Australia's New Register of Foreign Ownership of Australian Assets Commences on July 1, 2023
In Short
The Situation: From July 1, 2023, foreign investors in Australia will be subject to new registration requirements under Australia's foreign investment regime.
The Result: The Register of Foreign Ownership of Australian Assets ("the Register") will replace existing registers for certain land and water entitlements and introduce new reporting obligations for commercial land and business acquisitions. The Australian Taxation Office ("ATO") will maintain the Register, which is intended to provide foreign investors with a consolidated process for its reporting obligations under the Foreign Acquisition and Takeovers Act 1975 (Cth) ("the FATA").
Looking Ahead: The Register introduces numerous new reporting obligations (in addition to those under the FATA) and increases compliance burden on foreign investors.
Foreign persons cannot rely on Part 7A of the FATA as the sole source of reporting obligations, as reporting obligations in existing Foreign Investment Review Board ("FIRB") approvals granted before July 1, 2023, still apply.
Substantial fines of up to 250 penalty units (currently $68,750) may apply for a foreign person who does not notify the ATO within 30 days of the "registrable date". However, higher penalties can be imposed under the general compliance requirements of the FATA.
Registration of Certain Interests in Land, Businesses and Entities
Although the legislative framework for the Register was introduced under Part 7A of the FATA back in January 2021, it has become more squarely in focus as the July 1, 2023, commencement date approaches. The Register will not be public and will be subject to similar rules that apply to the provision of other information relating to foreign investment in Australia (i.e., information may be disclosed to other Australian government bodies to enable them to perform their statutory functions or exercise their powers under the FATA).
Since Part 7A was introduced, the ATO has established registers for the foreign ownership of agricultural and residential land, as well as water entitlements. These existing registers will be consolidated by the single, combined Register, requiring foreign persons to register acquisitions of certain interests in land, mining exploration tenements, water entitlements and businesses and entities.
Land. Importantly, regardless of whether or not the acquisition of Australian land by a foreign investor would have needed FIRB approval, a foreign person must notify the ATO if, on or after July 1, 2023, it acquires: a freehold lease of more than five years; an equitable interest in leases or a licence of more than five years; agricultural land; and a legal interest in a mining or production tenement (e.g., a mining lease).
Exploration tenements. Generally, only foreign government investors ("FGI") need FIRB approval to acquire interests in exploration tenements. However, Part 7A requires all foreign persons to notify the ATO if they acquire any interest (other than an equitable interest) in an exploration tenement (e.g., an exploration licence).
Water entitlements. Although acquiring a water entitlement does not require FIRB approval, a foreign person must notify the ATO if it acquires a "registrable water interest" or a contractual water right of more than five years' duration. Unlike other reporting obligations, acquisitions of water entitlements need only be reported if the rights continue to be held at the end of the financial year (June 30).
Businesses and entities. A foreign person must also notify the ATO if they take a "significant action" or "reviewable national security action" (as defined in the FATA) in relation to an entity or business and the action has been notified to the Treasurer; a no objection notification has been received; or the Treasurer has advised that he will review the relevant action.
Similarly, if a foreign person takes a "notifiable action" or "notifiable national security action" in relation to an entity or business, they will need to inform the ATO.
Change or cessation of interests in land, water or other 'registrable interests'. Any change in an interest in land must also be notified within 30 days of such change. Other changes that need to be registered include:
- Any change in the volume of water or share of the registrable water interest; and
- After an entity or business has been registered on the Register, any change in the registrable interest by 5% or more.
A foreign person must also notify the ATO within 30 days after the person ceases to hold the interest that has been registered, or ceases to be a foreign person.
Other Practice Points to Note
Draft regulations to support the operation of the Register. Treasury has released draft regulations titled "Treasury Laws Amendment (Measures for Future Instruments) Instrument 2023: Register of Foreign Ownership of Australian Assets" ("the Draft Regulations") to support the operation of the Register.
The Draft Regulations impose additional registration requirements beyond those contained in the FATA, including requiring a foreign person to notify the ATO:
- If they acquire a direct interest in an Australian media business;
- If they are an FGI and they: (i) start an Australian business or acquire a direct interest in an Australian entity or business; (ii) acquire an interest in a tenement or 10% of the securities in a mining, production or exploration entity; and
- In circumstances that would otherwise be a significant or notifiable action, but for the issuing of an exemption certificate exempting it from other parts of the FATA.
No retrospective operation. The registration obligations provided for in Part 7A and the Draft Regulations are not retrospective and apply only to events occurring on and from July 1, 2023.
How to register. A foreign person who acquires a registrable interest must use the ATO's online notification system to submit a "register notice" within 30 calendar days of the registerable event date. This will generally be the day on which the foreign person takes the action that triggers the registration requirement.
Where an FGI commences a business, the registrable event date will be the date on which the business receives its Australian Company Number or notice of its Australian Business Number.
Failure to register—enforcement. No fees are payable for submitting a register notice. However, the ATO may impose a civil penalty of up to 250 penalty units (as of writing, $68,750) on a foreign person who does not comply with a registration obligation, and higher penalties can be imposed under the general compliance requirements of the FATA.
Three Key Takeaways
- Consistent with the theme in recent years in Australia, foreign persons are subject to an increasingly complex investment regime. The requirements imposed by Part 7A and the Draft Regulations are onerous, and foreign investors will need to keep their Australian investments and transactions front of mind to ensure they fulfil their compliance obligations.
- There may be circumstances where an action by a foreign investor may not require FIRB approval, but foreign investors nevertheless may need to notify the ATO, so obtaining advice from specialist Australian FDI advisers will continue to be vital.
- After a foreign investor has notified the ATO, they will need to monitor the activity the subject of the notice and report any relevant changes. As the ATO is a consult partner of FIRB, foreign investors should consider notifying FIRB prior to taking any action that is likely to require registration under the Register.
