DOING BUSINESS IN AUSTRALIA

Transcription

1 DOING BUSINESS IN AUSTRALIA

2 The information contained in this publication is intended as an introduction only, and should not be relied upon in place of detailed legal advice. Some information has been obtained from external sources, and Corrs cannot guarantee the accuracy or currency of any such information. The information contained in this publication was current as at October 2013.

3 CONTENTS Introduction... 1 Overview of the government and legal system of Australia... 2 Business organisation... 4 Company formation Company administration Foreign investment Takeovers Substantial shareholdings disclosure Application of foreign law Overview of taxation issues Intellectual property Employment, industrial relations and occupational health and safety Other key issues Useful websites for prospective businesses page i

4 Doing Business in Australia

5 INTRODUCTION Australia is an exceptional place in which to do business. Our strong economy, skilled and multilingual workforce, competitive tax structure and stable political environment make us an ideal location for foreign investment. We also enjoy the benefits of relatively low set-up costs, easy access to the Asia-Pacific region, a vibrant financial services sector and a time zone which accesses both the close of business in the United States and trading opening in Europe. As one of the fastest-growing economies in the Organisation for Economic Co-operation and Development (OECD), Australia comprises primary industries such as resources, energy and agriculture, as well as rapidly-expanding secondary industries in goods and services, IT, tourism and education. In its 2013 World Economic Outlook Report, the International Monetary Fund (IMF) has forecast growth for Australia of 2.9% in 2013 and 3.6% for This growth forecast indicates that the Australian economy will outpace all other major advanced economies over the next two years, and can be attributed to Australia s low unemployment, booming resources industry, contained inflation, strong public finances and a record pipeline of business investment. Furthermore, the World Economic Forum ranks Australia twentieth in its Global Competitiveness Report for The Report notes the transparency of Australia s public and private institutions, with the country s most notable advantage being its strong and efficient financial system and sound banking sector which ranks fifth in the world. 2 Australia has built up bilateral trade relationships with Japan, Indonesia, Malaysia, China and the United Arab Emirates over many years. It is party to a number of Free Trade Agreements (FTAs), notably with the United States, Chile, Thailand, New Zealand, Singapore and most recently Malaysia. FTAs with China, Japan, Korea, India and Indonesia are currently under negotiation. Australia has low barriers to trade and investment and welcomes and seeks foreign investment, particularly if it creates employment or introduces new technology. It has a sound and practical structure of financial and business regulation which provides certainty for business and is open to investment without undue delay. Increasing numbers of international businesses are locating their regional headquarters here, attracted by our temperate climate, relaxed lifestyle, high standard of living and business sophistication. This Doing Business in Australia publication answers the most common questions and issues raised by foreign investors, importers and exporters. This publication has been prepared by Corrs Chambers Westgarth, one of Australia s leading law firms. As laws concerning business and foreign investment are complex and can change, this overview serves as a guide only and should not be used as a substitute for specific legal advice on the application of Australian law. 1 IMF, World Economic Outlook (October 2013). 2 WEF, Global Competitiveness Report (September 2012). page 1

6 OVERVIEW OF THE GOVERNMENT AND LEGAL SYSTEM OF AUSTRALIA Doing Business in Australia page 2

7 GOVERNMENT The Commonwealth of Australia is a federation of six States (New South Wales, Victoria, Queensland, South Australia, Western Australia and Tasmania), two internal Territories (Northern Territory and the Australian Capital Territory) and a number of minor external Territories. A written Constitution divides power between the central Federal Parliament, located in Canberra in the Australian Capital Territory, and the eight State and Territory Parliaments. The Constitution gives the Federal Parliament the power to make laws relevant to foreign investment, including laws concerning corporations, taxation, trade and commerce, communications, banking, insurance, bankruptcy and insolvency, intellectual property, immigration and industrial disputes. Each State has legislative power to make any laws it desires, except in relation to a few matters reserved to the Federal Parliament. Federal law prevails over State or Territory law to the extent of any inconsistency. Any foreign investment proposal must comply with both Federal law and the law of the State or Territory in which the investment is located. In some cases, local Government law is also relevant, especially in relation to planning and building approvals. LEGAL SYSTEM There are two primary sources of law in Australia: statute law and common law. Statute law is the body of legislation enacted by the various levels of Government, and includes subordinate legislation such as regulations, rules and by-laws. Common law is the body of law arising out of decisions of the various Federal, State and Territory courts. Each State and Territory has its own court system, consisting of a Supreme Court and a number of minor courts. The Federal Government has its own court system consisting of the High Court, the Federal Court and the Family Court. The High Court hears appeals (if leave is granted) from the Federal Court and the State and Territory Supreme Courts. In addition, there are numerous panels and tribunals administering particular areas of law. The High Court also functions as Australia s superior constitutional court. Both the High Court and the Federal Courts may hear matters requiring the interpretation of the Australian Constitution. Australia is also a party to various international treaties and conventions, but those treaties and conventions do not create rights or obligations for individuals in Australia unless they are given effect by an Australian statute. International law may be used by an Australian court as an interpretative aid should the court find a statute ambiguous. page 3

