Foreign Investment in Australia
Foreign investment in Australia is subject to evaluation and scrutiny by the Foreign Investment Review Board (FIRB), an advisory body to the Treasurer. The FIRB assesses proposals for foreign investment based on the government’s Foreign Investment Policy and the Foreign Acquisitions and Takeovers Act 1975. The review process conducted by the FIRB is thorough and significant, emphasizing substantive analysis rather than mere procedural formality.
The ultimate decision on significant foreign investment proposals rests with the Treasurer, considering various political considerations. The FIRB also provides guidance to foreign investors and ensures compliance with the country’s Foreign Investment Policy guidelines.
Certain industries in Australia, including airports, airlines, ships, and financial sector businesses, have specific legislation that regulates foreign ownership. These regulations supplement the provisions of the Foreign Acquisitions and Takeovers Act 1975 (FATA).
Structure of Business Entities
The structure of business entities in Australia, individuals or groups have several options, such as operating as a sole trader, partnership, trust, joint venture, or corporation. Foreign companies intending to conduct business in Australia can either establish a subsidiary company or register as a foreign company with a branch office.
Incorporation is carried out through the Australian Securities and Investments Commission (ASIC), resulting in the allocation of an Australian Company Number (ACN). Companies can adopt various structures, including unlimited share capital, limited by shares, limited by guarantee, or no liability companies (specifically for mining-related purposes). The most prevalent business entity type in Australia is a company limited by shares, which can be either a proprietary or public company.
Public companies have the option to list on the Australian Securities Exchange (ASX) and, under certain conditions, can also utilize the crowd-sourced funding (CSF) regime to raise funds.
Australian Security Exchange
The Australian Securities Exchange (ASX) serves as the primary national stock exchange in Australia and is operated by ASX Limited, which itself is a publicly traded company listed on the ASX. The ASX is regulated by the Australian Securities and Investments Commission (ASIC) to ensure compliance with applicable laws and regulations. Although there are smaller stock exchanges in the country, the ASX holds the distinction of being the largest and most comprehensive exchange. It ranks 18th globally in terms of market capitalization and is the 9th largest exchange in the Asia-Pacific region.
The primary objective of the ASX is to establish a transparent and well-informed financial securities market that remains internationally competitive. To achieve this, the ASX has established comprehensive listing rules that govern various aspects of listed entities’ conduct. These rules cover listing requirements, quotation procedures, market information dissemination, reporting obligations, disclosure standards, trading and settlement processes, administrative matters, general supervisory aspects, and other pertinent areas related to the operations of listed entities.
The Listing Rules play a vital role in safeguarding the interests of listed companies, ensuring transparency through the disclosure of relevant and material information, and maintaining orderly market functioning. These rules are legally enforceable under the Corporations Act and apply to listed entities and their associates. In addition to the Listing Rules, listed companies are subject to additional regulatory requirements under the Corporations Act, including financial reporting obligations, auditor rotation, shareholder meeting requirements, director appointments and remuneration, and regulations pertaining to related party transactions.
The process of listing on the ASX involves a comprehensive and often lengthy journey that can be complex and expensive. Companies seeking to list may need to undergo corporate restructuring, align their operations with regulatory standards, and establish robust internal governance procedures to meet the stringent requirements set by the ASX and other relevant regulatory bodies.
Business & Investor Visa
The process of listing on the ASX involves a comprehensive and often lengthy journey that can be complex and expensive. Companies seeking to list may need to undergo corporate restructuring, align their operations with regulatory standards, and establish robust internal governance procedures to meet the stringent requirements set by the ASX and other relevant regulatory bodies.
Corporate Tax
Corporate tax issues the following summary provides a brief outline of the tax issues that may be applicable to a foreign entity doing business in Australia.
