Strengthening and streamlining Australia’s FIRB muscle: making foreign investments work harder

For years Australia has been adding layer upon layer of complex foreign investment rules and powers.  The Australian Treasurer has announced further changes to the FIRB regime.  No new laws are proposed, instead, the Australian Treasurer is refocusing the Australian Government’s Foreign Investment Policy to enhance FIRB’s risk-based assessment processes, strengthening the scrutiny on high risk investments, including exercising existing powers and cracking down on compliance. 

It is not all doom and gloom though.  The Government is also looking to streamline processes for low risk investments from repeat investors which will encourage the ‘right kind of investment’.

In any case, the effort to increase transparency to the (notoriously opaque) FIRB regime is welcomed.  The Treasurer has has released an updated Foreign Investment Policy to outline the streamlining for low risk investment, which sectors will face stricter assessments, as well as clearer tax guidance detailing which tax structures will be closely scrutinised.

Before we get into the detail, here’s the short version.

An honourable mention: the interfunding exemption is still outstanding – The long-awaited draft regulations have been released, however they appear to require further amendment and consideration to be workable commercially and not result in a cost or burden on Australians.  It is imperative that it is a complete exemption including from the burden of additional registration of otherwise exempt transactions under the FIRB legislation. 

Key focus areas and identified sectors

Investments in the following areas are an additional key focus for the Government:

• Net zero – investments to help Australia deliver the net zero transformation (a welcome change in focus to better align with the broader Government objective)
• Housing supply – support for investment in new housing stock including through build-to-rent which remains a priority to boost housing availability.

Investments that are seen as having a high risk profile that will continue to face deep scrutiny by the Government are:

• Critical infrastructure – Remains a priority for the Government
• Critical minerals – Growth in the sector is a priority, particularly to achieve net zero, though scrutiny remains for investments in Critical Minerals and Strategic Materials [see alert]
• Critical technologies – investments to help businesses commercialise new critical technology are welcome, but close scrutiny and conditions will be likely.

The Policy notes that the stronger risk-based assessment of investment proposals will consider the balance of economic benefits and security risks, supporting effective and efficient decisions in these areas. 

Stricter assessment processes

The Policy changes will see stricter assessment processes and additional resources for higher-risk investments.

• Resources will be dedicated to screening foreign investment in critical infrastructure, critical minerals, critical technology, those that involve sensitive data sets, and investment in close proximity to Australian Government assets (such as defence sites), to ensure that all risks are identified, understood and can be managed. The aim is to balance the economic benefits and security risks of investments.
• The closer scrutiny of higher risk investments could result in elongated assessment times for these applications, though we note the intent is to result in a more “efficient” assessment. Note that investments in higher risk sectors can currently take 6 months to a year or longer.
  
• Reforms are ‘country agnostic’, but the country of ownership will continue to be a key factor in determining sensitivity of a proposal. 

More use of existing powers including more robust compliance activities

• The FIRB compliance team will focus on improved monitoring and enforcement of FIRB conditions – including increasing Treasury resources to undertake on‑site visits.
  
• The FIRB compliance team will also support the use of the call‑in power to identify investments that come to pose a national security concern over time despite not requiring notification under the legislation.
• The Treasurer has indicated an intention to exercise his call-in power in future. This power allows the Treasurer to ‘call-in’ a broad range of investments for review by FIRB, where the investment did not require FIRB approval and occurred within the past 10 years. (Note that an investor has not breached the legislation if their investment is called in for review, so this is not a form of compliance action).

Streamlined processes for low risk investments

The good news is the reforms include ‘streamlining’ the FIRB processing regime, with the aim of providing faster approvals for repeat investors with a good compliance record that are making investments in non‑sensitive sectors.

Whether or not a FIRB application is ‘low risk’ will depend on:

• WHO: the investor and controller – such as their country of ownership and compliance record (with investors from Five Eyes countries expected to carry the lowest risk – noting the Treasurer maintains that Australia has a non-discriminatory approach);
• WHAT: the sensitivity of the target the investor is seeking to acquire – with manufacturing, professional services, commercial real estate, new housing and mining of non-critical minerals noted as low risk sectors; and
• HOW: the structure of transaction – in other words, its tax implication. A clear articulation of ownership without convoluted structure will receive better treatment. 

FIRB’s consultation timeframes – being the longest part of the FIRB process, where Treasury consults with other Government departments and agencies – are to be reduced for low risk applications, which should result in shorter FIRB decision timeframes.

From 1 January 2025, FIRB will have a new target to process 50% of applications within the initial statutory deadline of 30 days.  There is no target for the other 50% of applications.  (To give credit where it is due, FIRB has already been making progress in this regard for non-sensitive matters.) 

FIRB is also supposed to reduce paperwork for repeat investors where their ownership information has not changed since previous FIRB applications. However, it is unclear how significant these changes will be and whether this will simply be form filling.

Other positive measures

The other positive measures announced by the Government are:

• Refunding the FIRB application fees for investors who are unsuccessful in a competitive bid process a fee refund, rather than a fee credit.
  
• (Finally) releasing draft regulations to exempt interfunding transactions from requiring FIRB approval – a policy that was announced in the 2023 Budget – however changes are required to ensure the reforms are commercially workable (as noted above).
  
• Allowing foreign investors to purchase established Build-to-Rent properties (an exemption from the policy that foreign persons cannot purchase established dwellings).
  
• Clarifying that Pacific Australia Labour Mobility (PALM) employers can buy established residential properties for their PALM employees.
• The Government has also reiterated its commitment to early engagement with the investors, which has been a welcomed feature of the regime for many years. We would also encourage on the ground understanding for the Treasury officers during the assessment process through site visits, not just as a compliance activity. 

What’s missing?

Some necessary, and seemingly simple fixes to the regime that are still pending are:

• Guidance on the definition of “build-to-rent”, we hope this will be incorporated into updated guidance and is such as to encourage development in the space adding much need housing stock.
• Amendment of the subdivision and amalgamation requirements to ensure the Guidance is consistent with the legislation and the operation of the exemption from government.
• A complete exemption for superannuation funds (properly defined) and life funds for acquisitions made for the benefit of their Australian members (not just land acquisitions).

Making these simple fixes will also free up much needed resources to assist with review of the high risk investments and hopefully improve efficiency consistent with the approach taken to the streamlining.   

What’s coming next?

We eagerly await the upcoming Budget announcements detailing changes to the Australian tax landscape and will share a further alert once more detail is known on its impact to the foreign investment regime and process.

The Government has also indicated that it will reduce regulatory duplication in the assessment of competition issues in the FIRB process, following the recent announcement of merger reforms[see alert].  While not in effect until January 2026, there will need to be further consideration as to how the Competition regime will interact with the FIRB regime.   

While no specifics were announced, the Treasurer flagged more work across the Government to align the foreign investment settings with other regulatory regimes, including the Security of Critical Infrastructure Act 2018.  Further work also appears likely to enhance energy network security, and better managing and monitoring investments close to defence sites.  Such alignment and whole of Government approach will be welcomed.