On 1 May 2024, Australian Treasurer Jim Chalmers announced major changes to Australia's foreign investment policy.

The key driver of the changes is to facilitate foreign capital flows into key areas of policy focus (such as helping to deliver the net zero transformation and to increase Australia's housing supply), while continuing to protect Australia's national interest and national security.

At this stage, the changes are being implemented through Treasury policy changes.  These policy changes will be reflected in how Foreign Investment Review Board (FIRB) applications are processed and how FIRB checks for compliance.

In brief:

Faster application times for some applications - From 1 January 2025, FIRB will adopt a performance target of processing 50 per cent of FIRB applications within 30 days.  This will benefit those transactions which are deemed to be lower risk, where:

• Character of investor - The investor is a frequent applicant that FIRB is familiar with, a passive institutional investor or an investor with a strong compliance track record.
• Nature of investment - The proposed investment is in a non-sensitive sector like manufacturing, commercial real estate, new housing and professional services.
• Structure - The transaction structure is not complex.

From 1 July 2024, FIRB will start working towards increasing the number of applications processed within the 30 day timeframe.

Focus on applications in higher risk areas - FIRB will apply its energy to reviewing higher risk investments more closely, such as:

• Sensitive sectors - Proposed investments in sensitive sectors such as critical infrastructure, critical minerals, critical technology, where the target is in proximity to sensitive Australian Government facilities, where the target holds or accesses sensitive data sets, or where there are supply chain resilience concerns.
• Tax system integrity - Transactions with higher risk tax characteristics such as those involving internal reorganisation, pre-sale restructuring, related party financing and migration of assets offshore.
• Compliance - Increasing monitoring and enforcement activity, particularly in relation to areas perceived to be high-risk.

Attracting foreign investors - Other notable measures aimed at attracting foreign investment include:

• Aligning FIRB's application processing requirements with the ACCC / merger review framework, so that there is no duplication.
• Refunding FIRB application fees to bidders who are unsuccessful in a competitive bid process.
• Allowing foreign investors to buy established Build to Rent developments and applying lower application fees for these types of investment.
• Introducing a new exemption for passive or low-risk interfunding transactions.

In our view, FIRB has always treated certain applicants/transactions as 'lower risk' but that difference has become more apparent in the way FIRB has processed applications since January 2024.

However, until these changes are fully implemented, we continue to recommend that all foreign investors allow plenty of time for FIRB to process applications and to prepare for tax and competition law-related questions.

If you have any questions, please get in touch with our Corporate and Advisory or Capital Markets teams.

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