Investing in Australia

A Q&A guide to investing in Australia.

This Q&A gives an overview of the key factors affecting inward investment, including information on the jurisdiction's legal system; key laws and regulatory authorities; investment restrictions; and details of international treaties, customs and monetary unions. The guide also provides information on investor individuals; visa permits; restrictions on foreign ownership; transfer pricing and thin capitalisation rules; imports and import duties; safety regulations and standards for commercial goods and services; structuring and tax incentives; investment guarantees; recent developments and proposals for reform.

To compare answers across multiple jurisdictions, visit the Investing in... Country Q&A tool.

This Q&A is part of the Investing in… Global Guide. For a full list of contents, please visit www.practicallaw.com/investingin-guide.

Shelley Hemmings and Dennis Mak, Johnson Winter & Slattery
Contents
1. How does your jurisdiction compare internationally as a destination for inward investment?

Australia provides a relatively stable economic environment for inward foreign investment, characterised by strong political and legal institutions and a highly-skilled labour force. A robust regulatory framework, particularly in the financial services and banking sectors, has also facilitated foreign investment although Australia has relatively high company tax rates compared to neighbours such as Hong Kong and Singapore. According to the 2015 Index of Economic Freedom, Australia is ranked fourth in the world for economic freedom, behind Hong Kong, Singapore and New Zealand.

According to the Australian Trade Commission (Austrade) (www.austrade.gov.au), "the Australian economy is:

  • The world's 13th largest.

  • Entering its 24th year of uninterrupted annual growth.

  • Rated triple 'A' by all three global rating agencies.

  • Forecast to have average annual real GDP growth of 3.0% between 2015 and 2019".

Recently, Australia has also reaped the benefits of its close trade, investment and cultural ties with the Asia-Pacific region, particularly China, Japan and South Korea. In June 2015, Australia signed a free trade agreement with China, the China-Australia Free Trade Agreement.

 
2. What types of companies are attracting foreign investment into your jurisdiction and what are the most active sectors?

The Australian Trade Commission is currently highlighting "growth opportunities for investment in Australian medical and materials sciences and technologies, and digital technologies".

According to the Australian Trade Commission, key sectors of foreign investment in Australia are:

  • Tourism infrastructure.

  • Major infrastructure.

  • Agribusiness and food.

  • Resources and energy.

  • Digital economy and information communications technology.

  • Medical science.

  • Materials science.

 
3. What will be the main factors affecting the market and how do you expect the market to develop?

The Australian economy is in a period of transition, following a recent decline in the export price of natural resources. In 2014, capital infrastructure in the mining industry fell approximately 10.9% and the price of iron ore fell approximately 40%. However, despite this, according to the 2014 Australian Industry Report published by the Department of Industry, mining is still Australia's "largest goods producing industry", accounting for approximately 8.3% of GDP.

The economy is expected to move towards a greater focus on services industries such as tourism and tertiary education.

Traditional trading partners such as the US, the UK and Japan continue to be Australia's three largest foreign investors accounting for 23.7%, 13.8% and 10% (respectively) of inbound foreign direct investment in 2013.

However, recently there has also been a geographical shift in Australia's trade and investment flows toward Asia, taking advantage of the economic growth of the Asia-Pacific region. According to the Australian Trade Commission, China overtook Switzerland and Canada as the sixth largest source of foreign direct investment in Australia in 2013, increasing the value of its foreign investment by 20% in 2012-13.

 

Legal system

4. Please briefly outline the government and legal system.

Australia is a country with six States and three Territories characterised by a federal, Westminster system of government.

Division of powers between Commonwealth and State

Under the constitution, law-making powers are divided between the State and Commonwealth Governments. The Commonwealth has exclusive powers for certain matters, such as customs, excise and bounties. Where a Commonwealth law is inconsistent with a State law, the Commonwealth law prevails to the extent of the inconsistency (section 109, Constitution).

Separation of powers

There are three arms of Government:

  • The judicature: the courts.

  • The executive: the Prime Minister and ministers of Government.

  • The legislature: elected members of parliament.

There are courts at both the federal and State levels, with the High Court being the highest Australian court. The jurisdiction of federal and State courts is prescribed under legislation. Generally, federal courts will hear matters relating to federal laws and State courts will hear matters relating to State laws.

 
5. What are the key laws and regulatory authorities governing foreign investment in your jurisdiction?

Foreign investment is primarily regulated by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and the Federal Government's Foreign Investment Policy (Policy). FATA applies to "foreign government investors" and "foreign persons" including a:

  • Natural person not ordinarily resident in Australia.

  • Corporation or trust in which a natural person not ordinarily resident in Australia or a foreign corporation holds a 15% or greater interest (or in which two or more such natural persons or foreign corporations hold in aggregate a 40% or greater interest).

Responsibility for decisions under the FATA and the Policy lies with the Australian Federal Treasurer who is assisted by the Foreign Investment Review Board (FIRB), a non-statutory body that reviews foreign investment proposals and makes recommendations to the Treasurer.

