2014 FDI Report: Australia

Author: | Published: 1 Jan 2014
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

www.claytonutz.com


1. Overview of FDI in the jurisdiction

1.1 Which countries are the principal sources of FDI into your jurisdiction?

The largest sources of FDI into Australia are the US, the UK, Japan, China (including Hong Kong), the Netherlands and Singapore.

1.2 What are the key sectors in your jurisdiction which attract, or the government is seeking to attract, FDI?

FDI into Australia's mining sector attracts the largest share (32 %) of total FDI into Australia.

The energy (oil and gas), manufacturing, retail and finance sectors also attract significant FDI.

1.3 Is the government generally supportive of FDI? Which government, and regional, bodies are responsible for driving FDI in your jurisdiction?

The Government of the Commonwealth of Australia (Government) welcomes FDI.

One of the responsibilities of the Australian Trade Commission (Austrade) - the Government's trade, investment and education promotion agency - is to promote and facilitate productive FDI into the country. Austrade has offices in over 50 countries and can provide international investors with:

  • initial coordination of investment enquiries and assistance;
  • information on the Australian business and regulatory environment;
  • market intelligence and investment opportunities;
  • identification of suitable investment locations and partners in Australia; and
  • advice on Government programmes and approvals.

Each Australian state and territory government also provides information on opportunities within their respective jurisdiction and local requirements.

2. Investment vehicle

2.1 What are the most common legal entities and pass-through vehicles used for FDI in your jurisdiction, and how long do they take to become operational?

A foreign company may carry on business in Australia either through an Australian branch or Australian subsidiary.

To carry on business through an Australian branch, a foreign company must register with the Australian Securities and Investment Commission (ASIC). A registered foreign company must lodge copies of its financial statements and comply with notification obligations under the Corporations Act 2001 (Cth).

The most common investment vehicle is an Australian limited liability company incorporated under the Corporations Act. A company is a separate legal entity capable of holding assets in its own name and is liable for its own obligations. Shareholder liability is limited to the amount paid or payable on subscription for shares.

The two main types of company are proprietary and public. A proprietary company is limited to 50 non-employee shareholders and cannot engage in public fundraising. Proprietary companies enjoy less regulation and cost less to administer. A public company may be listed on the Australian Securities Exchange (ASX).

Registration of an Australian branch of a foreign company, or of an Australian company, takes approximately one week once all required information is to hand. Alternatively, the acquisition of shelf companies or new incorporations may be completed within 24 hours.

2.2 What are the key requirements for establishment and operation of these vehicles which are relevant to FDI?

An Australian company must have a local registered office, Australian resident directors (one for proprietary companies, two for public companies), and an Australian resident company secretary (optional for proprietary companies).

A registered foreign company must have a local registered office and must appoint a local agent to represent it.

3. Investment approval

3.1 For foreign investment approval (including national security review) explain the following:

a) The regulator/s' name, factors it must consider when making its decisions, and how much discretion it has;

Foreign investment in Australia is regulated by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and Foreign Investment Policy. FATA notifications are lodged with the Foreign Investment Review Board (FIRB) for assessment. FIRB makes recommendations to the Treasurer, who has statutory discretion to prohibit any proposal regarded as contrary to Australia's national interest.

The Treasurer typically considers the following factors:

  • National security: whether the investment affects Australia's ability to protect its strategic and security interests;
  • Competition: whether an investor may gain control over market pricing and production of a good or service in Australia, or over global supply of a good or service;
  • Other Government policies: the impact on Government policies;
  • Economy and community: the impact on the Australian economy and community generally; and
  • Character of the investor: whether the investor operates on a transparent, commercial basis and is subject to adequate regulation.

The Treasurer also considers:

  • whether the foreign investor is wholly or partly government owned, and whether it operates on an arm's length and commercial basis;
  • whether the investor is pursuing broader political or strategic objectives that may be contrary to Australia's national interest; and
  • the size, importance and political impact of the investment.

The Treasurer may object to (ie reject) a notification or approve it (including by making it subject to certain mandatory conditions).

b) Any investment caps and other legislative restrictions;

Subject to certain exceptions, FIRB is not concerned with transactions that do not exceed prescribed monetary thresholds. Today, foreign investors are exempt from notifying:

  • transactions valued at less than A$248 million ($225 million), or A$1,078 million for US or New Zealand investors; or
  • transactions involving developed non-residential commercial real estate valued at less than A$54 million (or less than A$5 million if land is heritage listed).

