FIRB - Tang Law Perth

The total value of foreign investment in Australia stood at $2.8 trillion at the end of 2014

(Statistic obtained from the Department of Foreign Affairs and Trade)

WHAT ARE THE RECENT CHANGES?

The current Government has introduced various changes to the foreign investment rules and the important ones include:

Tougher penalties for foreigner who breached the rules relating to purchase of residential real estate – e.g. the existing criminal penalties have been increased to $135,000 or 3 years imprisonment or both for individual foreign citizens who breached the law;
Although acquisition of agricultural land holdings are generally not required to be approved by the Foreign Investment Review Board (FIRB), Foreign-owned agricultural land holdings are required to be registered with the Australian Taxation Office’s newly established Agricultural Land Register;
Introduction of an application fee for obtaining FIRB approval – e.g. $5,000 fee for obtaining approval for buying residential land where the price is $1 million; $10,000 fee for obtaining approval for buying residential land where the price is over $1 million and less than $2 million;
Stronger enforcement process – the ATO has now taken over full responsibility for enforcing residential real estate purchases by foreign citizens.

The recent changes are aimed to have stronger, more effective and more enforceable rules regarding foreign investment. The days where people thought that their breach of the foreign investment laws would never be caught are gone and every foreign citizen must carefully consider the legality of their intended purchase of assets in Australia.

THINGS TO CONSIDER WHEN BUYING RESIDENTIAL PROPERTY

Australia has a long established policy to strictly regulate the purchase of established houses by foreigners in order to maintain sufficient housing supply to its residents.

If you are a non-resident foreign person, you should consider the following general rules before buying any residential property:

· you are prohibited from buying established dwellings(2^nd hand house) in Australia;

· you will need to apply and receive FIRB approval before buying new dwellings (e.g. newly developed apartment) and usually approval will be granted without any condition;

· you will need to apply and receive FIRB approval before buying vacant residential land for development and usually approval will only be granted under the condition that you must develop the land within certain period of time.

THINGS TO CONSIDER WHEN BUYING COMMERCIAL/AGRICULTURAL PROPERTY

Whether a non-resident foreign person requires to notify FIRB prior to buying a commercial property depends on if the commercial land is vacant or developed. If the commercial land is vacant (no substantive permanent building on the land), FIRB notification is required. If the commercial land is developed(there is substantive permanent building on the land used for commercial purpose), foreign persons generally do not need to notify FIRB prior to the purchase unless the land is valued more than $252 million.

If a non-resident foreign person propose to buy an agricultural land, generally approval from FIRB is not required if the agricultural land valued less than $15 million. Agricultural land means land that is used wholly and exclusively for a primary production business. It is important to understand that “hobby farms” are not considered to be agricultural land and approval from FIRB will be required.

THINGS TO CONSIDER WHEN BUYING BUSINESS ASSETS

Australia usually encourages foreign investment into its business sector and therefore rules regulating business acquisition by foreigners is less stringent than rules regulating purchase of residential properties.

Generally, foreign persons (except foreign government investors) can buy business assets in Australia without approval if the interest to be acquired valued at less than $252 million. If the business is an “agribusiness” then approval is generally not required if the value of the investment is less than $55 million. Agribusiness includes industries such as agriculture, forestry, fishing, meat processing, poultry processing, dairy product manufacturing, grain mill product manufacturing, sugar manufacturing etc.

Finally, if you are a non-resident foreign person and you have any doubts about your proposed purchase of assets in Australia, you should seek legal advice before signing any contract because fail to comply with the foreign investment laws may result in very severe penalties (including imprisonment) being imposed against you.

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About the Writer

Kelvin Tang

Kelvin has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing service on Commercial Law, Dispute Resolution & Litigation, Family Law, Wills & Estate Planning and Settlements.

The Story

Mr Lee and his family was granted permanent resident visa. To get the grant of the visa, Mr Lee entered into an agreement with the State that he will, amongst other conditions:

11) Invest at least $1,500,000 into an “Eligible Business” in the State; and

22) The “Eligible Business” must employ at least five (5) full time employees who are either citizen or permanent residents of Australia.

Mr Lee looked at many possible investments in the State but repeatedly encountered these problems:

1. Language barrier – Mr Lee does not speak or understand English. Communication was a huge barrier.

2. Cultural difference – Mr Lee operates a large enterprise in Asia and he has many personnel under him to manage and run his businesses for him. He was surprised to learn that owner of the business here is very often key person to the business. He will not be able to commit 100% into the business due to his other commitments. Mr Lee is also concerned about the safety of his investment.

3. Constant uncertainty as to whether the business is in fact an “Eligible Business” and whether it can help him satisfy the migration requirements.

Mr Lee finally decided to invest with a property developer. Mr Lee’s instructed us to advise and represent him.

Solution

We advised Mr Lee that his proposed venture and transaction must be structured to achieve the overarching purposes of:

11) Complying with Commonwealth migration requirements and Mr Lee’s Agreement with the State; and

22) Securing his commercial interests and his capital.

In terms of Commercial Law, Mr Lee took the following steps with our advice:

1. Formation of legal structures for Mr Lee to undertake the investment.

Amongst other issues, segregation of risk, protection of personal assets, complying with migration requirements, and tax implications are important considerations in undertaking this task.

2. Negotiation and formulation of the transaction structure with the property developer.

Amongst other considerations:

· Specific focus on ownership structure, investment vehicle, investment structure, key personnel required, role and obligations of Mr Lee and the property developer is important for migration compliance.

· Control of project and funds, security or collaterals, timing of project, possible variations, and terms and conditions of investment are important considerations for protection of capital.

· Transfer duty and tax implications must be considered PRIOR TO entering into formal agreements.

3. Prepare and advice on the formal agreements required in order to put together the transaction.

4. Carried out due diligence on the proposed investment and the property developer.

5. Completion and settlements of the agreed transactions.

In Migration Law:

11) We conducted a full review of Mr Lee’s initial business plan and Agreement with the State, and we advised Mr Lee that given the changes to his agreement with the State, he needs to notify and obtain approval from the State for the variation. Note: The formal agreements between the parties were made subject to Mr Lee obtaining an approval to amend Agreement with the State.

22) IMPORTANT issue to overcome: Investment in property is very often seen as a passive investment and does NOT qualify as an “Eligible Business”. Special attention must be given to how the transaction is structured to avoid complications.

33) Also given his increase in the amount of investment into the “Eligible Business”, we advised that he could negotiate with the State for a more lenient requirement on the number of full time employees.

Outcome

Mr Lee and the property developer were successful in reaching an agreement. We strategically structured mechanism into the transaction to achieve the overarching purposes of satisfying the migration requirements and protecting his commercial interests.

Upon our conduct of legal due diligence and comprehensive checks on the proposed investment and the property developer, Mr Lee was satisfied with the results.

Mr Lee also obtained approval and a more favorable agreement with the State for the proposed investment, as we were successful in negotiating with the State in reducing the number of employee from five (5) to two (2).

The property project has since commenced.

About The Writer

Kelvin Tang has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing migration advice to clients, advising on “Eligible Businesses” within the definition of the Migration Regulations, assisting migrants (investor of the business) with satisfying migration requirements, making visa applications and appealing cancelled or refused visas in the Federal Court of Australia, Administrative Appeals Tribunal and Migration Review Tribunal. Kelvin also has extensive experience in civil litigation, commercial and corporate law matters.

Perth Office

4 Changes Foreign Investors Need To Know About Purchasing Property in Australia