The Treasurer assesses foreign investment proposals against a "national interest test" that considers factors including the:

  • Impact of the proposal on Australia's strategic and security interests.

  • Impact of the proposal on market pricing and concentration.

  • Impact of the proposal on tax revenues and the proposal's consistency with government policies, including policies on environmental impact.

  • Impact of the proposal on the general economy and the community.

  • Character and corporate governance practices of the investor.

The Treasurer has broad powers under FATA to:

  • Block foreign investment proposals where the Treasurer considers the proposal to be contrary to Australia's national interest.

  • Issue divestment orders.

 
6. What international treaty organisations and/or economic, customs or monetary unions or free-trade areas is your jurisdiction a member of?

Australia is involved in a number of international economic organisations and forums including:

  • World Trade Organisation (WTO).

  • Group of 20 Finance Ministers and Central Bank Governors (G20).

  • Organisation for Economic Co-operation and Development (OECD).

  • International Monetary Fund (IMF).

  • Asian Development Bank (ADB).

  • Asia Pacific Economic Co-operation (APEC): an economic forum comprising 21 member economies in the Asia-Pacific that aims to facilitate economic growth and integration in the region.

  • East Asia Summit (EAS): a forum facilitating strategic dialogue between East Asian nations.

Although Australia is not a member of the Association of Southeast Asian Nations (ASEAN), Australia and ASEAN entered into a strategic partnership in 2014. Australia's Foreign Minister joins with the Minister's ASEAN counterparts each year for the ASEAN Post-Ministerial Conference.

In March 2015, the federal cabinet announced the approval of the signing of a memorandum of understanding to join the proposed China-led Asian Infrastructure Investment Bank (AIIB), which is expected to have paid-in capital of US$20 billion and total authorised capital of US$100 billion.

 
7. What other international agreements apply to foreign investment?

Free trade agreements in force

Australia is a member of a number of bilateral and multilateral free-trade agreements, including:

  • ASEAN-Australia-NZ Free Trade Agreement (AANZFTA).

  • Australia-Chile Free Trade Agreement (ACI-FTA).

  • Australia-New Zealand Closer Economic Relations Trade Agreement.

  • Australia-United States Free Trade Agreement.

  • Japan Australia Economic Partnership Agreement.

  • Korea-Australia Free Trade Agreement.

  • Malaysia-Australia Free Trade Agreement (MAFTA).

  • Singapore-Australia Free Trade Agreement (SAFTA).

  • Thailand Australia FTA (TAFTA).

Signed free trade agreements

Australia signed a free trade agreement with China on 17 June 2015, the China-Australia Free Trade Agreement (ChAFTA). Australia's and China's domestic treaty-making processes would need to be completed before ChAFTA can enter into force.

Free trade agreements under negotiation

Australia is also currently in negotiation with a number of countries in respect of bilateral and multilateral free trade agreements, including the (see Question 30):

  • Proposed Australia-India Comprehensive Economic Co-operation Agreement.

  • Pacific Agreement on Closer Economic Relations (PACER).

  • Trans-Pacific Partnership (TPP) Agreement.

 

Investor individuals

8. Are there any visas, permits or other requirements for foreign individuals entering your jurisdiction for business purposes?

Investing in Australia

Individuals seeking to own and manage new or existing businesses in Australia, or invest in Australian assets, may be eligible for a Business Innovation and Investment (Provisional) Visa (subclass 188). There are four streams available under this visa:

  • Business innovation stream: establishing and managing a new or existing business.

  • Investor stream: making a designated investment of at least A$1.5 million and maintaining business and investment activity in Australia.

  • Significant investor scheme: investing at least A$5 million into complying investments in Australia and maintaining business and investment activity in Australia (see Question 9).

  • Premium investor scheme: investing at least A$15 million into complying premium investments in Australia and maintaining business and investment activity in Australia (see Question 9).

Working in Australia

There are a number of different temporary, sponsored and permanent work visas available to individuals seeking to work in Australia. Further information is available on the Department of Immigration and Border Protection website (http://www.border.gov.au/Trav/Visa-1).

 
9. Are there any visa waivers or fast-track procedures available for foreign individuals entering your jurisdiction as investors?

Significant investor visa programme

The significant investor visa (SIV) programme provides individuals with a fast-track method to gain Australian permanent residency.

SIV applicants must submit an expression of interest through "SkillSelect" and be nominated by a State or Territory Government, or Austrade. On being nominated, that individual must make investments of at least A$5 million into complying investments before being granted a Business Innovation and Investment (Provisional) visa (subclass 188). There are no English language or age requirements for this visa.

From 1 July 2015, SIV applicants will be required to invest in complying investments which must include:

  • At least A$500,000 in eligible venture capital or growth private equity funds investing in start-up and small private companies.

  • At least A$1.5 million in eligible managed funds or Listed Investment Companies (LICs) that invest in emerging companies listed on the Australian Stock Exchange.

