Investment Related Laws

When foreigners invest in Australia, they must obtain investment approval first, and the Foreign Acquisitions and Takeovers Act is applied as the law that governs the approval process. The main contents of the Act include general rules, definitions, foreign investment reports, and additional regulations.
(The full text of the statute can be found at https://www.legislation.gov.au)

Related laws:

• The Foreign Acquisitions and Takeovers Act 1975

• The Foreign Acquisitions and Takeovers Regulations 1989

• Foreign Takeovers (Notices) Regulations

• Foreign Acquisitions and Takeovers Regulation 2015

• Foreign Acquisitions and Takeovers Fees Imposition Amendment Bill 2020

• Foreign Relations Bill 2020

Additionally, when investing in Australia, it is essential to consider certain matters that may act as restrictions on investors under Australian commercial law. Although not directly related to the aforementioned law, attention must be paid to the following aspects. Foreign companies investing in Australia typically establish a local subsidiary in the form of a limited company (non-listed companies with 50 or fewer shareholders). In this case, as a condition of registration, at least one representative director must be reported, and at least one representative director must be an Australian resident. An Australian resident is defined as an Australian citizen or permanent resident. These conditions necessitate the appointment of a local citizen or permanent resident as a partner during the establishment of the initial corporation. This requirement can lead to issues such as information leakage or cost burdens due to manpower recruitment. Generally, one representative from the headquarters and one local permanent resident or citizen are registered as co-CEOs.

Registration System for Foreign Invested Enterprises

Foreign companies investing in Australia must submit investment applications and register their investments. The Australian Foreign Investment Review Board-FIRB is an advisory body of the federal government's Department of Treasury, which is involved in reviewing and approving investment applications and manages foreign investment registration.

Current Status of Foreign Investment Law Revision

Previously, the targets for registration with the Australian Foreign Investment Review Board (FIRB) varied depending on the amount and classification of investment, such as when foreigners invested in residential real estate or agricultural land in Australia. However, in 2015, the state authority approved a foreign company's 99-year lease on Darwin Port in the Northern Territory, raising concerns about foreign investments that could threaten national security. This situation necessitated the establishment of institutional mechanisms at the federal level to handle such investments. Consequently, all foreign investment proposals received after March 9, 2020, must undergo FIRB deliberation to determine their compliance with Australia's national interest, regardless of the investment amount.

The main contents of the revised Foreign Investment Act are as follows:

• Investments to be referred to the FIRB: US$0 or higher

• Investment approval review period: up to 6 months

Applicable to all 'foreigners' whose residence is a non-Australian individual, foreign government, foreign government investor, foreign shareholder, trust manager, or joint venture where more than 20% of the total foreign shareholder is a company, trust manager, or joint venture.

Investment Incentive Scheme Overview

The Australian federal and state governments offer various forms of support tailored to the characteristics of the region, industry, and business to actively attract investments in Australia. The Australian Trade and Investment Promotion Agency (Austrade) is responsible for promoting trade and investment in Australia, and inquiries can be directed to them. Additionally, each state government provides essential information for establishing a corporation and expanding businesses in Australia, offering support to new investors in promising regions and industries.

Incentives provided by the Australian federal government and individual state governments vary based on the region, industry, and business characteristics. These incentives are often administered independently by each competent government body. Presently, the Australian government operates a program called Grants and Assistance, allowing investors and companies to directly search for incentives supported by both federal and state governments and access necessary information. The areas of support encompass a wide range, including start-ups and corporate expansion, specific activities like research, tax reduction, and industrial subsidies. However, since many incentive programs operate on a fixed basis, it is essential to check the application period and any changes to each system through the website, available at https://www.business.gov.au/Grants-and-Programs or on the homepage of each state government.

Key Investment Incentives

Venture Capital Limited Partnerships (VCLP): This system aims to reduce capital gains taxes for asset management experts or foreign investors, encouraging investment in Australian venture businesses. However, for a foreign investor to qualify, they must be a registered corporation in Australia or a corporation established in a country that has a double taxation prevention agreement with Australia. Additionally, the size of the registered fund must be at least A$10 million.

