What is Foreign Investment Review Board FIRB Approval?

Navigating the complex world of property acquisition in Australia can be challenging, especially for foreign buyers unfamiliar with local regulations. A critical regulatory body in this context is the Foreign Investment Review Board (FIRB). FIRB plays a pivotal role in overseeing property purchases by non-residents and foreign entities in Australia. Understanding FIRB's regulations is crucial for any foreign investor or temporary resident looking to invest in Australian real estate. This blog aims to demystify FIRB requirements and provide clear guidelines for compliance. Whether you are a temporary resident or a foreign investor, this comprehensive guide will help you understand your obligations and the necessary steps to take when purchasing property in Australia.

Who Needs to Apply for FIRB Approval?

In the world of Australian property acquisition, FIRB serves as a regulatory watchdog, ensuring compliance with national property laws. But who exactly requires FIRB approval?

Non-Permanent Residents and Foreign Individuals FIRB approval is mandatory for individuals who are not permanent residents of Australia or Australian citizens. This includes those living in Australia on temporary visas, such as students and working professionals, who haven't acquired permanent residency status.
Specific Corporations and Trusts The rules extend beyond individuals. Corporations may be subject to FIRB scrutiny if they meet certain criteria, such as having a substantial interest held by an individual not ordinarily resident in Australia, or a significant stake by a foreign corporation or government. Trusts may also require FIRB approval if their trustee is a foreign entity.
Exemptions to the Rule Certain individuals and entities are exempt from FIRB's requirements, including Australian citizens, New Zealand citizens, and Australian permanent residents. Joint tenants, where one party is a foreign person and the other is an Australian citizen, New Zealand citizen, or Australian permanent resident, are also exempt. This is significant for purchasing residential property, whether for owner-occupation or investment.

Understanding these categories is crucial for anyone involved in property transactions in Australia, not just in knowing whether you need to apply but also in understanding the nuances that might exempt you from this process.

Purchasing Guidelines for Temporary Residents

Temporary residents in Australia, governed by FIRB, face specific restrictions and requirements in property acquisition:

FIRB Approval Requirement As a temporary resident, seeking FIRB approval before purchasing residential property is mandatory and crucial for legal compliance.
Restrictions on Property Types The type of property temporary residents can purchase is restricted. They are allowed to buy only one established house, which must be their Principal Place of Residence. If circumstances change and they no longer reside in the property, regulations stipulate it must be sold.
Investment Property Constraints Temporary residents looking to invest in Australian real estate can invest only in brand-new properties or vacant land for building a new property. This ensures that the investment contributes to creating new housing stock in Australia.

These guidelines balance the opportunity for temporary residents to own property in Australia with the need to maintain a healthy housing market for permanent residents and citizens.

Guidelines for Foreign Investors

Foreign investors eyeing Australian real estate must navigate FIRB's different rules. Understanding these guidelines is essential for compliance and successful property acquisition:

Mandatory FIRB Approval Like temporary residents, foreign investors must obtain FIRB approval before purchasing property in Australia.
Types of Properties Eligible for Purchase The scope for foreign investors is limited to new properties or vacant land for building new properties. The focus is on encouraging the development of additional housing stock in Australia.
Exceptions to the Rule Exceptions exist where a foreign investor may purchase an existing dwelling, such as if the property developer holds an exemption certificate, inheritance, family court settlement, or court order.

For foreign investors, understanding these guidelines is paramount for a smooth and legally compliant property acquisition process in Australia.

FIRB Approval and Contractual Implications

FIRB approval is not just a regulatory formality but an integral part of the contract process, especially for foreign acquirers and temporary residents:

The Necessity of FIRB Approval FIRB approval is a critical prerequisite for your property contract. Without it, the contract may be invalid, leading to significant legal and financial implications.
Recommended Contract Conditions It's advisable to include conditions in the property contract concerning FIRB approval, such as a clause stating the contract's dependency on obtaining FIRB approval and provisions for contract termination if FIRB approval is not granted.

Including this condition in your contract ensures clarity and protection for both buyer and seller, aligning with FIRB's regulatory framework.