  • A "balancing investment" of up to A$3 million in managed funds or LICs that invest in certain eligible assets.

Holders of a subclass 188 visa can apply for a Business Innovation and Investment (Permanent) visa (subclass 888), which provides Australian permanent residency, within four years. To qualify for a subclass 888 visa, the individual must have been in Australia for at least 40 days per year, calculated cumulatively, for the period of time he or she has held a subclass 188 visa, or the individual's spouse must have been in Australia for at least 180 days per year, calculated cumulatively, for the period that the primary applicant has held their subclass 188 visa.

The list of complying investments available to SIV applicants is prescribed by Regulation 5.19B of the Migration Regulations 1994 (Cth).

Premium investor visa programme

The Government has also introduced a premium investor visa (PIV) programme, which commenced from 1 July 2015. The PIV programme provides applicants with a "12 month pathway" to permanent residency.

The PIV is available to investors who are invited by the Australian Government (as nominated by Austrade) and who invest at least A$15 million in eligible investments.

 
10. What are the circumstances under which an individual becomes liable to pay tax in your jurisdiction? Can individuals be liable for tax on foreign-source income?

An individual's tax treatment in Australia depends on whether they are an Australian resident, for tax purposes. An individual is a resident of Australia if he:

  • Resides in Australia, within the ordinary meaning.

  • Has an Australian domicile, unless they have a permanent place of abode outside Australia.

  • Spends more than half of the income year in Australia, unless their usual place of abode is outside Australia and they do not intend to take up residence in Australia.

An individual who is (or is the spouse or child under 16 of) a member of a Commonwealth Government superannuation scheme is deemed to be an Australian resident.

Australian residents

The assessable income of an Australian resident is all of their non-exempt ordinary and statutory income derived during the income year from all sources, including net capital gains. Some types of foreign source income and gains are exempt for some types of taxpayers, and tax offsets are generally available for foreign tax paid on non-exempt foreign income.

Temporary residents

Individuals that are "temporary residents" (that is, holders of temporary visas, subject to some exceptions) are exempt from Australian tax on most foreign source income and capital gains.

Non-residents

A non-resident is only assessable on income from sources in Australia, excluding amounts that are subject to a final withholding tax, and capital gains on "taxable Australian property".

 

Investment restrictions

11. Are there any restrictions on foreign ownership and investment in specific industry sectors? Do any formalities, permit or notification requirements apply?

Prescribed sensitive sectors under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA)

There are a number of "prescribed sensitive sectors", where foreign investment is restricted or prohibited (paragraph 17H(b) , Foreign Acquisitions and Takeovers Act 1975 (Cth)):

  • Media.

  • Telecommunications.

  • Transport (including airports, port facilities, rail infrastructure, international and domestic aviation and shipping services provided within, or to or from, Australia).

  • The supply of training or human resources, or the manufacture or supply of military goods or equipment or technology, to the Australian Defence Force or other defence forces.

  • The manufacture or supply of goods, equipment or technology able to be used for a military purpose.

  • The development, manufacture or supply of, or the provision of services relating to, encryption and security technologies and communications systems.

  • The extraction of (or the holding of rights to extract) uranium or plutonium or the operation of nuclear facilities.

Chilean, Japanese, Korean, New Zealand and US non-government investors are eligible to make an investment in a "prescribed sensitive sector" if the value of the investment does not exceed A$252 million.

Other legislation

In addition to FATA, there are also specific legislative provisions and regulations that restrict foreign ownership or investment in certain industry sectors and companies, including:

  • Banking: foreign ownerships in the Australian banking sector must be consistent with the Banking Act 1959 (Cth), the Financial Sector (Shareholdings) Act 1998 (Cth) and banking policy.

  • Airlines: aggregate foreign ownership in an Australian international airline (including Qantas) is limited to 49%.

  • Airports: foreign ownership of some airports is limited to 49% and there is also a cross-ownership limit between some airports under the Airports Act 1996 (Cth).

  • Shipping: the Shipping Registration Act 1981 (Cth) generally requires a ship to be majority Australian-owned if it is to be registered in Australia.

  • Telstra: aggregate foreign ownership of this Australian telecommunications company is limited to 35% and individual foreign investors are limited to 5% ownership.

 
12. Does the government retain and exercise control over certain industry sectors? If so how?

Australian government ownership control

In recent years, the Australian Commonwealth and State governments have taken an increasingly liberal view toward the privatisation of public trading enterprises and the sale of government assets through deregulation and microeconomic reform. Qantas airlines, Medibank Private medical insurance and Telstra telecommunications are examples of public trading enterprises that have been privatised by the Commonwealth government.

However, the federal and State Governments continue to retain control in certain industry sectors, including:

  • Postal services: Australia Post is a Government business enterprise within the portfolio of the Federal Minister of Communications.

  • Utility assets in certain States: for example, some water and electricity assets.

