Whether you’re looking to expand your current corporation into a new region or want to start fresh in a new place, Australia is among one of the most popular destinations. Aside from the transparent regulatory system, comprehensive legal system, political stability and proximity to Asian markets, investors choose Australia over other countries as it is:
- a world-leading producer of gold, iron ore and uranium and the world’s second largest liquid natural gas exporter;
- a global top 10 producer of major agricultural commodities;
- a regional leader in investment management, with the largest pool of funds under management in Asia;
- the world’s third most popular destination for students; and
- the world’s 11th largest international tourism market.
Australia also has one of the most educated, multicultural and multilingual work forces which is ideal if you have a cross border operation or are wanting to establish an international presence.
Before building your empire in Australia, however, it is important to familiarise yourself with the Foreign Investment Review Board (FIRB) application threshold in relation to your relevant acquisition.
Despite the cool down of the “mining boom”, the mining industry still remains an attractive sector for foreign investment. There are two types of tenements in mining, namely exploration tenements and mining or production tenements. Investments in exploration tenements do not require FIRB approval, whereas exploration tenements are classified as an interest in land and require the approval of FIRB regardless of value.
If you are considering investing in land, the application threshold is different for different types of land. Generally there has been a reduction in application thresholds since 2015; however, this should not be seen as an indication that Australia is “closed for business”. The subsequent free trade agreements (FTAs) that Australia has entered into with other countries are a clear indication that Australia welcomes foreign investment.
The previous threshold for approval by FIRB in relation to the acquisition of an interest in agricultural land was $252 million, but this was reduced significantly to an aggregate of $15 million. Some believe the lower threshold is an attempt to balance the sudden influx of foreign investment in agricultural land prior to 2015. However, from a practical perspective the only difference this lower threshold makes is in terms of application fees. Notably the application fee of approximately $101,500 in scheme transactions over $15 million represents less than 1% of the cost of acquisition.
For acquisitions of interests in developed commercial land, the threshold stayed at the higher figure of $252 million, and for most FTA countries the threshold is even higher at $1,094 million. However, if you are considering purchasing vacant commercial land or residential land, all transactions require FIRB approval, irrespective of value. Foreign investors may only invest in Australian residential properties that are classified as new dwellings. All proposed acquisitions by foreign government investors require FIRB approval.
The application threshold for business varies by industry. Most notably, any proposed acquisition of an interest in the media sector requires FIRB approval, and the threshold for acquisitions of interests in agribusiness is $55 million. Investments in other businesses generally have a threshold of $252 million. Again, investors from FTA countries enjoy a higher threshold of $1,094 million for non-sensitive industries, and $252 million for sensitive industries.
Most individual investors prefer investing into managed funds; however, there are many different types of investment funds. It is best to consult a financial adviser or financial planner in order to select the most suitable investment product. If the investment is required as a condition of obtaining an investor visa, then the investment must be made in accordance with the visa requirements. It is advisable to prepare an investment portfolio prior to applying for these visas.
Establishing a Business
When establishing a business presence in Australia it is important to consider the vehicle through which the business will operate. The two most common types of business structures and their tax and commercial issues are discussed below.
Australian Incorporated Subsidiary Company
If establishing a business is the key focus, the most appropriate structure is the registration of a proprietary limited company. Benefits of this structure include:
- it is a separate legal entity with limited liability;
- the registration process is fast and relatively simple;
- whilst there is a requirement of one resident director, the company may be wholly owned by foreign shareholders;
- it may be exempt from complex reporting obligations if considered a “small business”; and
- capital gains exemptions may be available on the ultimate disposal of the business.
Compared with a branch office (discussed below), the main disadvantage of a proprietary limited company may be the repatriation of profit. Income is subject to a withholding tax of 30% (or the reduced rate of typically 15% for countries with a double tax Agreement with Australia). Specific advice should be sought in your country of residence to ensure that the taxation implications of the Australian operations are understood prior to establishment. Some would argue that another disadvantage is that the tax losses (if any) are trapped in the subsidiary and cannot be beneficial to the group or parent until a future year when there are tax gains. However, if there are several Australian entities within the same group, their books/accounts may be consolidated for tax purposes and therefore it may be possible for tax losses in one entity to be offset against tax gains in another. This is something a branch office may not be able to participate in.
If the operation in Australia is limited in duration or scope, it may be in line with the group’s overall strategy to register a branch office.
The main benefits offered by a branch office include:
- only Australian source income attributable to the branch is considered assessable income for tax purposes; and
- branch offices are not subject to repatriation of profit, so all profit / losses may be remitted to the “parent company”.
Some disadvantages of a branch office include:
- a longer and more complex registration process;
- no separate legal entity (the foreign company is therefore subject to Australian legislation);
- the possibility of higher compliance costs.
Either business vehicle will be entitled to the same research and development tax incentives and grants for exporting.
It may also be beneficial to consider how the business will be funded, namely by way of debt, or equity or a combination of both. Classification of the funds is important as returns paid on debt interests are tax deductible and returns paid on equity interests are not. Due to the complexity of this area we recommend that detailed advice is sought prior to the finalisation of the funding structure of Australian operations.
Co-written with Sonia Li
 Sensitive businesses include telecommunications; transport; defence and military related industries and activities; encryption and securities technologies and communications systems; and the extraction of uranium or plutonium; or the operation of nuclear facilities.