FIRB will require notification of all acquisitions (regardless of value):

  • in vacant non-residential land;
  • in residential land;
  • in Australian urban land; or
  • by foreign governments or their agencies.

c) Which party must notify and when/if notification is mandatory or voluntary; Notification must be made by the foreign investor and should occur in advance of a transaction. Failure to notify of a prescribed transaction is an offence under the FATA, but does not invalidate any act done in contravention of the FATA.

However, non-compliance may result in substantial penalties and potentially trigger the Treasurer's powers under the FATA, including to order divestiture.

d) What information must be included with notification and what is the review fee;

There is no fee to submit a notification. Notifications should include the following information:

  • explanatory covering letter including details of the proposal;
  • identity of the parties;
  • applicable standard form FATA notices;
  • latest audited financial statements for the investor and the target;
  • the consideration;
  • reasons for the proposal;
  • the investor's future intentions for the target;
  • relevant transaction agreements; and
  • other supporting documentation.

e) How long does the review and approval process take, and are there any fast-track options;

The Treasurer has 30 days to reach a decision (which can be extended by up to 90 days), and FIRB has 10 days thereafter to communicate the decision. There are no formal fast-track options.

f) Is there the ability to consult on a named or unnamed basis;

Parties may consult with FIRB or Austrade on a named or unnamed basis.

g) Does notification/review occur pre- or post-closing, and are there any pre- or post-filing requirements unique to FDI;

Notification/review generally occurs prior to closing. A FIRB condition precedent is invariably included in FDI transaction documents in Australia.

h) What is the position if no response is received on an application for approval and are there any rights of appeal from disapprovals?

If the Treasurer does not object to the proposal within 30 days (or 90 days if extended), they lose the ability to block or impose conditions on the transaction. There is no prescribed right of appeal against an unfavourable decision.

3.2 Briefly explain the investment restrictions for any special/restricted sectors.

The following sector-specific restrictions apply to FDI:

  • Total foreign investment in Australian international airlines is limited to 49%.
  • Foreign ownership of airports offered for sale by the Commonwealth is limited to 49%, with a five percent airline ownership limit.
  • Only majority Australian-owned ships may be registered in Australia, unless designated as chartered by an Australian operator.
  • Aggregate foreign ownership of telecommunications company Telstra is limited to 35% and individual foreign investors may only own up to five percent.
  • Foreign ownership in the banking sector must be consistent with the Banking Act 1959 (Cth), the Financial Sector (Shareholdings) Act 1998, and Government banking policy.
  • For areas of military significance (such as the Woomera Prohibited Area), FIRB may require the approval of the Australian Department of Defence as part of its assessment.

Note that this is a non-exhaustive list and industry-specific legislation may also apply.

3.3 Which authority oversees competition clearance, when is notification mandatory, and briefly explain the merger clearance process.

The Australian Competition and Consumer Commission (ACCC) is the principal regulator of competition clearance under the Competition and Consumer Act 2010 (Cth) (CCA). The CCA prohibits mergers that would (or are likely to) have the effect of substantially lessening competition.

The ACCC's informal clearance process enables merger parties to seek the ACCC's view on whether it will seek an injunction to stop a merger from proceeding. The ACCC encourages merger parties to notify the ACCC where: the products of the merger parties are either substitutes or complements; and the merged firm will have a post-merger market share of greater than 20% in the relevant market/s.

Pre-notification to the ACCC of mergers or acquisitions is not compulsory under the CCA. However, as non-compliance with the CCA attracts severe penalties, parties normally seek an informal clearance as a matter of course before completing a transaction.

4. Tax and grants

4.1 Are there tax structures and/or favourable intermediary tax jurisdictions that are particularly useful for FDI into the country?

As a general rule, there are no specific structures or intermediary jurisdictions that are particularly favourable for FDI.

Foreign investors may conduct business through an Australian branch rather than an incorporated subsidiary to consolidate the financial results of the company in the foreign jurisdiction. Australian subsidiaries of foreign companies may consolidate under the foreign parent.

Transactions between consolidated group companies are ignored for tax purposes and losses can be transferred between members.