Competition and anti-trust laws

An acquisition of Australian shares or assets that has the effect, or is likely to have the effect, of substantially lessening competition in a market in Australia is prohibited (section 50, Competition and Consumer Act 2010 (Cth) (CCA)).

The Australian Competition and Consumer Commission (ACCC) can seek an injunction to prevent parties completing a transaction if it considers that the transaction would breach section 50 of the CCA. Similarly, if parties have completed a transaction without ACCC approval and the ACCC later determines that the transaction breaches section 50, the ACCC can also seek penalties and divesture orders from a court.

In addition to the regulation of acquisition of shares and assets, Australia's CCA also contains provisions regulating anti-competitive practices such as:

  • Cartel conduct.

  • Third-line forcing.

  • Resale price maintenance.

  • Exclusive dealing.

 
13. Are there restrictions on foreign ownership or occupation of real estate? Do any formalities, permit or notification requirements apply?

There are a number of restrictions on the acquisition of an interest in Australian real estate by foreign investors under the Foreign Acquisitions and Takeovers Act 1975 (Cth) and Australia's Foreign Investment Policy administered by the Foreign Investment Review Board (FIRB).

Foreign government investors

All foreign government investors must seek FIRB approval before acquiring any interest in Australian real estate, regardless of the value. A foreign government investor includes an entity in which a government from a single country has more than 15% interest and an entity in which two or more countries have an aggregate interest of more than 40%.

Residential real estate

Foreign non-residents cannot acquire established dwellings unless it is for redevelopment. However, they can acquire new dwellings, off-the-plan properties or vacant land for development (New Developments) subject to FIRB approval. Temporary residents can acquire New Developments and one established dwelling as their Australian residence, subject to FIRB approval.

Commercial real estate

Foreign investors must seek FIRB approval before taking an interest in developed commercial real estate that is valued in excess of A$55 million, unless that real estate is heritage listed, in which case, a A$5 million threshold applies. Investors from Chile, Japan, Korea, New Zealand and the United States are subject to a higher threshold of A$1,094 million.

Foreign investors taking an interest in land for commercial development must seek FIRB approval regardless of land value.

Rural land

From 1 March 2015, privately-owned foreign investors must seek FIRB approval to acquire an interest in rural land, that is land used wholly and exclusively for the carrying on of a primary production business, where the cumulative value of the rural land that the foreign person already holds exceeds or is likely to exceed A$15 million.

An exception applies to foreign investors from Singapore and Thailand, and the US, New Zealand and Chile, who only need FIRB approval if they acquire a substantial interest in a primary production business valued above A$50 million (for Singapore and Thai investors) and A$1,094 million (for the United States, New Zealand and Chilean investors) respectively. These are non-cumulative thresholds.

 
14. Are there any minimum capital requirements for foreign investment?

There are generally no minimum capital requirements for foreign investment in Australia.

 
15. Are there any exchange control or currency regulations? Are there any restrictions on the remittance of profits abroad?

Australia generally does not restrict the transfer of funds from Australia, or impose exchange controls. However, Australia does impose foreign exchange controls on certain prescribed countries, entities and designated individuals from time to time, consistent with its economic sanctions policy.

 

Imports

16. Are there any restrictions on the importation of commercial goods?

The Government imposes controls on the importation of certain goods into Australia, including:

  • Absolute prohibition on the importation of certain goods in any circumstances.

  • Restriction on the importation of certain goods, where written permission is required for the importation of those goods.

Further information on the types of goods prohibited and restricted, and the permission required to import certain goods, is provided on the website of the Australian Customs and Border Protection Service (www.customs.gov.au/site/page4369.asp).

 
17. What import duties apply to commercial goods?

Duties are imposed on commercial goods imported to Australia by the Australian Customs and Border Protection Service. The rates of duty payable on imported goods are based on tariff classifications provided under the Customs Tariff Act 1995 (Cth) and depend on where the imported goods are produced, manufactured or originate from.

Most imported goods are also assessed for Goods and Services Tax (GST), although exceptions to GST apply for certain goods including food items and certain medical aids. In calculating the GST payable, the value of the taxable importation is broadly calculated as the aggregate of the following:

  • Customs value of the imported goods.

  • Customs duty payable.

  • Amount paid or payable to transport the goods to Australia and insure the goods during transportation.

  • Wine equalisation tax payable.

Further information may be found on the website of the Australian Customs and Border Protection Service (www.customs.gov.au/faq/DutyGST.asp).

 
18. Are the safety regulations and standards applicable to commercial goods in your jurisdiction compatible with other standards that are recognised internationally?

The law imposes a high level of regulation for safety regulations and standards applicable to goods and services. The standards applicable to commercial goods and services are generally prescribed by specific legislation applicable to that good or service.

The standards applicable for consumer goods and product-related services are primarily regulated by the Australian Consumer Law 2010 (Cth), which imposes mandatory standards for certain goods and services and, among other things, provides the Government with the authority to:

  • Issue safety warning notices.

  • Ban products.

