Treasury evaluation prompts further reforms to Australia’s foreign investment framework

Treasury evaluation prompts further reforms to Australia’s foreign investment framework

31 March 2022 Authored by: Andrew Corkhill   |   Topics: Construction and infrastructure, Energy and resources, Mergers and acquisitions

The Federal Government has announced further reforms to Australia’s foreign investment framework. The reforms seek to minimise the regulatory burden on foreign investors.

Background and overview

On 1 January 2021, major reforms to Australia’s foreign investment framework commenced.

The Treasury has evaluated these reforms, and the Government has announced further reforms to ensure the foreign investment framework remains fit for purpose.

The reforms will be undertaken in two tranches. The first tranche is due to commence on 1 April 2022, and seeks to minimise the regulatory burden on foreign investors.

The second tranche is a broader package of legislative and regulatory reforms, for implementation in the second half of 2022.

Tranche 1 – minimising the regulatory burden on foreign investors

The first tranche of reforms clarifies certain aspects of the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) and streamlines some less sensitive types of foreign investment.

The reforms include:

  • broadening the moneylending exemption to clarify that new entities established by foreign moneylenders for the purpose of lending are covered by the exemption
  • narrowing the definition of an ‘Australian media business’ and raising the control threshold from 5% to a ‘direct interest’ (meaning 10% or a position to influence)
  • raising the control threshold for foreign persons who acquire an interest in an unlisted Australian land entity from 5% to 10%
  • exempting acquisitions of securities where the proportionate share or unit holding does not increase as a result of the acquisition
  • amending the foreign custodian corporations exemption to ensure that foreign custodians do not require approval when undertaking acquisitions on behalf of someone who is not a foreign person.

Tranche 2 – broader package of legislative and regulatory reforms

The second tranche of reforms will seek to ensure the foreign investment framework continues to facilitate foreign investment and protect the national interest.

Although the Government has not yet released exposure draft legislation for the second tranche, it has sought feedback on the following topics:

  • areas to reduce the regulatory burden
  • investments requiring greater scrutiny
  • exemption certificates
  • compliance and enforcement
  • the overall operation of the foreign investment framework.

Key takeaways

Foreign investors should consider the impact both tranches of reforms will have on investments. If you would like any advice in relation to the foreign investment framework, please contact Andrew Corkhill.

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