8 BUSINESS ORGANISATION Doing Business in Australia page 4

9 INTRODUCTION Business may be conducted in Australia through several legal structures, including: companies incorporated in Australia, including Australian subsidiaries of foreign companies; registered foreign companies; partnerships and limited partnerships; joint ventures; trusts; and sole proprietors. The Corporations Act 2001 (Corporations Act) is the primary source of company regulation in Australia, and is administered by the Australian Securities & Investments Commission (ASlC). The focus of the discussion below is on conducting business in Australia via a company structure either incorporated in Australia or overseas but reference is also made to conducting business in Australia through some of the other structures listed above. COMPANIES INCORPORATED IN AUSTRALIA Companies have the benefit of separate legal personalities distinct from their shareholders or members. Companies assume the rights and liabilities of their members, can hold property and can sue and be sued in their own name. Generally, the liability of the members is limited to the amount (if any) on the shares respectively held by them. Actual management and control of a company is vested in the board of directors, who are appointed by the members. Companies must, for the purposes of income tax legislation, appoint a public officer. The public officer is responsible for doing everything the company is required to do for income tax purposes. This person is liable to the same penalties which may be imposed on the company for any default, but is not personally liable for payment of the company s taxes. The Commissioner of Taxation may exempt a company from the requirement to appoint a public officer. There are various types of companies, but by far the most common is a company limited by shares, being either a proprietary company (called a private company in many other countries) or a public company. A proprietary company must have at least one member, but may not have more than 50 nonemployee members and may not raise funds from the public, whereas a public company has no limits on membership and may raise funds from the public. Public companies may be listed on the Australian Securities Exchange (ASX), in which case they must also comply with the ASX Listing Rules. Relative to public companies, proprietary companies are less tightly regulated and subject to less onerous reporting requirements. Areas in which this more relaxed regulatory approach is evident include the regulations and restrictions in relation to meetings, the appointment, qualification and removal of directors, the giving of financial benefits to directors and related parties, the power to allot shares and the required contents of annual reports. A proprietary company is further classified under the Corporations Act as being either small or large. Generally, large proprietary companies have more onerous reporting obligations than small proprietary companies. A proprietary company will be large for the purposes of the Corporations Act if it (together with its controlled entities) satisfies any two of the following criteria: consolidated gross operating revenue for the financial year is at least A$25 million; consolidated gross assets at the end of the financial year is at least A$12.5 million; and has 50 or more employees at the end of the financial year. A company limited by shares must have the word Limited or Ltd at the end of its name (to indicate the limited liability of the company s members), whilst a proprietary company limited by shares must also have the word Proprietary or Pty as the second last word in its name. In addition, all companies must state their Australian Company Number (ACN) or Australian Business Number (ABN) on all their public documents. page 5

10 Companies that are residents of Australia for taxation purposes will be taxed on income and gains from sources both in and outside Australia, reduced by any allowable deductions. Conversely, companies that are non-residents of Australia will be generally only be taxed on income with sources in Australia and gains arising from dealing with certain assets that have the necessary connection with Australia. Company groups are not regulated as groups and are treated as individual companies. However, some company groups may be treated as a single entity for income tax purposes. REGISTERED FOREIGN COMPANIES Companies that are incorporated outside of Australia that wish to carry on business in Australia must be registered with ASIC. Unincorporated bodies that do not have their head office or principal place of business in Australia must also register with ASIC if they wish to carry on business in Australia. A foreign company applying for registration must lodge an application accompanied by certain prescribed documentation, including a copy of its constitution or equivalent (if any) and a list of its directors, with ASIC. ASIC does not have discretion whether or not to grant registration. A determination of whether or not a foreign company is carrying on a business in Australia requires an examination of all of the circumstances of the company s activities in Australia in light of several provisions of the Corporations Act and a body of common law principles. Specific advice should be sought in each case. A registered foreign company is given the power to hold land in Australia under the Corporations Act. At common law, a foreign company may sue and be sued in its own name, however, a failure to register under the Corporations Act as a foreign company, when required to do so, may inhibit that company s right to sue. Some of the more important obligations imposed upon foreign companies registered to carry on business in Australia are set out below. NAME AND AUSTRALIAN REGISTERED BODY NUMBER A registered foreign company may only trade under the specific name registered with ASIC. lf the name of a registered foreign company changes, it must formally notify ASIC of the change within 14 days. When a foreign company registers with ASIC, it is given an Australian Registered Body Number (ARBN). An ARBN is to be distinguished from an ABN, which is relevant for taxation purposes. A foreign company must ensure that the ARBN (or, if the last nine digits of the body s ABN are the same as the last nine digits of its ARBN, the ABN) together with its name and place of origin, appear on all public documents and negotiable instruments published or signed by the company in Australia. If applicable, such documents are also required to include a notice of the fact that the liability of the company s members is limited. Public documents include all business letters, cheques, invoices, receipts, orders for goods, orders for services, official notices, contracts, agreements, publications, websites and statements of account of the business. There are certain limited exceptions that may apply. For example, authorised deposit taking institutions (eg banks, buildings societies and credit unions) are exempted from certain requirements. Doing Business in Australia page 6