  • Issue compulsory recall notices.

 
19. Are there any similar or equivalent restrictions on providing services into another jurisdiction?

There is currently no answer content for this Question, as it was added to the guide after this article was written.

 

Structuring and tax

20. How is foreign investment into your jurisdiction typically structured? What forms of legal vehicle are attractive to foreign investors?

Foreign investors have typically structured their foreign investment in Australia through a managed investment trust (MIT) due to the generous withholding tax concessions provided to MITs in respect of non-resident members.

Foreign investors in a MIT generally receive a concessional withholding tax rate of 15%, rather than the usual withholding tax rate of 30%, for eligible distributions from the MIT. Also, the trustee of an eligible MIT can elect to apply the capital gains tax provisions in respect of the taxation of gains and losses on the disposal of eligible assets.

To qualify as an MIT, the following criteria must generally be satisfied:

  • The trustee is an Australian resident, or central management and control of the trust is within Australia.

  • The trust is a "managed investment scheme", as defined in the Corporations Act 2001 (Cth), operated by an Australian financial services licensee.

  • The trust is "widely-held".

  • The trust is not a public trading trust for tax purposes.

In April 2015, the Commonwealth Government released draft proposals for a new income tax regime for MITs and their members aimed at addressing some of the complexities and difficulties with the current income tax regime for trusts (see Question 29).

 
21. What are the circumstances under which a business becomes liable to pay tax in your jurisdiction?

Company tax generally

A company is liable to pay tax on its assessable income, which includes amounts received in the ordinary course of business and also other income, including:

  • Commissions.

  • Fees for services.

  • Royalties.

  • Lease payments.

  • Insurance payouts and compensation.

  • Net capital gains from the sale of certain capital assets.

  • Rental income.

  • Subsidies for carrying on a business.

Permanent establishment

The concept of "permanent establishment" and an entity having a permanent establishment in Australia is relevant to establishing whether non-residents are subject to Australian tax on its business profits that are attributed to that permanent establishment. Although double taxation treaties generally provide a tax exemption for non-residents for income profits derived in the course of carrying on a business in Australia, this exemption does not apply to the extent that those profits are attributable to a permanent establishment of the non-resident.

A "permanent establishment" is defined as a place at or through which a person carries on any business, and includes a place where a foreign resident entity is carrying on a business through an agent in Australia (section 6(1) , Income Tax Assessment Act 1936 (Cth)). According to tax ruling TR 2002/5, a permanent establishment must have "an element of permanence, both geographic and temporal".

Foreign income

Australian residents, for tax purposes, are taxed on their worldwide income. Non-residents are only taxed in Australia in respect of their Australian-source income.

 
22. What are the main business tax rates?

Company tax

The general income tax rate for both resident and non-resident companies is 30%. However, from 1 July 2015, the income tax rate for small business companies (that is, companies with an aggregated annual turnover of less than A$2 million) has been reduced from 30% to 28.5%.

Goods and Services Tax (GST)

The GST is levied by the Federal Government and distributed to the Australian States. GST is charged at the rate of 10% on the supply of most goods and services consumed in Australia.

GST is payable by the supplier in respect of a "taxable supply", which broadly means a supply that is:

  • Made by a supplier that is registered, or required to be registered, for GST. An entity must be registered if it carries on an enterprise with an annual turnover, excluding supplies that are not connected with Australia, of A$75,000 (A$150,000 for a non-profit organisation) or more.

  • Made for consideration in the course or furtherance of an enterprise carried on by the supplier.

  • "Connected with Australia", and is not a "GST-free" or "input taxed" supply.

Stamp duty

Stamp duty is imposed by all States and Territories on certain transaction instruments. Some heads of duty are charged at fixed rates and others on an increasing scale. Value-based duty is charged at marginal rates of up to 7% on the greater of the GST-inclusive price or market value.

All States and Territories charge stamp duty, subject to certain exemptions and thresholds, on land transactions and on shares or units in land-rich or landholding companies or unit trusts.

 
23. What is the tax treatment in your jurisdiction of profits from an investee company remitted outside your jurisdiction by an investor?

The remittance of profits from a company to a foreign investor is treated as follows:

  • If corporate tax has been paid on the profit and the profit is declared as a fully franked dividend, no further tax is paid.

  • If no corporate tax has been paid, withholding tax at the rate of 30% applies.

  • If the profit is from a foreign source and on-paid as a dividend to a foreign investor, no tax is paid by the company and no withholding tax applies when paid as a dividend to the foreign investor.

 
24. What transfer pricing and/or thin capitalisation restrictions may apply to investments into your jurisdiction from elsewhere?

Transfer pricing rules

Transfer pricing (TP) rules and TP documentation requirements ensure cross-border arrangements and dealings are taxed appropriately in Australia, based on the arm's length principle and the Organisation for Economic Co-operation and Development (OECD) Guidance material.

