The New Dawn for Foreign Investment Regulation

A new phase of foreign investment regulation in Australia began on 1 July, when the new Register of Foreign Ownership of Australian Assets (Register) commenced. The Register requires “foreign persons” to notify transactions or events pertaining to Australian entities, businesses, land, water and other assets.

The Register replaces the old registers relating to Foreign Ownership of Residential Land, Water Entitlements and Agricultural Land, and introduces a broader range of events that need to be reported.

Its introduction provides a streamlined approach for “foreign persons” to record their interests in Australian assets. Like the old registers, the new Register is administered by the ATO and requires “foreign persons” notify the Registrar (the Commissioner of Taxation) when a registrable acquisition, change or divestment occurs. However, importantly, if no registrable event has taken place, there is no need to give a register notice.

The notification requirements are separate from existing requirements for foreign investors to notify and/or seek approval for certain transactions from the Treasurer.

Important concepts

A “foreign person” includes:

• an individual who does not ordinarily reside in Australia;
• corporations or the trustees of a trust in which an individual who does not ordinarily reside in Australia, a foreign government or foreign corporation, hold a “substantial interest”;
• corporations or the trustees of a trust in which an individual who does not ordinarily reside in Australia, a foreign government or foreign corporation, hold an “aggregate substantial interest”;
• a foreign government; and
• any other person that meets legislative conditions (i.e., an associate of a foreign person, even if the associate is not foreign).

Australian assets relevant for the purpose of giving a register notice include interests in:

• entities and businesses;
• land (residential, commercial or agricultural); and
• water

A person holds a “substantial interest” in an entity or trust if:

• for an entity—the person holds an interest of at least 20% in the entity; or
• for a trust (including a unit trust)—the person, together with any one or more associates, holds a beneficial interest in at least 20% of the income or property of the trust.

2 or more persons hold an “aggregate substantial interest” in an entity or trust if:

• for an entity—the persons hold an aggregate interest of at least 40% in the entity; or
• for a trust (including a unit trust)—the persons, together with any one or more associates of any of them hold, in the aggregate, beneficial interests in at least 40% of the income or property of the trust.

These concepts have the same meanings as apply when assessing whether notification to or approval by the Treasurer is required for a proposed foreign investment.

When is a foreign person required to give a register notice?

A foreign person must give notice within 30 days of a “registerable event” occurring.

Registrable events

Registrable events include:

Entities and businesses

• Acquisitions: the requirement here is aligned with the current foreign investment regime. So, the obligation to report to the Register applies to interests for which FIRB approval has been obtained or voluntarily sought.
• Changes: a foreign person must give a register notice if the percentage interest in the entity or business that they hold fluctuates by 5% or more, and they are aware or ought reasonably to be aware of this change. This is a continuing obligation.
• Disposals: a foreign person must give a register notice if they cease to hold an interest and the foreign person is aware or reasonably ought to have been aware of the cessation, including where:
  • the entity or business is wound up;
  • business activities required to be notified cease to be continued; or
  • all interests are disposed of.

Interests in land or water

• Acquisitions: a foreign person must give a register notice if they acquire an interest that is a:
  • legal freehold interest;
  • lease of Australian land (residential, commercial or agricultural) for longer than 5 years;
  • share in an “Australian land corporation” or an “agricultural land corporation”;
  • unit in an “Australian land corporation” or an “agricultural land trust”;
  • mining or exploration tenement; or
  • registrable water interest.

  In contrast to the register notice obligations for entities and businesses, the circumstances necessitating a register notice are broader for these asset categories, when compared with the notification/approval requirements that apply to proposed foreign investments.

• Changes: a foreign person must give a register notice if the kind of interest the person holds changes (i.e., the land was residential and is now commercial), and they are aware or ought reasonably to be aware of this change. This is a continuing obligation. A foreign person must also give a register notice if there are certain changes (such as the volume of water) to the registrable water interest.

Other

• Becoming a foreign person: a person must give a register notice if they become a foreign person while holding an interest in:
  1. a registrable water interest; or
  2. any of the following;
     1. Australian land;
     2. an exploration tenement; or
     3. an Australian entity or business.

  however in the case of each of these asset types, a notice is only required if that interest would have required to be reported if acquired immediately after becoming a foreign person.

• Ceasing to be a foreign person: a foreign person must give a register notice if they cease to be a foreign person.

The new Register replicates some of the existing exemptions to give notice under the old registers. These include:

• interests arising under moneylending agreements;
• the acquisition of an Australian business carried on by the government;
• the acquisition of land from the government; and
• acquisitions of interests in all types of Australian land by people with a close connection to Australia (including Australian citizens who are not ordinarily resident in Australia).

How to report to the Register?

Foreign persons may authorise an advisor or representative to give a register notice on their behalf. Notice must be given via an online portal. To use the portal, foreign persons first need to create a myGov ID (if they have not already done so) and complete a once-off registration. This setup process must be completed by the foreign person, before they can authorise a representative to submit a register notice on their behalf.

The register notice must identify the foreign person, and detail the interest acquired or any variation concerned. Any information provided to the Registrar is protected and cannot be disclosed, recorded or otherwise used, unless there is a valid legal reason for doing so for example the information is required to be disclosed to an officer or employee of the Commonwealth, State or Territory to enable performance of their functions, duties, or powers under the Foreign Acquisitions and Takeovers Act.

There is an obligation for those giving a register notice to keep a copy of each notice given for 5 years. A foreign person may risk receiving a civil penalty if they fail to give a register notice when they are required to do so.

Next steps

If you a foreign person, you must be ready to give a timely register notice. You should:

1. Set up a corporate myGov ID as soon as possible, if you have not already done so; and
2. Understand the circumstances that trigger the obligation to give register notice.

If you need assistance in this regard, contact Hunt & Hunt Victoria.

Article by Ritika Sardar and Harriet Whitely.