In an attempt to attract greater foreign investment to Australia the Federal Government has recently doubled the current foreign investment thresholds.
Current legislation dictates that foreign investors looking to purchase a share of 15% or more interest in an asset valued at $100 million or more must apply to the Foreign Investment Review Board (FIRB) for approval. Additionally, there are other different thresholds that apply for offshore takeovers, US investors and US offshore takeovers.
With the proposed changes to the current application and screening processes, it is expected that the number of foreign investors who will be required to seek permission from the Federal Government to purchase assets in Australia will decrease by up to 20% of current levels.
On announcing the legislation review, Treasurer Wayne Swan, acknowledged that the existing criteria of FIRB’s screening process could often result in additional compliance costs for applicants. This could both directly, and indirectly, result in making the Australian economy a less attractive platform for foreign investors.
In the current global economic climate it is important to take steps that ensure not only consistent and continual levels of overseas investment but to introduce new ideas and practices, such as increasing the currently threshold levels, that seek to increase foreign investment in our country.
Specifically, the reforms have raised the existing threshold of $100 million to $219 million. Details of the changes across various investment groups can be seen in the table below.
Foreign Investor – interest in an Australian business of $100 million or more (not indexed)
$219 million or more
Foreign investor – offshore takeover of $200 million or more (not indexed)
US Investor Only – offshore takeover of $219 million or more (indexed)
US Investor Only – interest in and Australian business of $953 Million or more (indexed)
$953 million or more
Foreign Investor – establishing a new business of $10 million or more (not indexed)
As a result of the changes it is estimated that one in five business applications will no longer require screening by FIRB.
As you can see from the above table, not only have the existing thresholds been significantly increased but the changes see the current requirement to seek permission from the FIRB for foreign investors who are looking to establish a business in Australia that is valued at over $10 million to, has been abolished.
Seemingly prompted by recent predictions of a drop in foreign investment across the globe, these changes are intended to reorganise the country’s foreign investment processes in an attempt to increase the country’s competitiveness and perception in the world economic community as an attractive place to invest.
It is obvious that global capital markets are not exactly in a state of rapid growth at the moment. In light of that, it is important that our economy takes action to encourage greater levels of cross border investment and attempt to further stimulate the economic upturn. It is interesting to note that Australia is one of only six OECD countries to have actively effected changes to their foreign investment policies.
It is understood that changes to foreign investment will not have an immediate overnight effect. However, the Government remains positive that this action will play its part in the economic recovery of our country as part of the global economic community.
If you have further questions regarding the changes to Australia’s foreign investment restrictions or for advice regarding any investment issues that you may have please contact The Quinn Group on 1300 QUINNS or click here to submit an online enquiry