Australia's TP documentation and record-keeping requirements require records to be kept to allow matters such as relevant arm's length conditions and methods used to identify those conditions to be ascertained. These records should also explain how the methods used accord with the legislation and the OECD Guidance material.

The Australian Taxation Office (ATO) also operates an Advance Pricing Agreement programme, which enables taxpayers to reach agreement with the ATO on the method of pricing their international related party dealings on a prospective basis.

Thin capitalisation rules

The thin capitalisation rules disallow excess deductions for interest and other "debt deductions" where the entity's debt exceeds the maximum allowable level.

From 1 July 2014, the "safe harbour" debt to equity ratio for non-financial entities has been reduced from 3:1 to 1.5:1 on a debt-to-equity basis, with equivalent changes for financial entities that are not authorised deposit-taking institutions (ADIs) ("safe harbour" debt limit reduced from 20:1 to 15:1 on a debt-to-equity basis), and ADIs ("safe harbour" minimum capital amount increased from 4% to 6% of risk-weighted Australian assets).

The worldwide gearing ratio, which previously only applied to outward investors, has been reduced from 120% to 100% and has also been extended to inbound investors.

The de minimis threshold for the thin capitalisation rules that apply has increased from A$250,000 of annual debt deductions to A$2 million, effective from 1 July 2014.

 

Incentives

25. What tax incentive or other schemes exist to encourage foreign investment?

The Government provides assistance to certain foreign investors through tax incentives and other schemes at a federal and state level, including the following.

Australian Trade Commission (Austrade)

Austrade provides general guidance and information to foreign investors on:

  • Setting up businesses in Australia.

  • Government programmes.

  • Investment opportunities.

Australian State and Territory Government assistance

Each individual State and Territory offers different investment assistance programmes. More information can be found on Austrade's website (www.austrade.gov.au/Invest/Doing-business-in-Australia/Investor-Guide/Australian-Government-support-programs/Australian-state-and-territory-government-assistance).

Selected grants

Different grants are provided by the Commonwealth and State and Territory governments. More information can be found on the Australian Government's website (www.business.gov.au/grants-and-assistance/grant-finder/Pages/default.aspx).

Australian research and development (R&D) tax incentive

This tax incentive provides eligible companies with a tax offset for certain research and development activities. A refundable tax offset is provided for certain eligible entities with an aggregated turnover of less than A$20 million per annum and a non-refundable tax offset is provided for other eligible entities. To qualify for the R&D tax incentive, the applicant must:

  • Be an eligible R&D entity: an Australian company, foreign company but an Australian resident for tax purposes, or certain other types of foreign companies.

  • Have engaged in a core R&D activity or a supporting R&D activity.

  • Be able to identify eligible notional deductions.

Australian Government Major Project Facilitation programme (MPF)

The Minister for Infrastructure and Regional Development can grant MPF assistance for certain major or strategic investment projects, usually for a period of three years. Generally, MPF provides eligible investors with an initial and ongoing contact in the Government and tailored facilitation services, including advice on government approvals.

Further information on the above, and other schemes, is available at Austrade's website (www.austrade.gov.au/Invest/Doing-business-in-Australia/Investor-Guide/Australian-Government-support-programs).

 

Investment guarantees

26. What legal guarantees exist against expropriation and/or provide for appropriate compensation? What is your government's track record in this regard?

Australia is a party to 23 bilateral investment treaties (BITs), with 21 of those BITs still in force. BITs provide protection to foreign investors that are nationals of states that are party to a BIT with Australia, often providing protection against expropriation without compensation.

The level of protection provided to foreign investors differs from treaty to treaty. There can be further requirements, additional to mere incorporation in a state that is party to a BIT, for a foreign investor to receive protections under that treaty.

Australia's obligations under BITs can generally be enforced by foreign investors through international arbitration, before bodies such as the International Centre for Settlement of Investment Disputes.

Further information on BITs to which Australia is a party can be found on the United Nations Conference on Trade and Development's website (http://investmentpolicyhub.unctad.org/IIA/CountryBits/11).

 
27. Are there any issues in relation to the enforcement of intellectual property rights?

Intellectual property is protected through statute and common law.

Trade marks

Trade mark registration provides protection of the mark from the date of application for registration without the requirement of proving any reputation in the mark. Applicants can register trade marks in two ways:

  • Directly with IP Australia.

  • Registration with the World Intellectual Property Organisation (WIPO) under the Madrid Protocol.

There are three main claims of infringement of a registered trade mark under the Trade Marks Act 1995 (Cth):

  • Use of a sign that is substantially identical or deceptively similar to the claimant's mark in relation to the goods or services in respect of which the trade mark is registered (section 120(1), Trade Marks Act 1995 (Cth)).

  • Use of a substantially identical or deceptively similar sign in relation to goods or services not covered by the registration but that are nonetheless "of the same description" or "closely-related" (section 120(2), Trade Marks Act 1995 (Cth)).

  • Use of a substantially identical or deceptively similar sign on unrelated goods or services in certain circumstances (section 120(3), Trade Marks Act 1995 (Cth)).