11 BUSINESS ORGANISATION REPRESENTATION IN AUSTRALIA A registered foreign company must have a registered office in Australia to which all communications and notices may be addressed and which must be open and staffed for certain prescribed hours. ASIC must be notified of the address of the registered office and must be notified of any change in address within seven days of the change. Registered foreign companies must also have a formally appointed local agent, who may be either a natural person, or a company resident in Australia. The local agent is responsible for the company s compliance with the Corporations Act and is personally liable for any contraventions of the Corporations Act. ASIC must be notified of the name and address of the local agent. As with Australian companies, registered foreign companies must, for the purposes of income tax legislation, appoint a public officer. REPORTING Subject to certain exemptions, registered foreign companies must annually lodge with ASIC a copy of their balance sheet, profit and loss statement and cash flow statement for the previous financial year, which must be prepared in accordance with the laws of the company s place of incorporation. These financial reports must be accompanied by any other documents that the company is required to prepare under the laws applicable in its place of incorporation. ASIC may require registered foreign companies to provide further information if the accounts provided do not sufficiently disclose the company s financial position. A small proprietary company controlled by a foreign company has to prepare a financial report and directors report only if it was controlled by a foreign company for all or part of the year and it is not consolidated for that period in the financial statements for that year lodged with ASIC by a registered foreign company. LISTING ON THE ASX There are two ways a foreign company can list its equity securities on the ASX: as an ASX Foreign Exempt Listing; or as a standard ASX Listing. Foreign entities listed on an acceptable overseas exchange may be admitted as an ASX Foreign Exempt Listing provided that, amongst other things, they have either net tangible assets of at least A$2,000 million at the time of admission or operating profit before income tax of at least A$200 million for each of the previous three financial years. They are not required to comply with the majority of the ASX Listing Rules, but must continue to comply with the rules of their overseas home exchange. Companies with an ASX Foreign Exempt Listing are required to provide to the ASX a range of documents and reports on an ongoing basis. Alternatively, a foreign company may seek admission to the general category. The entity must satisfy the same admission requirements as an Australian entity and will be required to comply fully with the ASX Listing Rules (subject to any specific waivers that the ASX may grant). To be eligible for admission to the official list as either an ASX Listing or an ASX Foreign Exempt Listing the foreign entity must establish an Australian securities register, appoint an agent for service in Australia and satisfy the ASX that it will observe the ASX Listing Rules. It is also required to be registered as a foreign company under the Corporations Act. United States companies, in particular, may also take advantage page 7

12 of an ASX listing through the US offshore offering exemption under US securities laws (Regulation S). The ASX is one of only a few exchanges in the world to have received a no-action letter from the US Securities and Exchange Commission granting relief from some of the more onerous Regulation S requirements in favour of those of the local exchange. PARTNERSHIPS A partnership consists of two or more partners (to a maximum of 20 except in the case of certain professional partnerships) carrying on business in common with a view to profit. Partners may be individuals or companies. A partnership is not a separate legal entity from the partners themselves. Partners are jointly and severally liable for all liabilities of the partnership, and this liability is unlimited. Each State and Territory has its own partnership legislation which, together with the terms of any partnership agreement and the principles of equity and common law, governs the relationship of the partners. Partnerships are not required to file any financial information concerning the partnership on any public register. Accordingly, partnerships and partners (except corporate partners) are able to keep their financial performance confidential. A partnership need not be audited, but partners are bound to render true accounts and full information regarding all things affecting the partnership to all other partners or their legal representatives. The income tax implications of a partnership are as follows: a partnership is not taxed as a separate entity; a partnership is obliged to file an annual tax return allocation to table the income or loss among the partners in their respective shares; each partner, in their own tax return for the same tax year, must include their own share of the taxable income or loss of the partnership; and the partners must adopt a uniform approach to the tax treatment of income and expenditure of the partnership business. LIMITED PARTNERSHIPS Legislation in all States provides for limited partnerships, which are partnerships consisting of at least one general partner and at least one limited partner. Limited partners contribute to the capital of the partnership and share in its profits but do not take part in its management. They cannot bind the firm and their liability to contribute to the debts or obligations of the partnership is limited to their capital contributions. The obligations of general partners are similar to those in an ordinary partnership and their liability remains unlimited. Limited partnerships are formed upon registration as a limited partnership. Limited partnerships are generally taxed as if they are companies. Since 1 July 2002, certain classes of non-resident investors (eg certain tax exempt entities and taxable foreign residents of specified jurisdictions) investing in eligible venture capital investments through a limited partnership have been able to access the existing exemption for capital gains on venture capital investments. Doing Business in Australia page 8