Certain venture capital limited partnerships are exempt from capital gains tax (CGT) subject to conditions. They are taxed at the partner level as flow-through entities. A partner's share of income derived from an eligible venture capital investment is exempt, as is the gain made on disposal of an eligible venture capital investment.

Distributions by managed investment trusts to foreign investors are generally subject to concessional withholding tax rates.

The investment manager regime (IMR) ensures that certain investment income and gains of qualifying widely-held foreign funds that operate through an Australian financial intermediary are tax exempt. The exemptions are extended to foreign beneficiaries and partners of IMR foreign funds.

Disposals of non-land Australian assets by non-residents are not subject to CGT. 'Land' includes interests in entities principally deriving their value from land, where a non-portfolio (greater than 10%) interest is held.

4.2 What are the applicable corporate tax rates?

30%

4.3 Does the government have any FDI tax incentive schemes in place?

Immediate deductions are available for expenditure on mining and petroleum exploration, or income-producing activity with environmental protection as its sole or dominant purpose.

A deduction is available for investment in forestry managed investment schemes.

Concessions and averaging offsets are available to primary producers, levelling the tax liability resulting from fluctuating yearly incomes.

Research and development expenditure, and investment in Australian films and television, attract tax offsets.

Interest withholding tax is not payable on loans from offshore banking units.

4.4 Other than through the tax system, does the government provide any other financial support to FDI investors?

The Government primarily encourages FDI through the establishment of Austrade (see answer to 1.3). Some state and territory governments encourage FDI through state agreements, which historically were directed at facilitating project approvals rather than financial assistance. Although less common now, it is worthwhile for investors to discuss these with relevant governments.

5 Operating locally

5.1 What is the most common governing law of contracts and local business language?

Most contracts are governed by the law applying in the relevant Australian state or territory. The local business language is English.

5.2 Explain any local content or local participation requirements relevant to foreign investors.

Nil.

5.3 How difficult is it for foreign investors to secure expatriate visas for shareholder representatives and workers?

Non-Australian residents can apply to the Department of Immigration and Border Protection (Department) for a subclass 457 visa. This visa enables a person to work in Australia for up to four years and must be paid at least the minimum entitlements that an equivalent Australian worker would receive for performing the same role. Companies seeking to utilise this visa must satisfy the Department that there is a lack of suitably qualified workers within Australia to perform the role.

5.4 What foreign currency or exchange restrictions should foreign investors be aware of?

Anti-money laundering and counter-terrorism legislation regulate currency and exchange transactions, particularly in the financial and banking services sectors.

5.5 Does the country prohibit domestic companies from doing business in any foreign jurisdictions?

Counter-terrorism legislation restricts Australian companies from providing domestic currency to certain entities associated with terrorism or jurisdictions subject to trade sanctions.

6. Legal and regulatory framework

6.1 Are there any other FDI-specific laws that foreign investors must be aware of?

See answer to 3 above.

6.2 What challenges if any do investors find in getting certainty around local law and regulation?

Generally speaking, Australian law is well understood and generally consistently applied through courts. Sophisticated, confidential legal advice is readily available.

7. Dispute resolution

7.1 How efficient are local courts' enforcement and dispute resolution proceedings, and are there any procedural idiosyncrasies foreign investors must be aware of?

Australia has both federal and state jurisdictions, with the appropriate forum dictated largely by the subject matter of the dispute. In each jurisdiction, the relevant case management rules ensure that cases run as efficiently as possible. Superior courts in Australia publish statistics in relation to efficiency and performance standards. For example, the Federal Court of Australia completes 92% of cases within 18 months.

A judgment creditor is generally able to enforce a judgment through a range of statutory procedures, including the seizure and sale of assets. A judgment debt may also form the basis of a statutory demand under the Corporations Act which, if unpaid, may allow insolvency proceedings to be brought against a corporate debtor.

7.2 Do the courts of the FDI jurisdiction respect foreign judgments and are arbitration awards enforceable in the jurisdiction?

Australia is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and the Model Law on International Commercial Arbitration adopted by the UN Commission on International Trade Law (UNCITRAL Model Law).

International arbitration awards made in a foreign jurisdiction are enforceable at the federal level in accordance with the provisions of the International Arbitration Act 1974 (Cth), while domestic arbitration awards made in Australia are enforceable at the state and territory level according to the Commercial Arbitration Act applicable in that jurisdiction.