Patents

A patent can be registered in Australia with IP Australia. The registration of a patent broadly involves a process of filing, examination, acceptance and grant.

Infringement proceedings in respect of a registered patent are brought under section 120 of the Patents Act 1990 (Cth). Proceedings must commence within three years from the day the relevant patent was granted, or six years from the day on which the infringing act was done, whichever period ends later.

To prove direct infringement of a patent, the claimant generally must demonstrate that:

  • They are the proprietor or exclusive licensee of the patent.

  • The defendant has, without authority, performed an act within the "patent area".

  • The act was within one of the claimant's "exclusive rights".

Supplying a product to another for an infringing use of a patented method or process also constitutes infringement (section 117, Patents Act 1900 (Cth)).

Copyright

Unlike trade marks and patents, there is no official registry or application process for copyright protection. Copyright is automatically protected the moment an idea or creative concept is documented, although there are basic criteria for works to receive copyright protection depending on the type of work produced.

Copyright infringement occurs when a person that is not the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorises the doing in Australia of, any act comprised in the copyright (section 36, Copyright Act 1968 (Cth)).

Indirect infringement also arises for the importation, sale and distribution of copyright material.

 
28. Are there any issues in relation to the gaining and enforcement of judgments and/or arbitral awards?

The ability to enforce a foreign judgment depends on the type of judgment issued, and the country in which that judgment was issued.

Statute and common law

The enforcement of foreign judgments is regulated by statute, including the Foreign Judgments Act 1991 (Cth) and the Foreign Judgments Regulations 1992 (Cth), as well as common law principles.

International treaties and conventions

Australia is not a party to the related Brussels, Lugano and San Sebastian Conventions, Hague Service Convention, Hague Foreign Judgments Convention or European Convention on Bankruptcy.

However, Australia has entered into a bilateral agreement with the UK in respect of the enforcement of judgments in certain civil matters (Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters 1994).

 

Recent developments and proposals for reform

29. Have there been any significant recent or proposed legal developments affecting investors?

Foreign Investment Review Board

The Foreign Investment Review Board (FIRB) has recently been more proactive in making inquiries into non-resident investment, particularly investment in Australian real estate with some significant transactions being rejected and, in 2015, divestiture being ordered where required approval was not obtained.

Before this, a parliamentary inquiry found that that there had not been a single prosecution of a foreign investor since 2006 and no foreign investment divestiture orders issued since 2007.

FIRB has also introduced lower thresholds for notification in respect of investments in interests in Australian rural land.

Corporate tax avoidance

In April 2015, the Australian Senate Economics References Committee initiated an inquiry examining the adequacy of Australia's current tax laws, with a particular focus on corporate tax avoidance and profit-shifting. The inquiry held a number of public hearings attended by senior executives from companies such as Apple, Google and Microsoft.

Proposed amendment to tax regime for managed investment trusts (MITs)

In April 2015, the Government released draft proposals for a new income tax regime for MITs and their members. To access the new regime, investment funds that are trusts will need to qualify as "attribution managed investment trusts" (AMITs). The main changes that are proposed include:

  • An attribution regime for the determination of member's assessable income derived from the AMIT. Generally, this will apply to ensure that amounts of income, tax credits and other receipts derived by the AMIT are treated in the hands of the members as if the members directly held the AMIT's investments and derived the returns directly.

  • A system of "unders and overs" to better deal with discrepancies between amounts attributed to members under the proposed attribution regime and actual amounts discovered after the end of the income year, without the need to seek amendments to the investment fund's income tax returns or members' income tax returns.

  • Conferring fixed trust treatment for AMITs that is relevant for the purposes of AMITs being able to meet the requirements to carry forward their tax losses into future income years.

  • Investment funds with different classes of members entitled to different asset pools of the investment fund can elect to treat each different class as a separate AMIT for income tax purposes.

The draft proposals seek to address some of the complexities and difficulties with the current income tax regime for trusts and the specific problems that have arisen when applying the current taxation of trust regime to widely held investment vehicles.

If the draft proposals are legislated, the proposed start date will be 1 July 2016. However, the Federal Government announced in its 2015 to 2016 Budget that MITs may, at the MIT's election, apply the new rules from 1 July 2015.

 
30. Are there any planned or on-going treaty negotiations or political developments that could have an impact on your jurisdiction's bilateral relationships with other nations and/or other economic, customs or monetary unions, free-trade areas or markets?

Free trade agreements under negotiation

Australia is currently in negotiations in relation to the following proposed bilateral and multilateral free-trade agreements. These proposed free trade agreements are at various stages of negotiation.

  • Australia-Gulf Cooperation Council (GCC) FTA: participants in current negotiations are Australia and the Gulf Co-operation Council (an alliance of six Middle-Eastern countries comprising Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman).

  • Australia-India Comprehensive Economic Co-operation Agreement.