13 BUSINESS ORGANISATION JOINT VENTURES In Australian commercial circles, the term joint venture is a label for a variety of forms of legal association between investors. Generally speaking, a joint venture is an agreement between two or more parties for the purposes of carrying on a business or undertaking. There is no settled statutory or common law definition of what constitutes a joint venture. Three relatively common variations exist in Australia: an incorporated joint venture, where a separate legal entity is incorporated to pursue the interests of the joint venturers, who are shareholders in the company, in a specific project. The taxation implications of this form of joint venture (assuming it to be resident in Australia for tax purposes) are the same as for an Australian company; a unit trust, where the beneficial interest in the trust property is divided into units which may be independently dealt with. Unit trusts normally have a corporate trustee; and an unincorporated joint venture, where the investors have a contractual association which lacks both corporate form and equity capital, and which may or may not be a partnership for taxation purposes or under partnership legislation. If it is not a partnership at law or for taxation purposes, no partnership tax return is required and each joint venturer must lodge a separate tax return and may adopt a differing tax treatment for the income and expenses referable to its share of the joint venture. Joint ventures are a common form of business association, especially in the energy and resources industries. For example, unincorporated mining joint ventures have been developed by the mining and petroleum industry in which several companies contract with one another to operate a mine or well but they each separately sell their share of the resources mined. TRUSTS A trust is a legal relationship whereby a trustee, being the legal owner of trust property, deals with that property for the benefit of some other person or persons (the beneficiaries) or for some object permitted by law, such as a charitable object. A trust is not a separate legal entity and does not enjoy limited liability, although it is common to use a company as the trustee and thereby limit the potential liability of the trustee. A trustee owes a high standard of care to beneficiaries, and is subject to a number of duties. These include the duty to act in good faith, to avoid conflicts of interest, to make full disclosure to beneficiaries and not to make a secret profit or gain. Trusts commonly used to carry on businesses are unit trusts or discretionary trusts. In a unit trust, the beneficial interests in the trust are divided into units, which may be transferred in similar fashion to shares in a company. The holder of a unit is entitled to a fixed share of the profit of the trust. In a discretionary trust however, the identity or interest of the beneficiary is not determined at the time the trust is created. Trust income is usually taxed in the hands of beneficiaries according to their respective share of the net trust income, and the trustee is not normally taxed on it. It should be noted, however, that: depending on the ownership and business activities of the trust or the business activities of entities controlled by the trust, a unit trust may be taxed as if it is a company; the trustee of a trust can be liable for tax in a variety of situations (eg where there are non-resident beneficiaries); and tax losses are generally trapped within the trust and their future use is subject to satisfying certain complicated tests. page 9

14 COMPANY FORMATION Doing Business in Australia page 10

15 A foreign investor may either incorporate a new company or purchase a recently incorporated shelf company which has not traded. To incorporate a company, it is necessary to: select an available name; adopt a company constitution or choose to be governed by the replaceable rules set out in the Corporations Act; obtain written consents from each person who agrees to become a director, secretary or member of the company; and complete an application form and lodge it with ASIC. ASIC will register the company and issue a certificate of registration. The company will be given an ACN and may conduct business anywhere in Australia. The company will also need to apply to the Australian Taxation Office for an ABN and a tax file number. page 11

