On 1 July 2023, the Foreign Investment Review Board (FIRB) will implement a new register of foreign ownership of a myriad of Australian assets. This register coincides with the introduction of obligations on foreign persons to report to FIRB their ownership of these Australian assets.
Register and Reporting Obligations
A new register with complimenting reporting obligations will take effect from 1 July 2023. This register is to be administered by the ATO and is to replace the existing registers (namely the agricultural land register, residential land register and water register).
The amendments to the reporting obligations are extensive and administratively burdensome – all required reporting must occur within 30 days of each relevant registrable event day. The registrable event day will vary on the type of event under the legislation, but is generally either the date on which the notifiable event occurs or when the foreign person is aware, or reasonably ought to be aware, that the relevant event has occurred).
The following is a high-level summary of the reporting obligations:
- Australian land - each foreign person must notify the Registrar if they acquire any of the following:
- freehold interest (other than an equitable interest) in Australian land (this includes agricultural land, commercial land, residential land, or a mining or production tenement);
- an interest as lessee in a lease giving rights to occupy Australian land if the term of the lease (including any extension or renewal) is reasonably likely, at the time the interest is acquired, to exceed five years (excluding an interest that is an equitable interest unless the land is agricultural land);
- an interest (other than an equitable interest) in a mining or production tenement, such as a mining lease; or
- an exploration tenement.
These notification obligations also arise where a person who has any of the above Australian land interests becomes a foreign person, or there is a change in the nature of the foreign person’s interest in the relevant land, or where the foreign person ceases to have the interest which triggered a notification requirement, or the foreign person ceases to be a foreign person.
This is a significant increase in compliance for foreign investors. Previously, the foreign person was only required to notify FIRB of an acquisition if they were subject to FIRB approval requirement and if notification was specified on the approval received. The obligation now extends to all acquisitions of freehold interest and leasehold interests in commercial land exceeding five years.
Practically, this could be extremely difficult monitor. For example, where a listed entity had a number of foreign person shareholders (all holding more than 5% but none more than 20%) – where the number of shares held by these people reached 40%, there would be an obligation on that entity to notify the Register of all of their Australian land interests.
- Business and entities – the following would trigger notification to the Register:
- a foreign person acquires an interest in an Australian entity or Australian business, or starts an Australian business, which constitutes a significant action, notifiable action or reviewable national security action;
- a foreign person acquires an interest in a national security business or an entity carrying on a national security business, or starts a national security business;
- a foreign person ceases to hold an interest (other than an equitable interest) in the relevant entity or business;
- the relevant entity ceases to be an Australian entity or one that carries on national security business;
- the relevant business ceases to be an Australian business or national security business;
- the relevant entity ceases to exist or the relevant business ceases to be carried on;
- the percentage interest that each of the above-mentioned foreign persons have in an entity or business changes by five percentage points or more;
- a person becomes a foreign person while holding an interest in an entity or business that would have triggered a mandatory FIRB approval requirement if the person had acquired that interest on the day they became a foreign person; or
- any of the above-mentioned foreign persons ceases to be a foreign person.
The notification obligations also capture all foreign persons who acquire an interest and would extend to all foreign persons in a corporate group. This differs from the entity which directly acquired the relevant interest.
Penalties
There are civil penalties associated with failing to give the requisite notice within 30 days of the registrable event day. This is likely to create administrative burden for a number of foreign person investors as well as entities with foreign person shareholders.
Foreign investment and FIRB compliance expertise
HopgoodGanim is an award-winning Australian law firm with a strong track record of obtaining foreign investment approvals and interacting with the FIRB. Our expertise includes providing FIRB legal advice, with FIRB lawyers experienced in FIRB approvals, FIRB applications, negotiating FIRB fees and applying legislation for businesses and investors.