Will you need Foreign Investment approval? Thomas Hill explores whether you or your corporation is a foreign person.
There are a lot of moving parts in determining whether the acquirer of an asset is a foreign person. “foreign persons” are the investors that may require Foreign Investment (FIRB) approval to acquire Australian land and assets. In this article we will focus on when individuals and corporations are considered foreign persons. In the next article, we will explore trusts.
Individuals
You would expect it to be easy to determine whether an individual is considered a foreign person for the purposes of the Foreign Investments and Takeovers Act (Act) – “Are you a citizen or permanent resident?” However, it is not that simple. The legal term to define a foreign person is “a person not ordinarily resident in Australia”.
A person is “ordinarily resident in Australia” if, at a particular time:
the person has actually been in Australia during 200 or more days in the preceding 12 months; and
the person is in Australia and their continued presence in Australia is not subject to time limitations (such as under visa) or if they are not in Australia, immediately before their recent departure their continued presence in Australia is not subject to time limitations.
A person who is not “ordinarily resident in Australia” is a foreign person.
Australian citizens and permanent residents may still be foreign persons if they do not meet the criteria above for being ordinarily resident in Australia. However, there is an exemption from the requirement to obtain FIRB approval for land acquisitions by Australian citizens not ordinarily resident in Australia.
Corporations
A corporation is a foreign person where:
an individual not ordinarily resident in Australia (discussed above), foreign corporation or foreign government investor holds a “substantial interest”; or
two or more individuals not ordinarily resident in Australia, foreign corporations or foreign government investors hold an “aggregate substantial interest”.
A “substantial interest” is an interest of 20% or more in a corporation. An “aggregate substantial interest” is an aggregate of interests totalling 40% or more in a corporation.
Tracing of interests
Under the Act, interests are traced from higher entities when considering whether the acquirer is a foreign person. For example, if a foreign person holds a 25% interest in Australian Company A, and Australian Company A holds a 25% interest in Australian Company B, then Australia Company B is a foreign person regardless of whether there are any other foreign ownership interests in Australian Company B. Because of this, even obscure overseas connections can lead to an Australian corporation being a foreign person.
Anti-avoidance and exemptions
There are significant anti-avoidance provisions in the Act. For example, interests of a foreign person include interests of the associates of the foreign person. If there are foreign interest within an ownership structure, it is unlikely that restructuring will prevent a corporation from being considered a foreign person.
There are numerous exemptions that apply to certain foreign persons and to certain types of acquisitions.
Determining whether a person or an entity is a foreign person is the first step in determining whether an investor requires FIRB approval for the acquisition of Australian land or assets. If you or your corporation has any ownership interests outside of Australia, you should consider carefully whether you or your corporation is a “foreign person”.
Cowell Clarke can assist in answering all of your FIRB and Foreign Ownership Register queries – contact the author Thomas Hill here: thill@cowellclarke.com.au.
To subscribe to the Foreign Investment Files, click here.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.