign person while a registered circumstance exists;⁸
• A foreign person who becomes aware of a change in the following that was previously notified to the Register:
  • The nature of the land interest⁹ (e.g. an interest in agricultural land becomes a new interest in commercial land); 
  • Volume of water or share of a water interest;¹⁰ or
  • Their percentage interest in an entity or business changes 5% or more (which includes passive increases or decreases).¹¹
• A foreign person must give further register notices in relation to actions prescribed by the Act and the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (Regulations) which are considered to be 'registered circumstances.'

These 'registered circumstances' include, but are not limited to, when an Australian business or entity ceases to be an Australian business or entity or the business activities of the Australian business or entity which were notified cease to be carried on.

A register notice must be given within 30 days of the applicable "registrable event day." No fees apply to a register notice however, a civil penalty applies if a person fails to give a register notice within the applicable time period. As at the date of this article, the penalty is AU$68,750. Infringement notices may also be issued with respect to alleged contraventions.

We note that for the purposes of the Register, a foreign person has the same meaning as in section 4 of the Act.

What Else is Relevant in Regards to the Register?

In order to facilitate the Register, the ATO is creating a new online platform for investors to report their interests. Third parties can be authorised by a foreign person to give notice on behalf of the foreign person. We note that the Register is not a publicly searchable register.

It is not clear that acquisitions of interests in an Australian land entity will be included in the Register's reporting requirements for Australian land. This may mean that the foreign person concerned may not need to give a register notice unless the Australian land entity is caught by the general business's or entities' notification requirements.

The Register applies to all foreign persons who acquire the interests identified above. Due to the tracing rules, this can mean that multiple foreign persons are required to notify of the same acquisition of interest, including foreign persons who did not directly acquire the interest. The Register also requires notification of interests that go beyond the current FIRB approval regime.

What do the new Draft Regulations Propose?

The Draft Regulations impose additional register requirements on foreign persons, separate to those already contained in the Act.

Under the Draft Regulations, a foreign person will also be required to give a register notice when:

• They take a significant action by acquiring a direct interest in an Australian media business or they are a foreign government investor who takes a significant action under subsection 56(1) of the Regulations, and:
  • A no-objection notification or a notice imposing conditions has been given for the action and has not been revoked;
  • Before the action was taken, the Treasurer has given notice that they will review the action due to national security concerns; or
  • A no-objection notification or notice imposing conditions is given for the action and that action has already been taken by the foreign person.
• The foreign person takes an action that is a notifiable action by acquiring a direct interest in an Australian media business or they are a foreign government investor who takes a notifiable action under subsection 56(1) of the Regulations.
• The foreign person takes an action in relation to the following and the action is covered by an exemption certificate:
  • Land that would be a significant action, notifiable action, notifiable national security action, or reviewable national security action if not covered by an exemption certificate;
  • A tenement that would be a significant action, notifiable action, or notifiable national security action if not covered by an exemption certificate; 
  • An entity or business that would be a significant action, a notifiable action, or reviewable national security action if not covered by an exemption certificate; or
  • A notifiable national security action if it was not covered by an exemption certificate.

The Draft Regulations prescribes certain registered circumstances that also require a register notice, including when the business or entity ceases or when a person no longer holds any interest in the entity or business. The Draft Regulations also outline that notice given to the Register for a registered circumstance will satisfy the reporting obligations under 98C, 98D and 98E of the Act (i.e. giving 30 days' notice when taking a core Part 3 action) in relation to that action. This will not apply to any custom reporting conditions which were included in a no-objection notification or in an exemption certificate.

The Draft Regulations are expected to apply to all actions taken on or after the Register commencement date, which as we flagged above is currently expected to be 1 July 2023.

Be Prepared

Our team has extensive experience with the FIRB and we actively monitor the foreign direct investment area in Australia. This alert provides a generalised summary of the Register; however the FIRB regime is quite technical and interpretation of the Act will depend on your specific factual circumstances. If you are looking for guidance or support with the implementation of the Register, our team would be happy to talk with you.