16 COMPANY ADMINISTRATION Doing Business in Australia page 12

17 Proprietary companies must have at least one director and that director must be ordinarily resident in Australia (other directors of a proprietary company may reside outside Australia). Public companies must have at least three directors, two of whom must be ordinarily resident in Australia. A public company must also have at least one company secretary ordinarily resident in Australia. A proprietary company is not required to have a company secretary, but may do so. If a proprietary company does have one or more secretaries, at least one of them must be ordinarily resident in Australia. All directors and company secretaries must be natural persons who are at least 18 years of age. Typically, the day-today management of a company is in the hands of a Managing Director or Chief Executive Officer. Companies carrying on business in Australia must maintain a registered office in Australia. For taxation purposes, a public officer who is responsible for the tax affairs of the company must be appointed. Notice of such appointment must be given to the Commissioner of Taxation. Unless the constitution of a company provides otherwise, agreements and documents that are to be executed by a company may be signed either by two directors (or a sole director if it is a sole director company), or a director and a company secretary of the company without using a common seal. Alternatively, if a company has a common seal, it may execute documents using the common seal, but this must be witnessed by either two directors (or the sole director) or a director and a company secretary. Public companies must hold an Annual General Meeting (that is, a general shareholders meeting) at least once in each calendar year and within five months of the close of each financial year. There is no such requirement in the Corporations Act for proprietary companies. The financial year of most Australian taxpayers ends on 30 June, although permission can be obtained from ASIC and the Commissioner of Taxation to align the year end with a foreign parent s year end. Accordingly, most Annual General Meetings must be held on or before 30 November. The directors of a public company must lay before the Annual General Meeting the company s financial report, together with reports from the company s directors and auditors. The constitutions of larger (particularly public) companies usually provide that a proportion of the directors (often one third) must retire by rotation each year. The resignation and appointment of directors is usually considered at the Annual General Meeting. Other meetings may be convened by directors or shareholders from time to time, in accordance with the company s constitution or the Corporations Act. A register of certain company information is maintained by ASIC which may be accessed by the public. ASIC must be notified of, amongst other things, changes to officeholders, the issuance of shares and the passing of certain resolutions by the shareholders of the company. Public and large proprietary companies must lodge annual (and in some cases half-yearly) financial, directors and auditors reports with ASIC within three months (for disclosing entities), or four months (for all other companies) after the end of the company s financial year. The reports include information such as financial statements, any required disclosures, information relating to the company s operations during the year, and any dividends paid, or shares issued during the relevant year. Each year, ASIC provides companies with an annual statement of the company s details within two weeks of the anniversary of its registration date (or another date approved by ASIC (Review Date)). Companies will be required to review the statement of details and advise ASIC if any details are incorrect. In addition to the annual statements, companies must also advise ASIC of certain events (such as changes in members) as they occur. Further, companies are required to pay the review fee within two months of the Review Date. Companies are required to maintain a register of members, a register of security interests affecting the company s property and, if relevant, a register of option holders and register of debenture holders. Anyone can inspect these various registers. page 13

18 FOREIGN INVESTMENT Doing Business in Australia page 14

19 The Australian Government welcomes foreign investment into Australia and recognises the substantial contribution it makes to the development of Australia. But there are notification and approval requirements. In practice it is very rare for a proposal to be refused approval. A more generous investment regime applies to United States and New Zealand investors reflecting the terms of Australia s free trade arrangements with those nations. OVERVIEW OF FOREIGN INVESTMENT REGULATION Foreign investment in Australia is regulated principally by: the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA); the Foreign Acquisition and Takeovers Regulations 1989 (Cth) (Regulations);and Australia s Foreign Investment Policy (Policy) issued by the Australian Government. While elements of the Policy are a restatement of what is contained in FATA and the Regulations, certain aspects of the Policy (such as the national interest considerations and the requirements on foreign government investors) are not dealt with in FATA. While on a strict legal view these aspects of the Policy which are not addressed in FATA have no legislative force, given the significant discretion of the Australian Treasurer under FATA and the practical powers of the Government to refuse to grant necessary ministerial or other approvals under Commonwealth legislation, the Policy is and should be complied with by investors as if it has the force of law. The Australian Treasurer is responsible for the foreign investment framework and reviews investment proposals against the national interest on a case by case basis. This flexible approach maximises investment flows while at the same time enabling the Government to consider and respond to community concerns about foreign ownership. The Foreign Investment Review Board (FIRB) is a non-statutory body which advises the Treasurer on the foreign investment regime and, along with the Board Secretariat that is within the Commonwealth Treasury, is responsible for the dayto-day administration of the regime. Under FATA the Treasurer examines investment proposals and may: prohibit a proposed investment which the Treasurer decides would be contrary to the national interest; or raise no objections to an investment subject to the satisfaction of particular conditions which the Treasurer regards as necessary to address any national interest concerns. In practice, notifiable foreign investment proposals are examined by FIRB which makes recommendations to the Treasurer. From the date the Treasurer receives the application, the Treasurer has 30 days to reach a decision and a further 10 days (ie 40 days in total) to advise an applicant of its decision. The 40 day period may be extended by the Treasurer (through an interim order which is gazetted) by an additional 90 days. Notifiable foreign investment proposals are those proposals caught by FATA and the Policy (discussed below). All notifiable proposals require prior approval by the Treasurer. These transactions should therefore be made conditional on foreign investment approval. A failure to comply with Australia s foreign investment regime has significant and serious consequences for a foreign investor and its officers. Substantial civil and criminal penalties are imposed for breach of the FATA. The Treasurer also has extensive powers to divest or unwind transactions that are subsequently found to be contrary to the national interest. Foreign investors wishing to successfully navigate Australia s foreign investment regulatory regime need to understand not only the letter but the spirit of the regime. Adopting a clear commitment to Australia s foreign investment regime from the outset is critical to facilitate timely approval. To facilitate the process, it is important that a foreign investor who is looking at a significant proposal: page 15

