Major proposed changes to FIRB regime

By Wendy Rae, Jeremy Low, Andrew Wong
COVID-19 Foreign Investment Review Board (FIRB)

In brief

On 5 June 2020 the Federal Treasurer announced major proposed changes to Australia's FIRB regime to address national security risks and ensure greater compliance with FIRB approval conditions. The Government's proposed changes, if passed, will be the most comprehensive reforms to Australia’s foreign investment review framework in more than 20 years.

The changes, which are proposed to come into effect on 1 January 2021, will impose a permanent $0 threshold for all foreign investments in sensitive national security businesses, whilst the current temporary $0 threshold for all other foreign investments will revert to the pre-29 March 2020 thresholds (subject to indexation). The Treasurer will have powers to impose new conditions and to unwind a transaction after FIRB approval has been granted, in cases where new national security concerns arise. Separately, there will be stronger penalties for breaches and the Federal Government will have more powers to enforce compliance with FIRB approval conditions, including greater monitoring and investigative powers. Also, certain types of passive investments will cease to require FIRB approval.


Update for January 2021

The Australian Government has now finalised and released legislation making major changes to Australia's foreign investment laws – commonly known as the 'FIRB regime' – with effect from 1 January 2021. Our recent insight details the changes to FIRB in full.

What are the changes?

The proposed changes are set out in a booklet released by the Government. Below is a summary of the proposed changes.

Protecting Australia’s national security

The Government will introduce a new national security test which will:

  • enable the Treasurer to impose conditions or block any investment by a foreign person on national security grounds regardless of the value of the investment;
  • require mandatory notification of any proposed investment by a foreign person in a sensitive national security business;
  • require mandatory notification where a business or entity owned by a foreign person starts to carry on the activities of a sensitive national security business;
  • allow any investment that would not ordinarily require notification to be ‘called in’ for screening on national security grounds;
  • allow the Treasurer to impose conditions, vary existing conditions, or, as a last resort, require the divestment of any investment which was approved under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) where national security risks emerge – the "last resort power."

Streamline less sensitive investments

The Government will exempt certain investments made by entities which are currently classified as ‘Foreign Government Investors’. This exemption will be non-discriminatory and apply only where no foreign government investor has, or could be perceived to have, influence or control over the investment or operational decisions of the entity or any of its underlying assets.

Stronger penalties, compliance and enforcement powers

The Government will have standard monitoring and investigative powers (in line with those of other business regulators) and powers to give directions to investors in order to prevent or address suspected breaches of conditions or of the foreign investment laws. A number of other measures will ensure that Treasury and the ATO have the resources, powers and penalties to effectively monitor, investigate and prosecute breaches of foreign investment laws.

More coordinated information gathering and sharing

The Government will introduce reforms to ensure, subject to appropriate safeguards and in line with other legislative requirements, greater sharing of foreign investment information (for example, information held on ATO registers) across government agencies and with international counterparts where national security considerations are present.

Other amendments

The Government will introduce amendments to the foreign investment review framework to improve readability of existing provisions, rectify inconsistencies and unintended consequences, and address feedback from investors seeking greater certainty.


The extent and impact of these changes will vary depending on the actual legislation (and corresponding regulations) that is passed.  Key observations are:

  • No immediate change to FIRB regime. The proposed changes do not immediately affect the temporary changes to the FIRB regime that the Government introduced with effect from 29 March 2020 to address risks arising from the COVID-19 pandemic, including the zero dollar screening threshold. The Government has indicated that it will release exposure draft legislation in July 2020 ahead of a six week consultation period. Following the consultation, the legislation will be introduced to Parliament with a scheduled commencement on 1 January 2021. So we can expect the current regime to continue until 1 January 2021.
  • Mandatory pre-investment notification. A foreign person acquiring a direct interest (10% or in a position of control) in a ‘sensitive national security business’, or where a foreign person starts to carry on the activities of such a business, will need FIRB approval prior to making the acquisition regardless of the value of the acquisition. The definition of 'sensitive national security business' will be narrower than that of 'sensitive business' under the FATA, i.e. this includes media, transport, and telecommunication businesses and businesses providing infrastructure to these businesses, but broader than businesses regulated under the Security of Critical Infrastructure Act 2018 (Cth) or the Telecommunications Act 1997 (Cth) and will include any business that deals with data relating to Australia's national security and/or defence. Striking the right balance and ensuring that the definition is clear will be critical.
  • New 'call in' power. Any investment not otherwise notified under the existing 'national interest' or new 'national security' mandatory pre-investment notification processes can be 'called in' before, during or after the investment, on a case by case basis if the Treasurer considers the investment a national security concern. Investors will have the opportunity to voluntarily notify (on a per investment basis), including prior to acquisition, to avoid the possibility of being called in for review on national security grounds. Although the Government has indicated the use of this ‘call in’ power will be time limited and public guidance will be issued on the type of investment where the ‘call in’ power could be used, it is possible that going forward, transactions which do not otherwise require FIRB approval may now need to be conditional on either the Treasurer not exercising the 'call in' power within the prescribed period or the purchaser having given a voluntary notification and not being 'called in'.
  • New 'last resort' review power. The Treasurer will have the power to reassess approved foreign investments where subsequent national security risks emerge. The last resort review power will allow the Treasurer to impose conditions, vary existing conditions, or, as a last resort, require the divestment of foreign interests in a business, entity or land. The last resort review power will not be retrospective and is only available if and when the Treasurer has taken (or is deemed to have taken) a decision with respect to a particular action. It will be important to see how this power interacts with the Government's existing powers under the Security of Critical Infrastructure Act 2018 (Cth) and the Telecommunications Act 1997 (Cth) and whether similar safeguards will be implemented (eg an ASIO assessment).
    Although an investment will not be subject to the 'last resort' review power if it didn't require screening and/or was not called in within the specified call in period, the power of the Treasurer to impose conditions or order divestments after having previously approved an investment is something foreign bidders and their financiers will need to take into account in making an investment decision.
  • National security test. The proposed 'national security' test will underpin 'called-in' screenings and the 'last resort' power. So it will be critical that the test be clearly defined and differentiated from the current 'national interest' test.
  • Certain investors will no longer be deemed foreign government investors. Entities where foreign government investors hold greater than 40% ownership in aggregate which meet the relevant criteria (less than 20% ownership from any single foreign government, no management rights, no influence or control over the investment or operational decisions) will no longer be deemed foreign government investors. Investors which have a single foreign government with 20% or more ownership (without influence or control) will still be deemed foreign government investors, however they will be able to apply for a broad exemption certificate on a case by case basis. These are welcome changes for institutional investors and private equity funds who would otherwise be subject to $0 thresholds for certain types of investments.

The foreign investment reforms paper acknowledges the importance of foreign investment to Australia's long term economic success, stability and prosperity. The challenge is to ensure that these reforms maintain a proper balance between protecting Australia's national interests and its attractiveness as a destination for foreign investment.