FIRB Approval for Investment in Australia

Raghvendra Sonker

02 Aug, 2022

Big MNCs and Large Business houses always look to expand their business and eye for an opportunity to invest in lucrative foreign countries. Australia is one such place for strategic investments and growing your business. Australia offers vast growth potential in hospitality, pharmaceuticals, energy and mining sectors, etc.

What is FIRB?

The Australian government has a Financial Investment Review Board (FIRB), which facilitates and promotes investment in the country. FIRB access the investment approval application from foreigners willing to invest in Australia.The decisions taken by FIRB are not binding on the parties; the treasurer is the sole authority responsible for granting the final approval. The applicant must adhere to the rules and laws provided under the Foreign Investment Policy of Australia and the Foreign Acquisitions and Takeovers Act, 1975.

Who needs FIRB Approvals?

The foreign investor looking to register a company in Australia has to take approval from the Australian government. The Financial Investment Review Board (FIRB) examines the investment proposal received from the non-resident investor or individual having a temporary visa (stayed in Australia for less than a year) and makes recommendations to the treasurer.

Procedure for FIRB Approval

The Financial Investment Review Board (FIRB)^[1] has laid down the procedure for applying for FIRB approval for investments in Australia. If any foreign investor initiates the investment without approval, they can be held criminally liable. It has been advised to apply for approval from the treasurer as he ascertains whether the transaction is against the national interest or may potentially threaten the country’s national security.

Factors for Accessing Foreign Investment Proposals

The following factors are considered for the assessment of a foreign investor’s proposal:

• National Interest;
• National security;
• Australian government laws and tax policies;
• Competition;
• Impact on the economy;
• Community (employees); and
• The character of the foreign investor.

Actions of Treasurer After receiving Application

After receiving the detailed Application from a foreign investor, a Treasurer may decide:

• Issue No Objection Certificate to Foreign Investor (famously known as FIRB Approval);
• Notify the conditionssaid to be met (if the transaction proceeds, the conditions become legally binding) for grant of the No Objection Certificate for the investor;
• A prohibitory public order has to be made if an investment proposal is found to be contrary to the national security or national interest;
• The conditions imposed are the regulatory mechanism by which the Australian government can allow foreign investment while at the same time managing the risk related to national security or national interest.

Conditions for FIRB approval

The following conditions included for approval are stated below:

• Conditions related to financial reporting, anapplicant’sannual reports on compliance with Australian tax laws in relation to the proposed investment transaction have to be submitted to FIRB, with information regarding the status of the post‑transaction equity shares and debt funding structure;
• Conditions to safeguard national security, a requirement of having more than half of the target’s board consist of  Australian residents and citizens, and the chairman of such board shall be an independent director who is an Australian resident or citizen;
• Conditions related to the treatment of sensitive data mitigate the risks of unauthorised access, corruption, fraud, and denial, such as:
  • Data security policies and procedures shall be put in place and extended beyond the requirements of general laws of Australia;
  •  restrictions on access to specified data by directors, representatives and staff of the applicant; – restrictions on the location of data storage and access;
  • cybersecurity arrangement protocols; and
  • In the event of a data breach, reporting the same to the concerned Australian authority is necessary.
• Conditions related to sensitive infrastructure for mitigating the risks of espionage, operational control or maintenance of sensitive assets is required generally within Australian jurisdiction;
• Conditions related to commercial property to mitigate the risks relating to the security of the prospective client, such as notification/information shall be provided to existing tenants of changes in ownership of the property or management;
• Conditions for supporting competition policy in Australia, such as restricting the aggregate ownership by foreign investors in a particular industry;
• Conditions framed to mitigate risks to the national, regional or local economy, such as the requirement of
  • maintaining investing company’s  headquarters in Australia
  • maintaining and installing production/manufacturing facilities in specified regional areas without any loss of employment for a particular period;
  • an opportunity for Australian investors to acquire a parcel/part of agricultural land before a foreign investor acquires it.

FIRB Fees

The government of Australia has prescribed the amount of fee for different applications for processing of FIRB approval. A single application before FIRB can range from $2000 to $500,000 (upper cap) based on the property’s price. Unless an applicant pays the prescribed fee to FIRB, the consideration of the application will not be started/initiated.

The fee prescribed by the Foreign Investment Review Board is based on the no. of factors like the type of investment, transaction value, mode of transaction, Application for No Objection Certificate  (NOC) or a certificate of exemption. Suppose a vacancy is observed on FIRB-approved residential property or available for rental market for not less than 183 days in a year. In that case, anadditional fee is levied on the foreign investor.

FIRB Approval for Commercial Property

The approval depends on the nature of the property, whether the properties are developed commercial properties or land designated for commercial activities.The land used for primary production or any rural land doesn’t fall under the ambit of commercial property.

The approval for vacant commercial property for development can be granted for foreign investment without any reservations. Whereas case of commercial properties which are already developed like office spaces, warehouses, factories, restaurants, hotels etc., require FIRB approval when the cost of the property exceeds the stipulated amount.

FIRB Approval of Residential Property

Before any contract is signed for the sale of property, whether residential or commercial property, FIRB approval is obtained. Applications are submitted online for FIRB approval for residential property electronically on the ATO website (Australian Taxation Office). A foreign investor or a temporary visa holder can buy/invest in vacant residential land or new properties with or without FIRB conditions. Applicants are not allowed to buy the already established residential properties.

Conclusion

A smart vendor will always ascertain whether a buyer is a foreign investor before entering into negotiations for the sale of assets. Applicants must ensure they will not be required to obtain FIRB approval after acquiring the property. To avoid unnecessary risk, a seller and a foreign buyer must be well versed with FIRB regulations concerning foreign investment.

Read our Article: Company Registration in Australia: A Procedure & Guidelines