The Commonwealth has recently made regulation to implement Australia's commitments under its free trade agreements with Japan, Korea and Chile which will ease certain foreign investment review and life insurance business regulations for investors from those countries. Japan Sector Leader and Partner Tim Lester, Managing Associate Emin Altiparmak and Lawyer Tristan Kelly report.
The Trade Agreements Legislation Amendment Regulation 2014 (the Regulation), which was made on 30 October 2014, extends the benefit of the higher Australian foreign investment approval thresholds, currently enjoyed by United States and New Zealand investors, to investors from Japan, Korea and Chile. This includes the higher threshold, currently A$1,078 million:
- for acquisitions of shares in Australian companies other than those in prescribed sensitive sectors (compared to the usual threshold, currently A$248 million); and
- for acquisitions of interests in developed commercial real estate in Australia (compared to the usual threshold, currently A$54 million or A$5 million for heritage listed real estate).
Investments below these thresholds do not require notification to, or approval from, Australia's Foreign Investment Review Board. This is welcome news for foreign investors in the Australian economy, particularly in circumstances where increased capital inflows into Australia are expected from Japan and Korea. However, the ability to rely on these benefits continues to depend heavily on the acquisition structure to be adopted. For example, if investors ultimately from Japan, Korea or Chile (or the United States or New Zealand, for that matter) propose Australian investments through interposed entities incorporated or established outside of those countries, then the higher threshold may not apply to the acquisitions by such interposed entities.
The Regulation also extends the exemption from the requirement to incorporate a local subsidiary in order to conduct a life insurance business in Australia, currently enjoyed by life insurance companies authorised in and from the United States and New Zealand, to life insurance companies authorised in and from Japan and Korea (but not from Chile). This allows these companies to operate in Australia as a branch.
The provisions with respect to Japan commence on the day that the Japan-Australia Economic Partnership Agreement comes into force (expected to be in early 2015, subject to Australia's treaty process being completed and the exchange of diplomatic letters).
The provisions with respect to Korea commence on the later of 1 December 2014 and the day that the Korea-Australia Free Trade Agreement enters into force for Australia.1
The provisions with respect to Chile2 come into effect immediately prior to when the provisions dealing with Japan or Korea come into effect, whichever is earlier.
Also, we expect that once the foreign investment review changes are effective, Australia's Foreign Investment Policy will need to be updated to reflect these changes.
- The Korea-Australia Free Trade Agreement will become effective after the completion of domestic processes by Australia and Korea. Australia passed the implementing legislation on 1 October 2014, while the Korean implementing legislation is currently before the Korean National Assembly.
- It appears that the provisions with respect to Chile are included to give effect to the Most-Favoured Nation Treatment requirement of the Australia-Chile Free Trade Agreement signed in 2008, which is required to be implemented by 2015.