20 respect the process and consult with FIRB and the Treasurer prior to any public announcement; appreciate and manage community sensitivities as needed; develop a whole of stakeholder strategy which engages key political and community players; and proactively identify and seek to address potential national interest concerns (if any). WHO SHOULD CONSIDER THE REGIME? FOREIGN PERSONS FATA and the Policy apply to foreign person. Broadly, a foreign person means: a natural person not ordinarily resident in Australia; or a corporation in which a natural person not ordinarily resident in Australia or a foreign corporation (together with any associates) holds at least a 15 per cent controlling interest; a corporation in which two or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, (together with any associates) hold at least a 40 per cent aggregate controlling interest; or the trustee of a trust estate, in which a natural person not ordinarily resident in Australia or a foreign corporation holds (together with any associates) a beneficial interest in at least 15 per cent of the corpus or income of the trust estate, or two or more foreign persons hold (together with any associates) beneficial interests in at least 40 per cent of the corpus or income of the trust estate. When calculating interests held or controlled by a person, the interests of the person s associates are also taken into account, which includes spouses, parents, children, officers of corporations and employees. PRESCRIBED FOREIGN INVESTORS AND PRESCRIBED FOREIGN GOVERNMENT INVESTORS Prescribed foreign investors and prescribed foreign government investors are subject to the same regulatory requirements as other foreign persons, except that higher monetary thresholds apply to certain investments. These higher thresholds reflect the obligations that Australia has under free trade agreements to afford favourable treatment to the investors from the relevant counter-party country. The current prescribed foreign investors are US Investors and NZ Investors. A US Investor is: a national or permanent resident of the United States of America (USA); a US enterprise (which is an entity constituted or organised under the laws of the USA; or a branch of an entity located in the USA and carrying on business activities there. A NZ Investor is either: a citizen, national or permanent resident of New Zealand (excluding a person who is a national of the Cook Islands, Niue or Tokelau and is not permanently residing in New Zealand; or a NZ enterprise (which is either an entity constituted or organised under NZ law or a branch of an entity not constituted or organised under NZ law that is located in and carrying on business activities in New Zealand. A prescribed foreign government investor is either: a body politic (or part of it) of NZ (or part of NZ) or the USA (or part of the USA) that controls or holds a 15% interest in another entity that is not a body politic of a foreign country; or an entity (which is not a body politic of a foreign country) that is controlled by or in which a 15% interest is held by a body politic (or part of it) of NZ (or part of NZ) or the USA (or part of the USA). FOREIGN GOVERNMENTS AND THEIR RELATED ENTITIES Direct investments by foreign governments and their related entities (including state-owned enterprises and sovereign wealth Doing Business in Australia page 16

21 FOREIGN INVESTMENT funds) are assessed on the same basis as private sector investment proposals. However, the Treasurer also takes into account a number of additional factors in respect of an investment proposal by a foreign government or a related entity (see below). NOTIFICATION REQUIRED UNDER FATA AND THE POLICY FATA and the Policy require notification to FIRB of proposals by foreign persons involving: an acquisition of a substantial interest in an Australian business or corporation in a non-sensitive sector that is valued above A$248 million*. For US Investors and NZ Investors, a notification threshold of A$1,078 million* applies, except for investments in prescribed sensitive sectors which are subject to a A$248 million* threshold; a takeover of an offshore company whose Australian subsidiaries or gross assets are valued above A$248 million* or A$1,078 million* for US Investors and NZ Investors, and A$248 million* for investments in prescribed sensitive sectors; a proposal to invest five per cent or more in the media sector, regardless of the value of the investment; a direct investment by foreign Governments and their related entities irrespective of the value of investment, including starting a new business or acquiring an interest in Australian urban land; an acquisition of an interest in real estate (including interests arising under leases, financing and profit sharing arrangements) that involve the acquisition of: developed commercial real estate that is heritage listed and valued at A$5 million or more and the acquirer is not a US Investor or NZ Investor; developed commercial real estate that is not heritage-listed and valued at A$54 million* or more, or A$1,078 million* for US Investors and NZ Investors; vacant land (for commercial or residential development) irrespective of value; residential real estate irrespective of value (subject to some exceptions); or shares or units in Australian urban land corporations or an Australian urban trust. * Threshold figures are indexed on 1 January annually against the Australian Consumer Price Index (the most widely accepted measure of inflation in Australia). Even if a proposal is approved under the FATA or the Policy, other legislation must be complied with, including the takeover provisions of the Corporations Act 2001 (Cth), the Trade Practices Act 1974 (Cth) and other legislation and Government policy applicable to special industry sectors, including broadcasting, insurance, banking, airlines and transport, shipping and telecommunications. NATIONAL INTEREST Under Australia s foreign investment regime, the Treasurer, on behalf of the Australian Government assesses foreign investment proposals against national interest on a caseby-case basis. The Treasurer can block proposals that are contrary to the national interest or apply conditions to a proposed investment to ensure they are not contrary to the national interest. The onus is on the Treasurer to form a view that the proposed investment is contrary to the national interest. The broad criteria for the contrary to the national interest test were deliberately not enshrined in the legislation to ensure that the test is interpreted and applied in a flexible manner by the government of the date. The Government typically considers the following factors when assessing foreign investment proposals: the extent to which the investment affects Australia s national security; competition issues, including whether a proposed foreign investment may result in an investor gaining control over market pricing and production of a good or service in Australia and its impact on the make-up of the relevant global industry particularly where concentration page 17

