Australia's foreign investment policy gets a makeover

Foreign investors will need to consider the impact of significant changes to Australia's foreign investment policy, announced today. The Federal Treasurer Jim Chalmers says the aim is prioritising economic security while ensuring the country remains an attractive destination for investors.

Overall, we expect that foreign investors can expect to see a net positive outcome from these changes. However, it remains to be seen how these changes will be implemented and its wider impact for attracting foreign investment into Australia.

Given the breadth of the changes, there is a lot to digest. If worthwhile to do so, we will issue an update in the coming days but, for now, here's a breakdown of the key changes:

• Streamlined processes: Low-risk investments will benefit from faster approvals as FIRB works to streamline processes for less risky investments. Reflecting this proposed streamlining, the Treasurer has announced a new target of processing 50% of cases within the initial statutory timeframe of 30 days from 1 January 2025.
• Focus on compliance and "call-in" power: Additional resources will be deployed to ensure compliance with approval conditions, including to conduct on-site visits at critical projects. These resources will also support the use of the Treasurer's call-in power to review investments that come to pose a national security concern in time.
• Stronger scrutiny: High-risk investments in critical infrastructure, critical minerals, critical technology, and those in proximity to sensitive Australian Government facilities or involving sensitive data will face greater scrutiny to protect the national interest.
• Fees refunds for unsuccessful bids: The Treasurer will exercise his powers to waive and refund fees for foreign investment applications that were unsuccessful in a competitive bid process.
• Risk-based approach: Investments will be categorised based on perceived risk (based on the character of the investor, the target of their investment, and the structure of the transaction) allowing for a more efficient allocation of resources.
• Enhanced transparency and additional guidance: Clearer guidelines will be provided to investors through:
• an updated foreign investment policy document , including the new risk based approach, information on which sectors will attract more efficient screening and the new fast track process which are expected to start to take effect from July 1 2024; and
• more public guidance on the Government's approach to foreign investment and tax integrity.
• Targeted relief: The Government will be releasing draft regulations to exempt inter-funding transactions involving institutional investors from foreign investment approval processes, and will be allowing foreign investors to purchase established Build to Rent properties to support those projects.

Additional points:

• The reforms will not require legislative changes but will optimise existing frameworks.
• There will be no change to the nil monetary threshold for foreign government investors.
• While some retrospective scrutiny is possible, the primary focus is on future investments.
• FIRB will continue to focus on tax structures, noting that notwithstanding the "streamlined approach", identified high tax risks could push out the approval process (see page 8 of the revised policy document). The revised policy highlights reorganisations, pre-sale structuring designed to facilitate tax effective investor exits, related party financing and asset migration as areas of focus. The prospect of high-risk ratings and post completion reviews has also been flagged. While much of this focus is not new, it will be interesting to see how, in practice, the revised policy affects interactions with FIRB (and the ATO) on tax matters. One might expect it is not about to get any easier!

These reforms come as the Australian Government aims to strike a balance between attracting foreign investment and safeguarding its strategic interests in a rapidly changing geopolitical landscape.