Applying for FIRB Approval

The process of obtaining FIRB approval is essential for foreign investors and temporary residents seeking to purchase property in Australia. Here’s a detailed guide on how to apply:

Online Application Process FIRB applications are predominantly managed online. To start your application, visit the FIRB Application Portal.
How to Apply for a Residential Application
- To apply for a residential application, log in to Online services for foreign investors.
- Select either the Lodgment menu then Residential application, or use the Lodge or pay residential application quick link.
- You can apply and pay for an approval or exemption certificate to purchase a residential property, or to vary the conditions of an existing residential approval or exemption certificate.
- Complete a separate application for each property you intend to purchase unless you are applying for an exemption certificate.
- Your application will be processed only after you have paid your fee. Use the correct payment reference number (PRN) to reduce any delays in processing your application.
- For further details, see the residential application section on the FIRB website.
myGovID
- As a foreign investor, you (and if applicable your representatives) need the myGovID app to access Online services for foreign investors.
- myGovID is the Australian Government’s Digital Identity app that lets you prove who you are when logging into a range of government online services. It is unique to you and cannot be shared.
Registration
- You must complete a one-off registration the first time you access Online services for foreign investors.
- You must set up the access yourself. An authorised representative cannot do this for you. Once you have access, you can authorise a representative to access Online services for foreign investors on your behalf.
Log in
- Use your myGovID to log in to Online services for foreign investors. You'll receive a 4-digit code to enter the myGovID app.
Gathering Required Information
- Ensure you have all necessary information, including personal details, information about the intended property purchase, and relevant financial documents.
Timely Submission
- Apply for FIRB approval as early as possible in your property acquisition process to avoid contractual implications.
How long does it take to get FIRB approval?
- Regarding the timeline for FIRB approval, typically, once the FIRB fees have been duly paid, applicants can expect to receive a response within approximately 30 days.

By preparing adequately and following these steps, the FIRB application process can be navigated smoothly and efficiently.

How much do you pay for FIRB?

Understanding the cost implications of FIRB approval is crucial for effective budgeting in the property acquisition process in Australia. Here’s a detailed look at the fee structure effective from 1 July 2023 to 30 June 2024:

Fee Structure Based on Property Value 2023 - 2024: The FIRB application fees are structured based on the value of the property you intend to purchase:
- For properties valued at less than $75,000, the fee is $4,200.
- For properties valued at $1 million or less, the fee is $14,100.
- For properties valued at $2 million or less, the fee increases to $28,200.
- The fee for properties valued at $3 million or less is $56,400.
- For properties valued at $4 million or less, the fee is $84,600.
- Properties valued at $5 million or less have a fee of $112,800.
- For properties valued over $5 million, refer to the Foreign Investment website for specific fee details.
Variation Fees
- A simple variation, considered immaterial or minor, incurs a fee of $4,200.
- For a complex variation, which is not of an immaterial or minor nature, the fee is $28,200.
- The variation fee is capped at the amount paid for the original application if lower. For instance, if you requested a complex variation in May 2023 for an approval where the original fee was $13,200, the variation fee is capped at $13,200.
Importance of Fee Planning It's essential to factor these fees into your overall budget when planning a property purchase in Australia. Knowing the exact cost structure for FIRB approval enables informed decision-making and ensures adequate preparation for your property acquisition journey in Australia.

Additional Foreign Acquirer Duty (AFAD)

In addition to FIRB approval, certain transactions in Australia may attract the Additional Foreign Acquirer Duty (AFAD), particularly relevant for foreign investors and temporary residents:

Definition and Applicability of AFAD AFAD is an extra duty that applies to property transactions involving foreign individuals or entities, adding an additional financial consideration for foreign acquirers.
Conditions for AFAD AFAD applies if the acquirer is a 'foreign person' and the property is 'AFAD residential land', with the transaction date on or after October 1, 2016.
Rate of AFAD The rate of AFAD is calculated at 8% of the dutiable value of the property.
Seeking Professional Advice For assistance in determining your AFAD obligations, professional guidance is advisable.

Conclusion

Navigating FIRB approval, understanding the cost implications, and complying with additional duties like AFAD are integral parts of purchasing property in Australia as a foreign investor or temporary resident. If you need guidance or assistance, Pearson Chambers Conveyancing is here to help. Contact us at 0421 058 106, email contact@pearsonchambers.com.au, or visit our website at www.pearsonchambers.com.au for tailored advice.