Attitude toward Foreign Direct Investment
Australia is generally welcoming to foreign direct investment (FDI), with foreign investment widely considered to be an essential contributor to Australia’s economic growth. FDI, which accounts for around one-quarter of Australia’s total foreign investment, reached USD565 billion in 2014. The United States remains the dominant source of FDI in Australia and U.S. direct investment in Australia totaled USD180.3 billion in 2014, an increase of 6.1 percent from 2013. In 2014, 38 percent of Australia’s total FDI was in the resources sector.
Australia remained one of the top 15 destinations for global FDI in 2014, with a 2.2 percent share of the global stock of FDI. Total inbound stock of FDI as a percentage of Australian GDP reached 39 per cent, supported by ongoing economic expansion and integration with trading partners, particularly in the Asian region. Recently completed free trade agreements with Japan, South Korea, and China, and Australia’s participation in the Trans-Pacific Partnership Agreement, are intended to increase prospects for greater two-way investment between Australia and its trading partners.
Under the auspices of the Australia-United States Free Trade Agreement (AUSFTA), which came into effect on January 1, 2005, all U.S. greenfield investments are exempt from FIRB screening. AUSFTA also raised the threshold for screening most U.S. acquisition investments in Australia. U.S. investors require prior approval if acquiring a substantial interest in a primary production business valued above AUD 1.094 billion (USD791.6 million). All foreign persons, including U.S. investors, must notify the Australian government and receive prior approval to make investments of five percent or more in the media sector, regardless of the value of the investment.
While there are no laws or practices that U.S. investors allege discriminate against foreign investment, the Australian Treasurer intervened in November 2013 to block U.S. agribusiness Archer Daniels Midland’s (ADM) proposed AUD 3.4 billion acquisition of Australian company GrainCorp Limited. The Treasurer determined that allowing a takeover to proceed could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally, and that the ADM investment into Australia therefore would not be in the national interest.
Other Investment Policy Reviews
Australia has not conducted an investment policy review (IPR) in the last three years through either the OECD or UNCTAD system. A seventh WTO review of the trade policies and practices of Australia did take place however, in April 2015, and can be found at https://www.wto.org/english/tratop_e/tpr_e/tp412_e.htm Members of the review commended Australia's commitment to the development and reinforcement of the rules-based multilateral trading system as well as for its coordinating and guiding role in several trade and investment liberalization activities within and outside the WTO (e.g. Information Technology Agreement, Environmental Goods Agreement, and Trade in Services Agreement). See concluding remarks by the Chair at https://www.wto.org/english/tratop_e/tpr_e/tp412_crc_e.htm
The Australian Trade Commission compiles an annual ‘Why Australia Benchmark Report’ that presents comparative data on investing in Australia in the areas of Growth, Innovation, Talent, Location and Business. The report also compares Australia’s investment credentials with other countries and provides a general snapshot on Australia’s investment climate. See http://www.austrade.gov.au/International/Invest/Resources/Benchmark-Report.
Laws/Regulations on Foreign Direct Investment
Foreign investment in Australia is regulated by the Foreign Acquisitions and Takeovers Act 1975 and Australia’s Foreign Investment Policy. The Foreign Investment Review Board (FIRB), a division of Australia’s Treasury, is a non-statutory body established to advise the Treasurer and the Commonwealth Government on Australia’s foreign investment policy and its administration. The FIRB screens potential foreign investments in Australia above threshold values, and based on advice from the FIRB, the Treasurer may deny or place conditions on the approval of particular investments above that threshold on national interest grounds. Following a number of recent investments made by foreign companies in key sectors of Australia’s economy, the laws and regulations governing foreign direct investment have been subject to a wide ranging and ongoing review.
In December 2015, the Government enhanced the enforcement of rules governing foreign investment in Australia and introduced a ‘national interest’ consideration in reviewing foreign investment applications. Changes made in the Government’s Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015 provide for greater compliance powers to the Australian Taxation Office (ATO) and introduced strict new penalties for investors circumventing foreign investment rules. The Government also introduced a new agricultural land foreign ownership register to understand the nature of foreign ownership of Australian land. From July 1, 2015, the ATO began collecting information on the location and size of property and size of interest acquired on new foreign investment in agricultural land. The register will be expanded to include residential real estate in 2016. Lower screening thresholds for agricultural land and agribusiness will also mean that more agricultural investment is screened by the FIRB.
In February 2016, the Government announced its intent to implement a national register of foreign ownership of water access entitlements, which is intended to enhance transparency and assist in informing the Government and the community about emerging investment trends. The Government also announced new requirements on foreign investment applications to ensure that multinational companies investing in Australia pay tax on what they earn in Australia. In March 2016, the Government announced that it would amend the Foreign Acquisitions and Takeovers Regulation so that the FIRB could assess the potential sale of ‘critical state-owned infrastructure assets’ to private foreign investors. Starting March 31, 2016, the FIRB will formally review critical infrastructure assets sold by State and Territory governments.
Australian Trade Commission (Austrade): https://www.austrade.gov.au/International/Invest/Guide-to-investing/Investing-in-Australia
The Australian Trade Commission Web site presents information on Australia’s investment framework, investor obligations and approval processes, as well as details of international offices, events, Austrade services and investment publications.
