Australia unveils plans for next phase of foreign investment reform

The new regulations (13-page / 866KB PDF), which were announced by treasurer Jim Chalmers earlier this month, will effectively create a division between low and high-risk investments, streamlining the approach to low-risk foreign investment applications.

However, higher-risk investments will be subject to closer scrutiny. Treasury will be granted stronger enforcement powers to address non‑compliance and avoidance, and screening requirements will be expanded in sensitive sectors to protect nationally significant infrastructure.

From 1 January 2027, the government will introduce a new target of deciding all low-risk applications within 30 days.

To be classed as a low-risk application, the applicant must have received a foreign investment approval in the past 24 months, not be subject to extrajudicial direction, and have no record of non-compliance or character concerns. In addition, the proposed investment must not be in a sensitive sector or business - such as critical infrastructure, critical technology, critical minerals or defence - not have other national interest sensitivities, and have a straightforward and transparent corporate transaction structure.

The government will also streamline existing exemption certificate (EC) powers, by enabling the treasurer to issue broader, more flexible certificates that can modify or ‘switch off’ key aspects of the foreign investment regime.

ECs may be used to adjust the application of concepts such as ‘foreign government investor’ (FGI) status, foreign personhood, tracing, associate rules and reporting obligations.

“By allowing extended ECs to be granted on a case‑by‑case basis, the reforms are expected to reduce the volume of applications required from established, compliant investors,” said Joni Henry, a regulatory expert with Pinsent Masons in Sydney

“Low-risk investors currently caught by the broad application of the tracing rules and FGI status are expected to be the primary beneficiaries of these changes.”

Reforms to the tracing rules will better align notification obligations to foreign investors who have material interests or control in an investment. Currently, entities with minor economic interests or influence may be deemed to have a substantial interest in a proposed investment, creating a reporting burden for minority investors.

The proposed amendments would remove notification requirements where influence is limited, but preserve the treasurer’s ability to scrutinise situations in which an upstream entity materially increases its level of control. Together, these changes recalibrate the regulatory focus to concentrate on genuine control risks.

The default validity period for a ‘no objection notification’ will be increased to 24 months, recognising that the current 12‑month period can be insufficient for large or complex transactions with longer timelines. By doubling the default duration, the reforms will reduce the number of investors having to seek extensions to previously granted notifications.

The number of investments that need to be lodged with the existing Register of Foreign Ownership of Australian Assets will also be reduced, with commercial land, business or entity acquisitions no longer required to be registered. However, acquisitions of water interests, agricultural land, residential land and certain mining tenements will still need to be included in the Register.

While Australia has one of the most established foreign direct investment regimes globally, dating back to the 1970s, in recent years new FDI regimes have been adopted in various jurisdictions worldwide amid shifting geopolitical and international trade conditions, notably in the UK and across the EU.

Businesses engaging in cross-border M&A deals may potentially need to consider the application of multiple FDI regimes that screen for public interest and national security issues; as well as the potential application of merger control regimes which scrutinise the competitive impact of M&A transactions.

The new rules come in the wake of a consultation last year by the Treasury and build on earlier reforms from 2024 aimed at improving foreign funding pathways.

The government said it would continue to consult with investors, businesses and the broader community on the legislative changes.

“These reforms will increase certainty for investors and will lead to faster and fewer approvals, reduced regulatory burden, and improved tools to address high‑risk investment,” the government said.

“We want to unlock more investment that’s in Australia’s national interest and subject higher risk proposals to more rigorous scrutiny.”