22 could result in distortions to competitive market outcomes; the impact on Australian tax revenues and other Australian Government policies (including whether the investment is consistent with its objectives in relation to the impact on the Environment; the impact on the general economy and the community; and the character of the investor, including the extent to which an investor operates on a transparent commercial basis and is subject to adequate and transparent regulation and supervision, and the corporate governance practices of the foreign investor. SENSITIVE SECTORS The following sectors are considered to be sensitive and foreign investment in these sectors is subject to detailed examination by FIRB: 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; extraction of uranium or plutonium and the operation of nuclear facilities; media; telecommunications; the manufacture or supply of goods, equipment or technology able to be used for a military purpose; and the development, manufacture or supply of, or the provision of services relating to encryption and security technologies and communications systems). In addition, ownership of assets can be restricted by separate legislation. Investors who wish to invest in these sectors of the Australian economy should seek advice on these issues. DIRECT INVESTMENTS BY FOREIGN GOVERNMENTS AND RELATED ENTITIES Direct investments by foreign governments and their related entities (including state-owned enterprises and sovereign wealth funds) are assessed on the same basis as private sector investment proposals. In addition, the Australian Government also considers the following factors in respect of a proposal involving a foreign government or a related entity: whether the investment is commercial in nature or whether the investor is pursuing broader political or strategic objects that may be contrary to Australia s national interest; for partially privatised potential investor, the size, nature and composition of any nongovernment interests, and any restrictions on the exercise of their rights as interest holders; and any investment proposals not operating on a fully arms length and commercial basis. Investment proposals from foreign government entities operating on an arms length and commercial basis are less likely to raise national interest concerns. Other mitigating factors which assist in determining that a proposed foreign investment is not contrary to national interest include: existence of external partners or shareholders in an investment; level of non-associated ownership interests; governance arrangements for the investment; ongoing arrangements to protect Australian interests from noncommercial dealings; future or continuous listing of the investment target on the ASX or another recognised exchange; and size, importance and potential impact of an investment. REAL ESTATE In relation to real estate, the Government normally approves proposed acquisitions of vacant land (both vacant land for residential and commercial development) subject to a specific development conditions (such as, that construction begins within 24 months) and subject to national interest. In the case of established residential real estate, proposals are not normally approved except in the case of temporary residents purchasing a principal place of residence. AUSTRALIAN URBAN LAND Australian urban land is significant concept particularly in the context of a mining or oil and gas projects. Notification to FIRB is compulsory in respect of the acquisition of Australian urban land including: the acquisition of shares in an Australian urban land corporation Doing Business in Australia page 18

23 FOREIGN INVESTMENT (a company where the value of total urban land assets exceeds 50% of the value of its total assets irrespective of the value of the of the company or the value of the investment proposal); and any agreement by virtue of which a corporation in which foreigners hold a controlling interest acquire an interest in Australian urban land (for example an unincorporated joint venture to which a foreign person is a participant). Australian urban land comprises any land in Australia that is not rural land (ie, land used wholly and exclusively for carrying on a business of primary production ). It includes all seabeds within Australia s Exclusive Economic Zone. RECENT DEVELOPMENTS In July 2011, the Australian Senate enquiry into the foreign investment national interest test was commissioned to examine ways of improving the transparency of decisions made by the FIRB under the test and all other rules which govern its operation. In June 2013, the Senate released its final report which made extensive recommendations, the most significant of which include: that the current national interest test should be more transparent and precise. This implies formal consideration of the prescribed criteria under the Policy. Factors to be considered in this prescriptive test include local concerns regarding proposed foreign investment, the commercial nature of investment and whether the investor can provide undertakings that are in the national interest. These factors are currently considered by FIRB as part of the flexible application of the national interest test; a decrease of the monetary threshold for foreign investment in agricultural land to A$15 million from A$248 million (indexed annually); a A$0 threshold for foreign investment in agricultural land once cumulative purchases of A$15 million have been reached by a particular private business or associated entity; and a new notification threshold for foreign investment in agribusiness where: investment exceeds 15% or more in an agribusiness valued at A$248 million (indexed annually); or investment in an agribusiness exceeds A$54 million. Other recommendations address appropriate taxation of foreign investment and the establishment of independent bodies to collect further information in relation to foreign ownership of agricultural land, water entitlements and agribusinesses. It remains to be seen whether new federal Coalition Government will adopt any or all of the Committee s recommendations. Any changes will also have significant implications to Australia s international obligations under its free trade agreements and WTO obligations. page 19