Early Stage Venture Capital Limited Partnerships (ESVCLP): This program offers tax incentives for investments in pre-seeded, seeded, start-up, and early expansion venture businesses by asset management professionals and foreign investors. To benefit from this incentive, the fund size should range between A$10 million and A$200 million, and the investors must complete registration as ESVCLP through Innovation and Science Australia (ISA).

R&D Research and Development

There is a system designed to promote corporate R&D activities through incentives operated by the federal government, which can be applied regardless of the company's size and industry. This system partially offsets corporate R&D costs. Companies with annual sales of less than A$20 million and not subject to income tax deductions receive a 45% tax exemption. On the other hand, companies with annual sales of A$20 million or more receive a 40% tax exemption, but refunds are not possible. However, any unused exemptions can be carried over to the following year. The benefits are administered jointly by Aus Industry, under the Australian Ministry of Industry, and the National Tax Service (ATO). To qualify for these benefits, companies engaging in R&D activities must be registered with Aus Industry before applying for incentives.

Patent Box System

The patent box system is a mechanism that reduces corporate tax on income generated from intellectual property, such as patents, and is already in effect in the UK, France, and China. In the case of Australia, it refers to a tax benefit that applies a reduced tax rate of 17% to income generated from patents acquired in the biotechnology and medical fields, as opposed to the existing corporate tax rate (25–30%). This system was proposed in May 2021 and has been in effect since July 1, 2022.

Resource Sector Investment Regulation

Application process for mining rights:
Development projects for mining in Australia are approved and licensed by the Energy Resources Department of each state (6 states: NSW, VIC, QLD, WA, SA, and TAS) and the Northern Territory (NT) respectively, but their content and application are similar. Most companies and organizations that want to explore minerals must submit documents on their business plans, exploration methods and costs to the Minister of Energy and Resources in the state for prior approval. In addition, this company or organization is obligated to make public notifications regarding mineral exploration work through government agencies or local daily newspapers.

On the other hand, companies or organizations wishing to explore and excavate must pay compensation costs, such as costs for surface damage and deformation in the excavation area, to the owner of the area. In the case of TAS stocks and NT, some expenses must be deposited in advance. All six states and NT require applications for exploration and excavation, and the rest of the region, excluding NSW and VIC states, is subject to annual rent payments.

Meanwhile, all six states issue a mineral development reserve license, which allows companies or organizations that have discovered minerals to withhold excavation or mining until they are worth development if necessary. To apply for a reserved license, you must submit a business plan and prove that there is a mineral of potential value buried. The requirements for accreditation of reserved licenses are similar to the above-mentioned exploration application procedure.

Mining Lease can be applied throughout Australia, and priority will be given if you have an exploration or reserved license. In Queensland (QLD), the applicant for mining lease must have the appropriate Pre-requisite tenure and submit an outline and detailed plan for mining development plans. In addition, all Australian states, except Tasmania (TAS), which announces the news of mining development through state agencies, are obligated to announce it when applying for mining development.

Related Policies and Regulations

Australian resource policy-related laws and regulations are subject to the individual jurisdiction of each state, and the relevant laws of the state are primarily applied. However, in the event of a conflict with Australian federal law, federal law takes precedence. The laws related to Western Australia (WA), which accounts for the majority of Australia's mining area, serve as a prominent example of Australia's resource policy-related laws. Five key laws are applied in this context:

• Mining Act 1978 (mining)

• Environmental Protection Act 1986

• Land Administration Act 1997

• Native Title Act (NTA) 1993 (Native Land Protection Act)

• Offshore Minerals Act 1994 (the OM Act)

Environmental Regulations

In Australia, where a significant portion of the national economy depends on the tourism industry, environmental protection is a crucial issue directly linked to the national economy, as well as the lives and safety of the people. The Australian government's environmental policy is responsible for assessing and preventing environmental destruction caused by mining and nuclear power plant development, as well as implementing environmental rehabilitation programs in affected areas. State governments in each state collaborate with the federal government to preserve the environment, which forms the foundation of the Australian tourism industry.