Direct Tax
Income Tax
A foreign entity doing business in Australia may be subject to income tax if it meets certain criteria. For income tax purposes, a company is considered a resident of Australia if it is incorporated in Australia or if it carries on business in Australia and either has its central management and control in Australia or is controlled by Australian resident shareholders. The Australian government has proposed changes to the corporate residency test, which would expand the definition of a tax resident to include foreign companies with a significant economic connection to Australia. Resident companies are taxed on their worldwide income at a general corporate tax rate of 30%, while smaller companies with annual revenue below AUD 50 million may qualify for a reduced tax rate of 25%. Foreign companies with a permanent establishment in Australia are also subject to these corporate tax rates.
Capital Gains Tax
Australian resident companies are generally liable for capital gains tax (CGT) on the profits derived from the sale of investment assets. The CGT rate is typically the same as the corporate tax rate. Non-resident companies are generally exempt from CGT, except when they sell “Taxable Australian Property,” which includes Australian real estate and certain ownership stakes in entities primarily valued based on Australian real estate. However, there are exceptions, such as when the real estate value is below AUD 750,000. When a non-resident company sells Taxable Australian Property, the buyer is required to withhold 12.5% of the sale proceeds and remit it to the Australian Tax Office (ATO). The seller can then claim back any excess amounts withheld by filing a tax return.
Goods and Services Tax (GST)
Australia has implemented a goods and services tax (GST) since July 1, 2000. GST, like a value-added tax (VAT), is generally levied at a rate of 10% on most goods, services, rights, and property in Australia. Exports of goods or services consumed outside of Australia are usually exempt from GST. Businesses conducting an enterprise with GST revenue meeting or exceeding the annual GST registration threshold (currently AUD 75,000, or AUD 150,000 for non-profit organizations) must register for GST. Registered businesses are responsible for paying GST on taxable supplies at a rate of 10% and can claim input tax credits for GST paid on items acquired for business purposes. Imported goods are generally subject to a 10% GST rate, collected by the Department of Home Affairs at the time of import, unless the importer is registered for the deferred GST scheme. Some services may also be subject to GST under the “reverse charge” rule. GST returns must be filed quarterly or monthly, depending on the GST turnover, with a four-year time limit for claiming input tax credits.
Payment Times Reporting
The Payment Times Reporting Scheme is a program designed to promote transparency and accountability in the payment practices of certain large businesses towards small business suppliers. Under this scheme, known as the Payment Times Reporting Scheme, reporting entities are obligated to disclose relevant information about their payment practices towards small business suppliers on a biannual basis. The disclosed information is subsequently published by the Regulator. The primary objective of the scheme is to leverage public pressure and reputation to incentivize businesses to improve their payment practices, as the government recognizes that poor payment practices can have adverse effects on the financial stability of small businesses.
The reporting entities, encompassing companies, foreign entities, partnerships, and trusts operating in Australia, are subject to reporting requirements if they meet the following criteria: they have a total income exceeding $100 million, are not registered charities, and fall within the scope of the scheme. In the case of corporate groups with a total income exceeding $100 million, both the controlling corporation (commonly referred to as the “head entity”) and any other reporting entities within the group that possess a total income of at least $10 million are required to submit reports. The information that reporting entities must disclose primarily pertains to their payment times and payment terms in relation to small business suppliers.
The Payment Times Report (PTR) serves as a tool to collect pertinent information regarding a company’s payment terms and practices concerning small businesses in Australia. The PTR encompasses data on the payment terms offered to small businesses, the proportion of small business invoices paid within specified time frames following receipt, the percentage of procurement from small business suppliers, and any supply chain finance arrangements provided to small businesses. To qualify as a small business for the purpose of PTR, a company must possess a turnover below AUD 10 million and operate within Australia. Failure to comply with the PTR can result in significant penalties, including fines equivalent to 0.6% of the annual turnover. For instance, a business with a turnover of $500 million could face a penalty of $3 million per violation. Prior authorization by a board member is mandatory before filing the PTR.
