FIRB Rules: China and the Foreign Investment Review Board |
The Australian Government has a general policy of encouraging foreign investment into Australia that is consistent with its community and national interests. As a result of this policy, the Australian Commonwealth Government regulates foreign investment into Australia. These foreign investment regulations are administered by the Foreign Investment Review Board (FIRB) and may affect your transactions.
The FIRB rules apply to all non-Australian investment into Australia but are not aimed at any specific countries such as China. The FIRB rules do distinguish, however, between investment by foreign governments and their agencies and other investments.
FIRB approval is required where the proposed investment into an Australian business or Australian land reaches certain monetary thresholds. These thresholds vary according to whether the investment is in:
- Australian urban land
- An Australian business
- A prescribed sensitive sector (including media, telecommunications, transport, defence and uranium mining).
Under the Australian FIRB rules, Chinese state-owned enterprises are treated as agencies of a foreign government. In these cases, there are no monetary thresholds before FIRB approval is required, so all investment by the Chinese Government or their agencies requires FIRB approval.
FIRB approval can be required for internal restructures and not just external acquisitions. If a transaction requiring FIRB approval proceeds without the approval, an offence is committed and the Treasurer can unwind the transaction.
Recent announcements
From 22 September 2009, threshold requirements for FIRB approval for private investment into Australian businesses (not state-owned investments) have been changed. In summary, the monetary threshold for approval for private investment into Australian businesses from China will be reduced to two:
| Old thresholds | Current thresholds since 22 September 2009 |
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The FIRB rules for investment in Australian urban land as well as in sensitive sectors, (e.g. media, telecommunications, defence, uranium mining) will continue to apply. These changes will, however, make Chinese ‘non-government’ investment into Australia easier.
Common pitfalls
Despite the threshold changes outlined above, managing FIRB risk will continue to be an important factor when Chinese private investors are directly and indirectly involved. Outlined below are two common pitfalls that clients may come across.
Example 1: China Company (non-state owned) owns a wholly-owned Australian subsidiary company that wants to acquire Target Australian Company.
A common mistake is to assume that the FIRB rules will not apply to the proposed transaction because the purchaser is an Australian company and not a foreign company. The FIRB rules deem the Australian company to be a foreign company (on the basis of it being controlled by a Chinese company), so if the Target Australian Company reaches the relevant monetary threshold, FIRB approval will be required.
Example 2: China Company (non-state owned) proposes to acquire Target Foreign Company, which is the holding company of an Australian company with Australian operations.
As the transaction involves a foreign company acquiring a foreign company, it is often assumed that FIRB approval is not required. Under the FIRB rules, however, the target foreign company may be a prescribed corporation (depending on whether the relevant threshold is met) and therefore FIRB approval may be required for the transaction.
How Deloitte’s Chinese Services Group can help you manage your FIRB obligations
We can help you to manage your FIRB obligations by:
- Reviewing any proposed transaction(s) to determine whether any steps require FIRB approval
- Working with you to prepare the approval submission and relevant statutory form (if FIRB approval is required)
- Managing the FIRB approval process on your behalf. Recently, the FIRB has been requesting for more background information on transactions than was previously required.
Contacts
For more information regarding your FIRB obligations, please contact:
Robert Nguyen
Principal – Stamp Duty, Sydney
Tel: +61 (0) 2 9322 7239