Australia's state and territory governments exercise preferential jurisdiction over mineral resource management and environmental protection, not only in the region but also in sea areas up to three nautical miles from the Baseline. The Australian federal government has two representative laws for the prevention and protection of environmental destruction:

• Environmental Protection and Biological Conservation Act 1999 (the EPBC Act)

• Petroleum (Submerged Lands) Act 1967 (PSLA)

Tax Regulations Related to Mining and Energy Industries

Australia currently does not have a unified tax that manages the resource industry collectively, so it regulates the mineral and energy industries by mixing the federal government's general tax regulation and state mining tax.

Australia's mining and oil industry-related corporate taxes, like general corporate taxes, are subject to a 30% corporate tax rate (however, 28.5% applies to companies with sales of less than $2 million Australian dollars). Employers, like general companies, are subject to Payroll tax, Capital Gain Tax (CGT), and Fringe Benefits Tax (FBT). In addition, a 10% VAT (Goods & Services Tax: GST) will be collected on all goods imported into Australia.

Other Restrictions

• Total foreign ownership stake in Australian International Airlines (including Qantas) is limited to 49 %.(Air Navigation Act 1920, Qantas Sale Act 1992)

• Foreign ownership at some airports is limited to 49 %, with a 5% airline ownership limit and cross ownership limit between Sydney and Melbourne, Brisbane or Perth airports.(Airports Act 1996)

• To register a ship in Australia, it must be owned by a majority of Australians, unless it is a ship chartered by the Australian operator.(Shipping Registration Act 1981)

• For Telstra corporations, the total foreign ownership stake is limited to 35%, and foreign individual investors can only own up to 5% (Telstra Corporation Act 1991)

Special Economic Zones and Free Trade Zones

Australia has a small population compared to a large land area and is dispersed in five to six large cities, so most industrial complexes are concentrated around large cities. These industrial complexes were not created at the Australian federal government level, mainly at the state or local government level, and some of them were created by private developers. State and local governments are trying to create industrial complexes through regional development and long-term investment.

Currently, there are a number of industrial complexes in Australia, among which there are divided into Technology and Research Park and Industrial Park. Rather than focusing on professional manufacturing, these industrial complexes are mainly office buildings for general offices and several factories are located in the concept of a business park, which is a highly industrial-intensive development area for regional development purposes.

The most developed form of industrial park in Australia is Technology and Research Park. In general, it is located on or around the university for technology development through industry-academic cooperation, and most of it is jointly created by state governments and universities. Administrative support is provided at the local government level to companies operating in the industrial complex, but there are no special incentives such as direct amount support.

Technology and Research Park

There are various technology and research parks large and small in many areas. Technology Park is operated in connection with facilities such as universities and research centers, provides services for technology transfer, information sharing, and business development, and further strives to lay the foundation for economic development in Australia and Asia. There are various technology and research parks large and small in many areas. Technology Park is operated in connection with facilities such as universities and research centers, provides services for technology transfer, information sharing, and business development, and further strives to lay the foundation for economic development in Australia and Asia.

Queensland (QLD)

• Area: 1,852,642 ㎢

• Population: 5.35 million

• State: Brisbane

• Major institutions: Queensland State Government

• Major industries: tourism, agricultural and fisheries exports, etc

• Note: Queensland is the most active region in attracting businesses, with a number of state and local government-level investment attraction organizations active. ITQ (Trade and Investment Queensland) is in charge of promoting trade investment by the Queensland government and operates branches in 15 countries around the world. In addition, the southeastern region, including the capital Brisbane, is the most active in attracting investment, and Jose Brisbane, run by the city of Brisbane, is in charge of attracting companies. Choose Brisbane is actively engaged in investment attraction, advocating a stable political and economic environment, rapid population growth, a number of private and public infrastructure projects, and favorable government investment attraction policies.

