Boston Global Market Commentary: What Will The FIRB Look Like In 2021
Updated: Sep 19, 2020
Australia welcomes foreign investment as it is important for Australia’s long term economic growth as it supports employment, the national economy and higher wages.
There is also a current global trend from major countries to tighten their foreign investment regulations. The proposed FIRB changes proposed by the Australian Government will strengthen the national security around conditions of investors.
There is clear tension between economic growth and national security, so what remains to be seen is:
How much of the investment shortfall will be absorbed by domestic institutions? ;
Will most foreign investment still pass the new FIRB laws, to reduce the impact of the investment shortfalls? ; or
Will Australia be forced to live with lower economic growth and activity as a result of the investment shortfall? .
It has been proposed that on the 1st January 2021 Australia’s FIRB regime will undergo major changes as announced by the Federal Treasurer, if approved they will be the most comprehensive reforms to Australia’s foreign investment review in over 20 years.
The changes will impose a permanent $0 threshold for all foreign investments, and review periods will extend from the previous 90 days to 6 months.
The Treasurer will have the capacity to block investment opportunities on security grounds. The Treasury and ATO will also have stronger capability to monitor and investigate breaches of investment laws. Specifically the New National Security Test is being introduced by the Government and apply to investments that raise national security concerns and which fall below monetary thresholds.
Impact of the proposed changes:
Australian companies: Every acquisition by a foreign investor of a 20% or greater equity interest in an company will now require FIRB approval irrespective of value, compared with the previous monetary threshold of $275 million.
Australian land corporations: All share acquisitions of a company that qualify as an Australian land corporation by a foreign investor will now require FIRB approval irrespective of value, unless it is a passive interest of less than 10% in a listed company or a passive interest of less than 5% of an unlisted non-residential company.
Australian land: Every acquisition by a foreign person of an interest in Australian land will now require FIRB approval irrespective of value.
Offshore acquisitions: All offshore acquisitions of a 20% or greater interest in a foreign company that holds an Australian land corporation requires FIRB approval.
Capital raisings: While the pro rata rights issue exception will remain, a foreign investor seeking to underwrite a capital raising by any Australian company (regardless of the company’s value) needs FIRB approval unless they enter into arrangements to cap their potential interest in the company to less than 20%, or the underwriter has an exemption certificate.
For more details on the proposed changes to the FIRB, refer to the following.
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