The judgments of certain foreign countries' courts can be enforced in Australia by registration under the Foreign Judgments Act 1991 (Cth) without the need for fresh proceedings. Generally this process is available only with respect to money judgments from countries with which Australia has reciprocal enforcement arrangements. Certain foreign judgments may also be enforceable in Australia at common law.

7.3 Are judgments and arbitration awards from the FDI jurisdiction generally enforceable in other jurisdictions?

Enforcement of arbitration awards made in Australia can generally be expected in those jurisdictions that are signatories to the New York Convention and/or the UNCITRAL Model Law. The enforcement of judgments of Australian courts can be expected in those jurisdictions with which Australia has an agreement for the reciprocal enforcement of judgments (see above). Otherwise, whether an Australian judgment is enforceable in a particular foreign jurisdiction will depend on the local laws of that jurisdiction.

About the author
 

Kevin O'Sullivan
Partner, Clayton Utz

Perth, Australia
T: +61 8 9426 8439
E: kosullivan@claytonutz.com
W: www.claytonutz.com

Kevin O'Sullivan is a partner in Clayton Utz's corporate energy & resources team. He has extensive cross-border experience in energy and resources, corporate and broader commercial transactions, particularly M&A, joint ventures, distressed transactions, foreign investment, and project development.

His relevant experience includes representing Agrium in its A$1.3 billion acquisition of AWB Limited by scheme of arrangement. A key feature was obtaining FIRB approval in record time through key relationships, early and consistent engagement with FIRB, and commercially and politically focussed application documentation. O'Sullivan also acted for Chubu Electric Power in relation to its equity investments in – and significant long-term LNG offtake arrangements from – the A$52 billion Gorgon LNG project, and the $34 billion Ichthys LNG project. Elsewhere he advised Shin-Etsu Chemical in its acquisition of the Simcoa Group of Companies.

O'Sullivan is recognised as a worldwide leading energy practitioner in the 2013 edition of The International Who's Who of Energy Lawyers.


About the author
 

Peter Wiese
Partner, Clayton Utz

Perth, Australia
T: +61 8 9426 8490
E: peter.wiese@claytonutz.com
W: www.claytonutz.com

Peter Wiese advises in a wide range of matters in connection with mining, oil and gas, electricity, M&A and corporate areas.

He has acted in connection with the sale, purchase, development and operation of many public and private infrastructure and resources assets, including in connection with: airports; telecommunications; rail; regulated and unregulated gas pipelines; upstream and downstream oil and gas; and, upstream and downstream electricity assets. He also has extensive experience advising on commodity and asset transactions in connection with LNG and domestic gas, gold, iron ore, alumina, nickel, coal and other resources.

For many years, and again in 2013, Wiese has been rated in Chambers Global Guide in the first band of energy and natural resources lawyers in Australia. He is also rated as 'leading individual' in Australian energy and resources law by The Legal 500.


About the author
 

Heath Lewis
Partner, Clayton Utz

Perth, Australia
T: +61 8 9426 8443
E: hlewis@claytonutz.com
W: www.claytonutz.com

Heath Lewis is a corporate partner in the Perth office of Clayton Utz. He practises in all areas of corporate and commercial law, with a particular focus on M&A (both private treaty and regulated), equity capital markets (including initial public offerings and secondary raisings), incorporated and unincorporated joint ventures, and corporate and securities law and regulation.

Lewis acts for a number of ASX and TSX-listed clients, as well as significant private firms, most often in the energy and natural resources industry (all sectors including mining, agribusiness, and oil and gas).

He has been recognised by his peers in the Australian Financial Review's list of leading lawyers in M&A and corporate/governance, and was recognised as a worldwide leading practitioner in the International Who's Who of Mining Lawyers for 2013.


 

The magazine

June/July 2019

LANDMARK FEATURE: The influencers

IFLR's editorial team provides a rundown of the most influential individuals, organisations, geopolitical events and trends in financial regulation in 2019

International briefings

Quick Poll

Is consolidation a good thing for the EU financial sector?


Women in Business Law Group

IFLR's Wibl networking group provides a platform for inclusive debate around fostering female talent in the profession.

Visit its LinkedIn page to find out more, and IFLR's awards page for details on the annual ceremonies.