24 APPROVAL PROCESS It is unusual for the Government to prohibit a transaction. The process for obtaining FIRB approval is represented in Figure 1. FIRB works with investors to guide them through the examination process and encourages early engagement (particularly when first proposing to invest into Australia and for significant investment proposals or investment into sensitive sectors). FIRB also welcomes questions if an investor is unsure as to whether prior notification is required. Providing complete and accurate information about a proposal when lodging applications will minimise potential delays. If a proposal raises potential national interest concerns, FIRB will discuss these concerns with the applicant and provide them with an opportunity to comment and/or to propose potential mitigating actions APPROVAL SUBJECT TO CONDITIONS The Treasurer may grant approval subject to certain behavioural conditions. Typically conditions imposed by the Treasurer include: the company remains incorporated, headquartered and managed in Australia under a predominantly Australian management team; that products produced will be sold on an arms length basis by reference to international observable benchmarks in line with market practice; to comply with Australian industrial relations laws and to honour employee entitlements; to support Indigenous Australian communities, by honouring agreements with Indigenous Australians and maintaining and seeking to increase levels of Indigenous employment in its local operations; and to comply with Australian environmental laws. The final form of any conditions is usually the subject of negotiation between FIRB and the foreign investor. FREE TRADE AGREEMENTS Australia has entered into various free trade agreements (FTAs) with other countries, including the USA, New Zealand, Singapore, Thailand, Chile, India, Indonesia and Malaysia. FTAs provide for the immediate elimination or phasing out of customs duties on bilateral trade between Australia and the relevant country counter-party. In addition, depending upon the particular FTA, significant commitments are made concerning trade in services, foreign investment, intellectual property rights, government procurement, customs formalities, technical barriers to trade, telecommunications, business migration, competition policy and the environment. These FTAs influence the Australian Government s approach to foreign investment in Australia. For example, the higher monetary thresholds that apply to US Investors and NZ Investors reflect Australia s obligations under its FTAs with the USA and New Zealand to afford favourable treatment to the investors from these countries. FOREIGN INVESTMENT INCENTIVES Federal, State and Territory Governments offer incentives to attract foreign investment. The Federal Government has established Austrade the Australian Trade Commission which offers a free and confidential service for potential investors. Austrade has offices in Beijing, Frankfurt, Hong Kong, London, New York, Paris, San Francisco, Shanghai, Singapore, Taipei and Tokyo, as well as three offices in Australia. Austrade offers a range of services and programs, including: Doing Business in Australia page 20

25 FOREIGN INVESTMENT Figure 1: The FIRB process for applicants FIRB ADVICE Early consultation with FIRB executive member may occur. If matter is known to be sensitive, lodge a pre-application with FIRB without the formal notice. Only lodge the formal notice when issues are close to being resolved. CONFIDENTIALITY All material provided in strict confidence. Access to third parties barred except where provider s consent is first obtained. Note FIRB consults with other Government agencies to make its decision. THE PROPOSAL Submissions of Proposal to FIRB or its Executive Proposal referred to relevant section within the FIRB Secretariat of the Treasury handling case work to prepare the first draft of the report FIRB consultation with Commonwealth and State Governments Statutory agencies THE REPORT Following evaluation by the FIRB Executive, a report is prepared which contains comments, conclusions and recommendations Depending on type of application, the following occurs: INTERNAL APPROVAL Decisions taken by the Executive Member Branch or Section Head of Treasury on certain proposals under delegated responsibility Where there may be national interest or concerns that may lead to conditions or rejection, FIRB will notify Applicant and give them a fair opportunity to comment prior to the decision being reached. The Treasurer is informally advised of any concerns before an official recommendation is made. Less Significant cases not covered by delegation forwarded by Executive Member to Treasurer or Assistant- Treasurer for approval/rejection Recommendation forwarded to Treasurer or Assistant Treasurer for approval/rejection While there is no formal appeal mechanism against the decision under the Act, the process and/or decision may be challenged under administrative law. Parties notified of decision (Reasons need not be given) Very limited right to information under Freedom of Information Act 1982 (Cth) page 21