  • Environmental Goods Agreement: participants in current negotiations include a number of other members of the World Trade Organisation, namely, Canada, China, Costa Rica, the European Union, Hong Kong, Iceland, Israel, Japan, Korea, New Zealand, Norway, Singapore, Switzerland, Chinese Taipei, Turkey and the United States.

  • Indonesia-Australia Comprehensive Economic Partnership Agreement.

  • Pacific Agreement on Closer Economic Relations (PACER) Plus: participants in current negotiations are Australia, Cook Islands, Federated States of Micronesia, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New Guinea, Republic of Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu.

  • Regional Comprehensive Economic Partnership (RCEP): participants in current negotiations are the ten ASEAN countries (Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam) and the six states with which ASEAN has free trade agreements (Australia, China, India, Japan, South Korea and New Zealand).

  • Trade in Services Agreement (TiSA): participants in current negotiations are Australia, Canada, Chile, Chinese Taipei, Colombia, Costa Rica, European Union (representing its 28 member states), Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, Republic of Korea, Switzerland, Turkey and the United States.

  • Trans-Pacific Partnership (TPP) Agreement: participants in current negotiations are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

Signed free trade agreement with China

Australia concluded free-trade negotiations with China in November 2014. The China-Australia Free Trade Agreement (ChAFTA) was signed by Australia and China on 17 June 2015. Both countries' domestic treaty-making processes would need to be completed before ChAFTA can enter into force.

Asian Infrastructure Investment Bank

In March 2015, the federal cabinet announced the approval of the signing of a memorandum of understanding to join the proposed China-led Asian Infrastructure Investment Bank (AIIB), which is expected to have paid-in capital of US$20 billion and total authorised capital of US$100 billion.

 

Main investment organisations

Australian Chamber of Commerce and Industry

Main activities. This is Australia's largest business association. It represents the interests of Australian businesses and industries by lobbying government and influencing economic, trade and employment policy.

W www.acci.asn.au

Australian Industry Group

Main activities. This represents industry sectors including manufacturing, engineering and construction. It aims to shape government policy and maintains links with a large number of overseas industry associations.

W www.aigroup.com.au

Australian Trade Commission (Austrade)

Main activities. Austrade is a trade commission that operates within the Commonwealth Government's Ministry of Trade and Investment. Its role is to promote Australian trade and investment by providing information, advice and services to foreign and domestic investors.

W www.austrade.gov.au

Business Council of Australia

Main activities. This provides Australian business leaders with a forum to discuss issues relating to economic and business reform and lobbies Australian governments for the interests of its members.

W www.bca.com.au

Minerals Council of Australia

Main activities. This is the peak industry body for Australian exploration, mining and minerals processing.

W www.minerals.org.au



Online resources

Austrade

W www.austrade.gov.au/Invest/default.aspx

Description. Government website that provides information on reasons to invest in Australia, doing business in Australia, government reports and investment opportunities.

Australian Taxation Office

W www.ato.gov.au

Description. Government website that provides general information on Australia's taxation regime.

Australian Government Department of Immigration and Border Protection

W www.border.gov.au

Description. Government website that provides information on importing goods, customs and duty rates, immigration and visa requirements.

Australian Foreign Investment Review Board

W www.firb.gov.au/content/default.asp

Description. Foreign Investment Review Board's (FIRB) website that provides information on the application process for foreign investment approval.



Contributor profiles

Shelley Hemmings, Partner

Johnson Winter & Slattery

T +61 2 8274 9553
F +61 2 8274 9500
E shelley.hemmings@jws.com.au
W www.jws.com.au

Professional qualifications. Western Australia and New South Wales, Australia, Solicitor

Areas of practice. Corporate; financial services.

Non-professional qualifications. B Juris, LLB, University of Western Australia

Recent transactions

  • Advising on acquisitions and disposals.
  • Advising both on and offshore service providers on the establishment and implementation of financial service operations in Australia.
  • Acting on the establishment of various structured product offerings and restructures of products, and the establishment of various alternative investment schemes.
  • Acting on note, debenture, derivative and warrants issues, restructures and financing and refinancing.
  • Acting on hedge, investment management arrangements, currency and asset overlays and swaps.

Languages. English

Professional associations/memberships. Listed as a Band 1 Investment Funds lawyer in Chambers Asia Pacific 2015; recognised as a leading lawyer in Investment Law and Funds Management in Best Lawyers Australia 2016.

Dennis Mak, Associate

Johnson Winter & Slattery

T +61 2 8274 9586
F +61 2 8274 9500
E dennis.mak@jws.com.au
W www.jws.com.au

Professional qualifications. New South Wales, Australia, Solicitor

Areas of practice. Corporate; funds management.

Non-professional qualifications. B Com (Accounting), LLB, University of Sydney

Recent transactions

  • Acting on a number of large-scale public and private mergers and acquisition transactions.
  • Acting for an investment marketing firm and investment manager on their Australian financial services licence applications.
  • Assisting with the establishment of regulated funds.

Languages. English


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