Western Australia (WA)

• Area: 2,645,615 ㎢

• Population: 2.81 million

• Leadership: Perth

• Major institutions: State of Western Australia

• Major industries: mining, machinery, steel and transportation equipment industries

• Note: Investment opportunities and investment target areas in Western Australia have expanded significantly since 2009 due to increased global demand for underground resources, but investment in Western Australia, which relies heavily on underground resources, has not been positive. However, with the recent surge in resource and energy raw material investment and production, Western Australia is expected to become a destination for global companies creating a future for mining. Iron ore production is expanding and research and development on related equipment, technologies and services is supported. New mining technologies such as remote control mining are being tested in Western Australia. It is pointed out that Western Australia is geographically quite isolated, making it difficult to raise manpower, which is why it is suffering from a chronic shortage of technical manpower. In this regard, the State Migration Center was established in 2006 to support the procurement of technical personnel from overseas.

New South Wales (NSW)

• Area: 809,444 square kilometers

• Population: 8.19 million

• Leadership: Sydney

• Major institutions: New South Wales State Government, Australian Trade-Investment Promotion Agency, Customs Service, Securities and Investment Commission, Stock Exchange, Australian Federal Court, etc

• Major industries: wool, beef, grains, sugar, dairy foods, various fruits

• Note: The state of New South Wales, which attracts a large number of foreign investments every year, has shown steady economic growth for 29 years and plays a pivotal role in the Australian economy. A number of global companies are stationed by embracing various industries such as agriculture, food, information and communication technology, and manufacturing, and have a very high credit rating like Victoria. Invest in NSW under the New South Wales state government is in charge of attracting investment. The state of New South Wales is investing more in infrastructure projects in 2022, and notable projects include upgrading the Pacific Highway at Wong and the New England Highway between the Singleton and Muswellbrook areas.

Northern Territory (NT)

• Area: 1,420,970 ㎢

• Population: 250,000

• Leadership: Darwin

• Principal Organization: Northern Territory Government

• Major industries: wool, beef, grains, sugar, dairy foods, various fruits

• Note: The Northern Territory of Australia has fertile soil and abundant precipitation, making it an optimized environment for the production of various agricultural products. In particular, the Australian government is pursuing related policies in various ways to foster the agricultural sector as a new economic growth engine, and NT state in northern Australia, which has a lot of undeveloped land, is a relatively easy area for foreign investors. Although Australia has recently implemented a closed immigration policy, low-population areas such as NT State are also areas with high immigration opportunities for farmers.

Operating a business as a local corporation has several tax advantages in the beginning, and dividends paid after paying corporate tax (30% or 27.5%) are not obligated to withhold even if profits are generated to the business after the initial investment. For this reason, many foreign companies have adopted a method of establishing local subsidiaries in Australia, and among the number of people needed to establish a corporation, directors of local permanent residents or more are usually supported by corporate establishment agencies, so there is no form of corporate establishment that foreigners cannot participate in.

The local corporation will be marked "Pty Limited" and will be registered with the Australian Security and Investment Commission (ASIC), an Australian company registration agency. Upon completion of registration, you will be given an ACN (Australian Company Number), and you will be obliged to report whenever the registered content changes related to the company. In addition, an annual fee must be paid once a year. In the event of operating profits, the corporate tax rate of 30% must be paid to the Australian National Tax Service, and companies with less than A$50 million are classified as small companies and pay 27.5% corporate tax. If the net profit is sent to the foreign headquarters in the form of dividends, there is no separate tax because it is the amount after tax. However, in the case of dividends before tax deductions, 15% of the dividends must be paid to the Australian National Tax Service as withholding tax. All profits can be remitted overseas and there is no upper limit.

Pty Limited refers to an unlisted corporation under the Corporations Act, and the basic requirements for establishing a company are as follows.

• At least one Director must reside in Australia.

• Shareholders are available for both corporations and individuals.

