22 March 2016

Brett Schmidt

Executive Director

Moving to, investing in and doing business in Australia for the wealthy

Australia continues to develop its taxation and migration laws to attract wealthy foreign citizens to invest in and to live in Australia. Although moving to or investing in Australia can be attractive, expert advice should be obtained to ensure compliance with Australian regulations.

There are a number of business migration options that should be carefully evaluated with the assistance of a specialist migration agent registered in Australia. Certain visa options come with stringent requirements for “complying investments” by visa holders which can only be satisfied if they are provided by an Australian Financial Services Licensed manager.

There are also complex taxation laws which must be carefully considered in order to ensure that your Australian business and investment interests are structured tax effectively. An absolute imperative is to ensure that your foreign business assets and income are not unintentionally or unnecessarily exposed to Australian tax.

And then, of course, there is the maze that I describe as our ‘commercial regulatory environment’ which is far too broad to cover here.

 

Business migration options

While not the only pathway for persons looking to Australia as a migration destination, Australia’s Business Innovation and Investment program is popular among overseas business owners and investors seeking to obtain an Australian visa for their family to settle down and enjoy the Australian lifestyle. There are several streams in this program, each having its own criteria and obligations to fulfil.

Two of these streams are the significant investor stream – also known as the Significant Investor Visa, or SIV- and the premium investor stream – also known as the Premium Investor Visa or PIV. The SIV and the PIV both have discrete complying investment criteria which must be met for a successful visa application.

 

Significant and Premium Investor Visa program – complying investment considerations

 

Significant Investor Visa (SIV)

Applicants are required to invest at least $5 million for a minimum of four years in complying investments, which include:

  • At least $500,000 in eligible Australian venture capital or growth private equity (VCPE) fund(s) investing in start-up and small private companies. The Government expects to increase this to $1 million for new applications within two years as the market responds;
  • At least $1.5 million in an eligible management fund(s) or Listed Investment Companies (LICs) that invest in Australian emerging companies; and,
  • A ‘balancing investment’ of up to $3 million in managed fund(s) or LICs that invest in a combination of eligible assets that include Australian listed securities, eligible corporate bonds or notes, annuities and real property (subject to the 10 per cent limit on residential real estate).

 

Premium Investor Visa (PIV)

Applicants are required to invest at least $15 million in an Australian managed fund(s) or direct investment for a minimum of one year, which include:

  • Australian securities exchange listed assets;
  • Australian government or semi-government bonds or notes;
  • Corporate bonds or notes issued by an Australian exchange listed entity (or wholly owned subsidiary of the Australia listed entity) or investment grade rated Australia corporate bonds or notes rated by an AFS licensed debt rating agency;
  • Australian proprietary limited companies;
  • Real property in Australian excluding residential property;
  • Deferred annuities issued by Australian registered life companies; or,
  • State & Territory government approved philanthropic donation.

NB: To be an eligible fund, a further requirement is that cash is to be no more than 20% of a fund’s net assets and derivatives are to be used for risk management purpose only. PIV investors may elect to make a portion or the entirety of their investment by way of a philanthropic donation (endorsed by a State or Territory government).

 

Foreign Investment Rules

Whether you are a SIV or PIV investor, if you are looking for investments in addition to the required complying investments, there are some aspects you must consider. While the Australian government welcomes foreign investment, it has rules in place to give assurance to the community that the national interest is being maintained.

To that end, foreign investment rules regulate the nature and extent of investment in Australian businesses and property by foreign nationals, in particular:

  • Investment in businesses or business entities above certain ownership percentage and monetary thresholds;
  • Investment in agricultural/rural land above a certain cumulative threshold; and
  • Investment in commercial and residential real estate.

Foreign investment rules must be navigated very carefully when you are a foreign person (for example, before you get your permanent residency visa) considering other investments.

 

Australian Taxation Considerations

Australia has one of the most comprehensive taxation systems in the world. Often described as draconian – it is far reaching, extremely complex and rigorously enforced.

 

Tax residency

The most critical taxation issue to be planned in the course of your investment and move here is tax residency.

Depending on your specific circumstances you can be considered a tax resident even though you are not a citizen or permanent resident of Australia. This fact is frequently misunderstood, often with quite dire taxation consequences from both a personal and financial perspective.

Tax residency in Australia is the trigger that potentially brings all your foreign investments, businesses and income into the Australian taxation net. Reducing and potentially eliminating your Australian tax bill through proactive planning (and monitoring your tax residency status) is essential. Not getting it right can be very costly. For example, if care is not taken it is possible that previously taxed foreign income can be taxed again in Australia!

 

Domestic taxation advice

For wealthy families investing and moving here ensuring their Australian investments and businesses are structured tax effectively is also crucial.

There is an array of investment and business structures available in Australia. Depending on the tax residency of the investors, the nature and types of investment you make and how they are financed, choosing the appropriate structure will ensure the most preferred after tax outcome.

We will also ensure that you are aware of and you comply with the myriad Federal and State indirect taxes.

 

Cross-border taxation advice

Just as pivotal and often overlooked is assessing the potential costs of Australian taxation on your foreign investments and businesses, and managing any related impact and risks. We will work closely with your home country taxation advisers to ensure we prudently manage your cross-border considerations and issues.

 

A friendly but important reminder

To reiterate, the Australian taxation system is not only comprehensive it is also highly regulated and very strongly policed. Examples of Australian Taxation Office enforcement activity include the review of approximately 1 million taxpayers who are here on visas and also the ongoing review of cash transfers into and out of Australia. These activities amongst others are designed to ensure that migrant taxpayers are properly complying with Australian taxation laws.

The downside of getting it wrong or not complying with your Australian taxation obligations is far too great not to seek and implement specialist taxation advice.

 

If you would like to find out more about how foreign investors can take advantage of Australia’s Business Innovation and Investment program, feel free to call our office on +61 7 3391 5055, or email advice@mgdwealth.com.au.

 

Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.