Register of Foreign Ownership of Australian Assets – Potential impacts under the new reporting regime

The Register of Foreign Ownership of Australian Assets, which was initially introduced by legislative amendments in January 2021, is now expected to commence operation on 1 July 2023. Last week, we reviewed the major differences to the current regime and consider the potential implications for foreign persons operating in Australia (and for Australian companies that may become foreign-owned).

IN BRIEF

• The Register of Foreign Ownership of Australian Assets (Register), which was initially introduced by legislative amendments in January 2021 and intended to come into effect at a later time, is now expected to commence operation on 1 July 2023.
• Whilst the regulations required to implement the Register are still at exposure draft stage, the introduction of the Register will expand existing reporting obligations and require foreign persons (and foreign-owned Australian companies) to provide a formal notification of certain events, regardless of whether FIRB approval is required. 
• Whilst the precise operation of the Register is still to be confirmed by the Australian Government, foreign persons should focus in the meantime on:
  • finalising any outstanding reporting under the existing regime as soon as possible;
  • reviewing current portfolios of assets to understand likely reporting obligations under the new regime; and
  • flagging the need to obtain specific advice on the Register as part future transactions.

ESTABLISHMENT OF THE REGISTER

Australia’s foreign investment rules, as set out in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (FATR), regulate the taking by “foreign persons” of certain actions that have a connection to Australia. One of the primary functions of the regime is to require foreign persons to obtain Foreign Investment Review Board (FIRB) approval (by way of “no objection notification” or “exemption certificate” given by the Treasurer) before taking certain actions and then notify FIRB shortly after doing so. The current regime also requires that certain actions taken by foreign persons are notified to other regulators such as the Australian Taxation Office (ATO).

With effect from 1 January 2021, the FATA and FATR were substantially amended. One of the key amendments (under a new Part 7A) was the proposed introduction of the Register to be administered by the ATO. The Register, which was intended to come into effect at a later time, is now expected to commence operation on 1 July 2023. While the precise changes to the FATR have not yet been confirmed, the Exposure Draft Regulations released by the Australian Government in March 2023 provide an indication of the likely changes.

These new provisions require foreign persons to give “register notices” to the ATO for an expanded list of actions or events concerning their investments in Australia. The register notices must be given within 30 days of the relevant action and there will be no fee for registration. The civil penalty for non-compliance is expected to be a fine of 250 penalty units (currently $68,750 and to be indexed on 1 July 2023). On its website, the ATO has stated in relation to its approach for the new Register: “We take a reasonable compliance approach with those who are trying to do the right thing.”

To support these changes and to streamline reporting and registration, a new foreign investment website is being launched at the end of June 2023. This will result in the existing processes, and at least certain of the FIRB forms, being unavailable from 17 June 2023 to 26 June 2023.

MAJOR DIFFERENCES COMPARED TO THE CURRENT REGIME

The proposed regime creates new reporting obligations whilst also expanding on the existing regime. At a high level, the proposed obligations can be categorised into acquisition, change and cessation events and include:

• An expanded requirement for foreign persons to provide a notification whenever they acquire interests in relevant Australian land (including mining or production tenements), exploration tenements or certain registrable water interests (regardless of value or whether FIRB approval is required).
• Updated requirements for foreign persons to notify the Registrar if they acquire an interest in an entity or business that that has been the subject of a mandatory notification, voluntary notification or was otherwise called in. These requirements substantially mirror existing notification requirements.
• A new requirement for Australian companies to notify the Registrar if they become a foreign person while holding a relevant interest in Australian land, an exploration tenement or registrable water interest.
• A new requirement for Australian companies to notify the Registrar if they become a foreign person while holding an interest in an entity or business which would have been subject to mandatory notification requirements if they had been a foreign person on acquisition, or while carrying on or holding an interest in a national security business.
• Expanded requirements for foreign persons to notify where they cease to be foreign persons or otherwise cease to hold certain registered interests (where the foreign person is aware or ought reasonably to have become aware of the cessation of the registered interest).
• Expanded requirements for foreign persons to notify of changes to certain registered interests (for example, a 5% change in shareholding or a change in land use), where the foreign person is aware or ought reasonably to have become aware of the change.

MATTERS OF DETAIL TO STILL BE CONFIRMED

Whilst the Exposure Draft Regulations provide a level of clarification on the operation of the Register, there are still some points of detail to be finally confirmed. In particular:

• How land entities that do not otherwise meet the entity threshold for mandatory notification will be treated (seemingly, they are not covered by the new reporting obligations).
• How the obligations will be enforced in parallel with any pre-existing bespoke reporting conditions (for example, conditions under existing approvals, which appear likely to continue in parallel).
• Confirmation of the available exemptions with some (for instance, in relation to security interests and acquisitions from Government) continuing and others expected not to be available (such as for commercial land that would have previously fallen below applicable notification thresholds).

PRACTICAL IMPACT ON FOREIGN PERSONS

The extent to which the introduction of this new Register will impact on foreign and Australian companies is likely to vary quite markedly depending on the scope of their operations and the extent of their landholdings. For companies that do not have significant land interests, the changes should be more administrative than substantive. Similarly, for companies accustomed to having to regularly seek investment approval (for example, residential building companies or Australian companies that have a material foreign government investor shareholder), the changes will not significantly expand the scope of their reporting.

The most significant impacts will be felt by companies that typically avoided mandatory approval requirements on the basis of higher dollar thresholds (for example, $310 million for developed commercial land) and Australian companies that become foreign (whether expected or unexpected) and which may not have sufficient record keeping practices or corporate policies to support these new reporting requirements. In addition, the new requirements in relation to reporting changes to or the cessation of certain registered interests will most likely result in foreign persons (including foreign-owned Australian companies) being required to increase the extent to which they monitor their investments (and passive changes).