• Minimum capital of A$1 or more (1 share available)

The establishment of a foreign corporation, like a local corporation, is obligated to report changes to the payment of annual fees and company registration. The actual business type is similar to that of a local corporation, but it is in the form of a branch office (foreign corporation). VAT reporting has the same procedures and obligations as local corporations. In addition, because the Australian company address is required at the time of business registration, a foreign corporation registered in Australia must have a formally registered office in Australia. When profits are generated, the obligation to pay 30% of profits (annual sales of less than A$50 million, corporate tax of 27.5%) in Australia is the same as the local corporation.

ASIC costs applied as of July 2022 are as follows:

• At the time of registration (ARBN application): A$538

• Annual Review Fee: A$290 (Pty Ltd), A$1,346 (branch)

If you enter Australia in the form of a branch of a company established in a foreign country without under Australian law, you will be classified as a Foreign Registered Company. Like the above local corporation, the registration of a corporation is obligated to report changes in the company registration contents and pay annual fees. In this case, you will be assigned a number by applying for an ARBN (Australian Registered Body Number) on behalf of the Australian Company Number (ACN). After that, they are obligated to report and pay taxes the same as corporations.

When a foreign corporation establishes a branch in Australia, the headquarters is not established under the Australian Commercial Act, so the current board of directors (personal identity), shareholder list, company articles, and registers are required. In addition, it stipulates that a person who is a permanent resident or higher there must be appointed as a Local Agent to report and submit company changes (shareholders, directors, etc.) to ASIC in Australia. In the case of establishing a non-corporate branch, it takes more time to translate and notarize any foreign language documents in English and review documents, and the cost is also higher than in the case of establishing a corporation (Pty Ltd).

Under the commercial law in Australia, there are no separate registration regulations, and the liaison office does not engage in business activities, but helps with business activities, and only performs basic tasks accordingly. However, there is an obligation to report basic value-added tax (GST) and to report and pay withholding tax on employee salaries.

In principle, it is a public offering of stocks, and issued stocks are registered on the stock exchange. In this case, at least three executives, including two Australian residents, and one Australian resident general must be established. Except for unlimited liability companies and guarantee liability companies, the rest of the companies must always include the name "Limited" or "Ltd" in the company name and are subject to more regulations than private companies such as the obligation to disclose financial statements and audits.

A private corporation that is a limited company, and public offerings of stocks, bonds, and other securities are prohibited. In this case, there shall be no more than 50 non-employee shareholders and at least one general manager registered and one Australian resident qualified executive. The company name must always be labeled "Proprietary" or "Pty," and it is possible to issue private equity and secured bookkeeping bonds to individuals or companies in exchange for cash or other things. Financial statements are not obligated to be published except for tax returns. Every year, private companies are classified as "small" or "large" private companies, and are classified as "small" only when two or more of the following conditions are met:

• Fiscal year company earnings under $50 million AUD

• Fiscal year company assets under $20 million AUD

• No more than 50 employees in the company in fiscal year

An individual business entity, or Sole Trader, is a type of business in which an individual becomes a business and runs a business. In order for an individual to operate a business, the Australian Taxation Office (Australian Taxation Office, hereinafter referred to as the "ATO") must be granted an Australian Business Number (hereinafter referred to as "ABN"). Business income belongs to the individual employer, and the employer must report the total income by adding it to other income such as earned income, which means that the personal income tax rate is applied to business income. As an individual business operator, the advantages of operating a business are that the cost of establishing, managing, and operating the business is relatively low, and in the event of a business loss, it is possible to offset the business loss with other income. In addition, capital gains from business transfers can be transferred to corporations when converting to corporations. In the case of capital gains tax, a 50% capital gains tax reduction is given when calculating. In addition, when selling business-related assets, small business access (additional reduction in capital gains tax applied to small businesses, hereinafter referred to as "SBC") is given to capital gains.

The disadvantages of operating a business as an individual business operator are that legal responsibilities, liabilities, and business losses incurred in the business are passed on to individual business owners, and a personal income tax rate of up to 45% is applied to business income. In addition, deductions from other income, such as business losses and earned income, can be made if they pass the Non-commercial Loss Test.