PEPPOL EInvoicing
The Australian government has made the decision to adopt the Peppol electronic invoicing standard. Peppol facilitates the digital exchange of invoices across different accounting systems and is widely used in numerous countries worldwide, including Singapore, the United States, Canada, and many European nations. The adoption of the Peppol standard aims to replace traditional paper and PDF invoicing methods, thereby reducing manual invoice and payment processing tasks. It is estimated that this transition could generate annual savings of approximately $2.8 billion for the economy. Moreover, the integration of eInvoicing aligns with the government’s Payment Times Reporting initiative, as it is viewed to expedite payment processes. The government has already mandated the use of Peppol eInvoicing for public sector procurement and is currently deliberating a broader mandate that would necessitate all businesses in Australia to be Peppol-enabled by 2025, with larger businesses expected to comply by 2023. To encourage the adoption of eInvoicing, the federal government has implemented a policy of paying eInvoices issued via the Peppol standard within five days. Some state governments are also offering more favorable payment terms for eInvoices.
Personal Tax
For individuals residing in Australia, their tax obligations are determined by their residency status. If an individual is considered a resident for tax purposes, the following implications apply:
- They are required to pay tax on their worldwide income and taxable capital gains.
- However, they may be eligible to claim a foreign tax credit as a tax offset for taxes paid on foreign income, subject to certain limits.
The applicable marginal tax rates for resident individuals for the fiscal year ending on June 30, 2022, are as follows:
- 0% on the first AUD 18,200 of taxable income.
- 19% on taxable income between AUD 18,201 and AUD 37,000.
- 32.5% on taxable income between AUD 37,001 and AUD 90,000.
- 37% on taxable income between AUD 90,001 and AUD 180,000.
- 45% on taxable income above AUD 180,000.
It should be noted that temporary residents are subject to different tax rules. They are generally taxed only on income derived from Australia and certain foreign income received in Australia.
Income tax offsets are available for low and middle-income earners, which can reduce their overall tax liability. These offsets are applicable until the end of the financial year 2022. Non-residents are taxed at a rate of 32.5% on their first AUD 1 of taxable income and at the rates on the remainder of their taxable income. Special tax rates also apply to income earned by “working holiday makers,” regardless of their residency status for tax purposes. Starting from July 2024, the top marginal tax rate will be applicable to incomes above AUD 200,000, while a 30% tax rate will apply to taxable incomes between AUD 45,001 and AUD 200,000.
Employment Law
Australian employment law is derived from two primary sources: common law and a combination of statutory and regulatory frameworks, including workplace legislation, the National Employment Standards, and Industrial Instruments such as modern awards and enterprise agreements.
Common Law
The common law plays a significant role in establishing employment obligations in Australia. The employment contract is a prominent source of common law obligations that applies to all employment relationships in the country. However, any contractual terms that contradict the minimum conditions set by statutory and regulatory frameworks or Industrial Instruments are deemed invalid. While there is no legal requirement for an employment contract to be in writing, it is highly recommended. In the absence of a written contract, Australian courts may imply certain terms into the relationship between an employee and employer.
A written employment contract should address various matters that may vary depending on factors such as the commencement of the employment relationship, nature of work, remuneration, the employee’s role and level of responsibility, termination provisions, and any specific requirements such as confidentiality and intellectual property.
Having a written and up-to-date employment contract has become increasingly important in recent years due to changes in how courts handle disputes related to employment rights, obligations, and entitlements. Employers may also provide written workplace policies outlining procedures for employees during their employment or when accessing entitlements. While these policies may not create legally binding obligations for the employer, they can serve as lawful directions for employees.
Intellectual Property
In Australia, intellectual property rights, including trademarks, copyright, patents, and designs, are protected by legislation. Additionally, Australian common law provides remedies for misrepresentation of goods or services and covers misleading or deceptive conduct in trade or commerce under the Competition and Consumer Act 2010 (Cth). Certain cases may also be protected under common law as confidential information or trade secrets.
