With the Treasurer's recent announcement on Sunday 29 March 2020 that monetary screening thresholds have been reduced for all foreign investors, our team takes you through what this means for potential transactions.
With the Treasurer's recent announcement on Sunday 29 March 2020 that screening thresholds have been reduced for all foreign investors, our team takes you through what this means for potential acquisitions.
Who is foreign?
A private foreign investor is an entity which is not a foreign government investor and in which a foreign person, together with its associates, holds a direct or indirect interest of 20% or more or multiple foreign persons, together with their associates, hold a direct or indirect interest of 40% or more (in aggregate).
A foreign government investor is an entity controlled by a foreign government (at any level of government) or their related bodies, including corporations in which a single foreign government and its associates has a direct or indirect interest of 20% or more, or multiple foreign governments and their associates have a direct or indirect interest of 40% or more (in aggregate).
Associate is broadly defined and foreign government investors may be regarded as associates if they are ultimately controlled by the same foreign government.
There are tracing provisions in the FATA which have the effect that the foreign person characterisation of an entity is determined by the status of the ultimate legal and beneficial interest holders of the entity.
There are also citizenship and residency tests for individuals.
How does this apply to my deal?
As noted in FIRB's guidance issued on Monday, despite the monetary threshold being lowered, the other thresholds and exemptions in the Australian foreign investment rules remain. The table below takes you through a few scenarios.
Please note that the rules will aggregate interests with associates, and once the threshold is exceeded additional interests can still be caught. Convertible notes, intra-group transfers, establishment of new companies, and reorganisations can all be caught. There are some additional though limited exemptions that may also be available.
The information set out is current as at 2 April 2020 though as the situation remains fluid, more guidance is released. Specific advice should be sought for your transaction and this document should not be relied upon as a substitute to legal advice.