The Australian Government has announced an update to Australia’s foreign investment policy. These changes do not affect the substance of what transactions are subject to Australia’s foreign investment regime (further information can be found in our 2024 edition of Navigating Australia’s Foreign Investment Regime) (other than some tinkering around the edges), but rather target the processing of applications and monitoring compliance going forwards. There are two main areas of focus:
taking a more risk-based approach to the assessment of applications, to ensure that resources are devoted to the highest risk applications and capital can flow to low-risk transactions more quickly; and
further enhancing compliance.
Refining Australia's FIRB application evaluation process
It remains the case that each investment subject to Australia’s foreign investment rules will be assessed on a case-by-case basis, based on who the acquirer is, what is being acquired and how the acquisition is taking place. However, the government intends to take a more defined risk-based approach to assessing applications, with the aim of processing ‘low risk ‘ applications more quickly and concentrating their resources on higher risk applications. While elements of this have been in place for some time, the government appears to be resolved to formalise this in a more meaningful way, including setting ambitious targets for speeding up reviews.
Each of the ‘who‘, the ‘what ‘ and the ‘how‘ can present risks which could bump applications into the ‘high risk‘ category.
Who: We would expect that first-time investors, as well as foreign government investors (particularly from non-Five Eyes countries), will generally attract higher scrutiny. Lower-risk applicants would include repeat investors with strong track records of compliance.
What: The government will apply special scrutiny to investments in critical infrastructure, critical minerals, critical tech, investments in proximity to sensitive government facilities and investments which involve holding or having access to sensitive data sets. The reference to critical minerals is notable given the recent approval of the joint SQM / Hancock bid for Azure Minerals: we expect proponents will need to demonstrate a commitment to supporting the development of ex-China supply chains for minerals such as lithium, nickel and rare earths. Investments in national security businesses, agriculture and residential land will also remain subject to higher levels of scrutiny. Other sectors that are not sensitive in and of themselves may be considered higher risk due to particular characteristics, like a high concentration of foreign ownership.
How: The government will apply additional scrutiny to foreign investment proposals with certain tax characteristics likely to be considered higher risk, including:
internal reorganisations or other intragroup transactions which may represent initial steps of a planned broader arrangement resulting in avoidance of Australian tax;
pre-sale structuring of Australian assets that present risks to tax revenue on disposal by private equity or other investors;
the use of related party financing arrangements to reduce Australian income tax or avoid withholding tax (noting the recent strengthening of Australia’s thin capitalisation rules);
facilitation of migration of assets (for example, intellectual property) to offshore related parties in jurisdictions with effective low taxation; and
investments that are structured through effective low or no tax jurisdictions where there is limited relevant economic activity taking place.
Other announced measures which should assist with red tape include:
reducing the need for repeat investors to provide duplicate information regarding ownership structures from one application to the next (assuming there have been no changes); and
reducing duplication between FIRB (which considers competition from a national interest perspective) and the ACCC, when the new competition regime is in place from 1 January 2026.
Aside from streamlining measures, the government has also announced that it will refund application fees for unsuccessful bidders in competitive bid processes. The successful implementation of streamlining measures, together with reducing the sunk costs for unsuccessful bids, should encourage foreign investors to participate in competitive bid processes, where they are often considered to be at a disadvantage, and to seek FIRB clearance on a confidential basis prior to submitting their bid.
FIRB compliance
The government has been growing FIRB’s compliance arm for several years. This has mainly been felt in increased reporting, and increased follow-up from FIRB in relation to missed reports, but to date, we have observed little other enforcement action, with the government instead relying on self-reporting on compliance. The government has announced that it will be further enhancing its compliance capability, with additional qualified resources to monitor (including potentially in person) compliance with conditions.
Conclusion: assessing policy implementation
If successfully implemented, the new proposals will be a welcome relief for at least some foreign investors. One potential early beneficiary could be US or European listed buyers, or private equity buyers, in large global deals that happen to have a minor, non-sensitive Australian component downstream. The foreign investment review timelines on these transactions can often seem disproportionate to the relative importance of the Australian portion of the transaction to the global deal, and any relief that can be provided for these deals would reduce the extent to which overseas lawyers consider Australia to be a ‘red flag ‘ jurisdiction when planning global FDI filings. Another possibility, once the competition reforms are implemented in 2026, is that business exemption certificates may become less difficult to obtain for known buyers with good track records in non-sensitive sectors.
A few notes of caution on the promised faster processing times:
While faster processing times would be welcome and we are cautiously optimistic, given the transaction volume that involves ‘high risk‘ elements on at least one of the ‘who‘, the ‘what ‘and the ‘how‘, it is not clear how much is going to fall into the ‘low risk‘ category. For those repeat acquirers that are deemed to present higher risk on the ‘how‘ element, we will be looking to see whether processing times improve once the government has had a chance to assess any structuring concerns in an initial application.
While we will have to wait to see how the streamlining for repeat investors works, it cannot be the case that information has to be input into inflexible forms that do not consider the myriad complexities of upstream ownership (as is currently the case with the Register of Foreign Ownership of Australian Assets).
Although FIRB takes the brunt of criticism for transaction delays, the reality is that FIRB consults with other agencies within the Australian Government and it is delays in those consult agencies that result in delays in applications. To harness the full benefits of the risk-based approach, FIRB will either need to rein in the extent of its consultations, or the other consult agencies will also need to implement faster processing times for ‘low risk ‘ transactions.