Trademarks: The Trademarks Act 1995 (Cth) enables the registration of trademarks that distinguish designated goods and/or services from others. The trademark registration process in Australia takes a minimum of 7 months from the filing date, with no guarantee of registration. Once registered, trademarks are valid for an initial period of 10 years and can be renewed for further 10-year periods by paying renewal fees. Trademark registration grants the owner exclusive rights to use the mark for the covered goods or services and provides the ability to take legal action for trademark infringement.
Copyright: Copyright in Australia is protected under the Copyright Act 1968 (Cth) and does not require registration. It applies to original literary, artistic, musical, and dramatic works. The duration of copyright varies depending on the type of material, but generally, copyright lasts for the life of the author plus 70 years. The work does not need to possess artistic or literary quality if it is original. The Copyright Act also recognizes copyright in other subject matters, such as photographs, sound recordings, movies, and performers’ rights.
Patents: Patents are granted in Australia under the Patents Act 1990 (Cth). A successful applicant is given exclusive rights to exploit the patented invention and permit others to do so as well. Traditionally, two types of patents have been granted in Australia: standard patents and innovation patents. A standard patent lasts up to 20 years (or up to 25 years for pharmaceutical substances with an extension application). An innovation patent lasts up to 8 years. To obtain a standard patent, the invention must be a new method of manufacture, involve an inventive step compared to existing knowledge, be useful, and not have been used for trade or commerce by the patentee or their nominee. The examination process for a standard patent can take several months to years.
Designs: Registered designs protect the visual appearance of a product. The initial registration is valid for 5 years, with the option to renew it for another 5 years. The Design Act 2003 outlines the required level of distinctiveness for design registration, which involves a two-step test of novelty and distinctiveness compared to existing designs. Generally, a design cannot be registered if it has been published before the design application is filed, such as on the internet.
Domain Names: The “.au” domain is divided into several second-level domain names, including “. com.au”, “. edu.au”, “.net.au”, “. asn.au”, “. id.au”, and “. org.au”. Registering a domain name grants the registrant a license to use it for the duration of the registration. The initial registration period is 2 years, with the option to renew for an additional 2-year period by paying a fee. If the registration is not renewed, the domain name becomes available for use by another entity.
Confidential Information: Under Australian common law, confidential information shared in confidence or under a special confidential relationship implies an obligation for the recipient not to use or disclose the information without the consent of the discloser. It is advisable for parties to enter into a separate confidentiality agreement or include a confidentiality clause in contracts when disclosing information for contractual purposes. Exceptions to confidentiality obligations include publicly available information or disclosure required by law. Additionally, statutory rules govern the use, disclosure, and storage of personal information under Australia’s privacy laws.
Australian Consumer Law
The Australian Consumer Law (ACL) is a comprehensive set of regulations aimed at safeguarding consumers against unfair trading practices. These practices encompass various areas, including:
Misleading or Deceptive Conduct: Prohibits businesses from engaging in conduct that is misleading or deceptive, or making false or misleading representations in connection with the supply of goods or services.
Unconscionable Conduct: Covers situations where businesses engage in unconscionable conduct in dealings with other businesses or consumers, taking advantage of their vulnerability or lack of bargaining power.
Consumer Guarantees: Ensures that suppliers provide goods or services that meet certain guarantees, such as having proper title to the goods, conforming to their description, and being of acceptable quality.
Unfair Contract Terms: Addresses unfair terms in standard form consumer contracts or small business contracts, rendering such terms void.
Product Safety: Establishes regulations pertaining to product safety, including strict liability for injuries or damage caused by defective goods. Suppliers must comply with product safety and information standards.
Other Unfair Practices: Covers a range of additional unfair practices, such as unsolicited supplies, pyramid schemes, and various other unfair practices.
Penalties for contravening the ACL can be substantial, with corporations facing fines of up to AUD 10 million, and individuals facing fines of up to AUD 500,000.
The time limit for commencing legal action under the Australian Consumer Law (ACL) varies depending on the nature of the claim being pursued.