Foreign Investment Review Board: http://firb.gov.au/
FIRB is the body that advises the Treasurer and the Government on Australia’s Foreign Investment Policy and its administration. FIRB annual reports provide information on the operation of Australia’s foreign investment review arrangements. The Web site also announces key legislative developments and modifications to Australia’s foreign investment policy as well as deliberations made by the Treasurer on investment applications.
Business registration in Australia is relatively straightforward and is facilitated through a number of Government Web sites. The Commonwealth Department of Industry, Innovation and Science’s business.gov.au provides an online resource and is intended as a ‘whole-of-government’ service providing essential information on planning, starting and growing a business. Foreign entities intending to conduct business in Australia as a foreign company must be registered with the Australian Securities and Investments Commission (ASIC). As Australia’s corporate, markets and financial services regulator, the ASIC Web site provides information and guides on starting and managing a business or company.
In registering a business, individuals and entities are required to register as a company with the ASIC, which then gives the company an Australian Company Number, registers the company, and issues a Certificate of Registration. According to the World Bank ‘Starting a Business’ indicator, registering a business in Australia takes 2.5 days.
A number of investment promotion agencies operate in Australia. The Australian Trade Commission (often referred to as Austrade) is the Commonwealth Government’s national ‘gateway’ agency to support investment into Australia. Austrade provides coordinated government assistance to promote, attract and facilitate FDI, supports Australian companies to grow their business in international markets, and delivers advice to the Australian Government on its trade, tourism, international education and training, and investment policy agendas. Austrade operates through a number of international offices, with U.S. offices primarily focused on attracting foreign direct investment into Australia and promoting the Australian education sector in the United States. Austrade in the United States operates from offices in Chicago, Houston, New York, San Francisco, and Washington, DC.
A number of Australian state investment promotion agencies also support international investment at the state level and in key sectors. Investment Attraction South Australia aims to drive inward investment for South Australia while Invest in New South Wales similarly seeks to promote New South Wales as an investment location.
‘Small business’ is defined differently by regulators in Australia depending on the laws they administer. ASIC regulates 'small proprietary companies’ which it defines as a company with two out of following characteristics:
The Australian Taxation Office defines a small business as one that has annual revenue turnover of less than AUS$2 million, while Fair Work Australia defines a small business as one that has less than 15 employees. Despite these differences, many regulators adopt the definition of ‘small business’ used by the Australian Bureau of Statistics, which is a business that employs fewer than 20 people.
Austrade promotes investment in five key sectors that have been jointly agreed by Australian and State and Territory Governments. These include agribusiness and food; major infrastructure; tourism infrastructure; resources and energy; and advanced manufacturing, services and technology. Within advanced manufacturing, services and technology, Austrade focuses on highlighting growth opportunities for investment in Australian medical and materials sciences and technologies, and digital technologies. Further details and investment opportunities in these sectors are listed on the Austrade Web site.
Within Australia, the right exists for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity in accordance with national legislative and regulatory practices.
In addition to the activities of the FIRB, there are a number of initiatives that impact foreign investments in Australian agricultural land. The Government revised its scrutiny of foreign purchases of agricultural land by reducing the monetary screening threshold it applies to foreign investment acquisitions. Effective from March 1, 2015, the Government reduced the screening threshold from AUD 252 million to AUD 15 million (USD182 to 10.8 million). This threshold will apply to the cumulative value of agricultural land owned by the foreign investor, including the proposed purchase. The reduced screening threshold does not affect investments made under the Australia-U.S. Free Trade Agreement. The current threshold remains AUD 1.094 billion (USD791.6 million) for U.S. non-government investors. Future investments made by U.S. non-government investors will be subject to inclusion on the proposed foreign ownership register of agricultural land and will also be subject to Australian Tax Office (ATO) information gathering activities on new foreign investment. Since July 1, 2015, the ATO has collected information on all new foreign investment in agricultural land, regardless of value, and will commence a stock-take of existing agricultural land ownership by foreign interests.
Australia does not have a formal and explicit national privatization program. A central plank underpinning the Coalition Government’s policy framework is to address Australia’s fiscal imbalance with the intent by government to return Australia’s budget to surplus. A key feature of this approach is an Asset Recycling Initiative, an initiative offering financial incentives to Australia’s States and Territory Government’s to privatize government-owned assets and reinvest the returns into new, productivity-enhancing infrastructure. Launched in mid-2014 with a five year timeframe, the Asset Recycling Initiative is the focus of considerable national and state-level political scrutiny. To date, a number of state-level initiatives have been proposed and are currently being developed. Ports and electricity transmission facilities are key sectors being considered for asset disposal. Foreign investors are welcome to participate in this program.
See Laws/Regulations on Foreign Direct Investment above.
The Australian Competition and Consumer Commission (ACCC), an independent Commonwealth statutory authority whose role is to enforce the Competition and Consumer Act 2010 and a range of additional legislation, promotes competition and fair trading and regulates national infrastructure. The ACCC plays a key role in assessing mergers to determine whether they will lead to a substantial lessening of competition in any market. ACCC also engages in consumer protection enforcement.