The Policy Drivers behind the New regime for Investor Visas,澳大利亚豪力法律服务微信公众号文章

The Policy Drivers behind the New regime for Investor Visas in Australia

The Australian Government has recently changed the rules regarding visas for high net worth individuals looking to invest in Australia. These changes are focussed on increasing inbound investment and attracting entrepreneurial skills and talent in particular areas which the Australian Government seeks to develop. Most notably, strict quotas on investments in residential real estate have been introduced, and a minimum $2 million investment is required in venture capital and small cap funds which are traditionally viewed as more risky investments. The changes took effect from 1 July 2015, and changed the existing Significant Investor Visa (SIV) program, and introduced a new Premium Investor Visa (PIV) program.

The SIV program has proved to be popular within China, with 91% of SIV applicants under the previous regime being Chinese nationals[1].

The new Premium Investor Visa

The PIV requires an AUD$15 million investment in Australia and enables successful applicants to obtain permanent residency after an accelerated period of 12 months.

Part of the motivation behind the creation of this new visa program included a finding that many of the SIV applicants’ wealth was far in excess of the AUD$5 million required under the SIV program[2].

The PIV is aimed at attracting business skills and entrepreneurial talent to Australia which are aligned to National or State and Territory investment priorities. Applicants must be invited to participate in the PIV program by Austrade, however the Australian State Governments can recommend potential applicants to Austrade.

Permitted investments may be through Australian managed investment funds, Listed Investment Companies (LICs) or direct investments in only one or more of the following:

annuities issued by a life company, where the annuity does not repay capital during the period of the visa
philanthropic contributions - the State and Territory government agencies approving the philanthropic contribution have the flexibility to determine what may constitute a ‘philanthropic contribution’
Australian proprietary limited companies
corporate bonds or notes issued by an Australian exchange listed entity (or its wholly owned Australian subsidiary)
investment grade rated Australian corporate bonds or notes rated by a licensed rating agency
Australian government or semi-government bonds or notes
cash (for investments through managed funds only) - but cash must not make up more than 20% of the fund’s net assets
derivatives - these must be used only for risk management purposes
Australian exchange listed securities
commercial real property in Australia.

Direct investments into residential real property cannot be made, however, indirect investments can be made through a managed fund, provided the fund’s residential real property investments do not exceed 10% of the net value of the fund’s assets.

Changes to the Significant Investor Visa

The SIV still requires an investment of AUD$5 million to be made in Australia, however, in addition to the State and Territory Governments, the CEO of Austrade can now also approve the applicant.

There have been a number of changes to the SIV, but some of the most significant are changes to the investments that can be made under the SIV program.

Previously, the AUD$5 million investment could be made in government bonds, managed funds and proprietary companies. While some State Governments had quotas on the types of investments which could be made within these asset classes, there were generally no prescribed quotas within the SIV legislation.

However, under the new regime, a minimum of AUD$500,000 must be invested in venture capital limited partner funds, registered under the Early Stage Venture Capital Limited or Venture Capital Limited Partnership programs. The minimum investment in the venture capital limited fund is expected to increase to AUD$1million after 2 years. Further, a minimum of AUD$1.5 million must be invested in small or micro cap funds/LICs and the balance of the AUD$5 million (i.e. up to AUD$3 million) must be invested in a balancing investment.

Permitted investments for the balancing investment may be through one or more managed investment funds or LICs. The investment vehicle may invest only in one or more of the following:

securities of a company, real estate investment trust or an infrastructure trust quoted on an Australian stock exchange
annuities issued by Australian registered life companies, but repayment of capital cannot commence during the visa period
corporate bonds or notes issued by an Australian exchange listed entity (or its wholly owned subsidiary)
investment grade rated Australian corporate or registered foreign company bonds or notes rated by a licensed rating agency
Australian real property (subject to a 10% limit on residential real estate)
cash, but limited to 20% of the fund’s net assets
derivatives- these must be used only for risk management purposes.

Building the Australian Funds Management Industry

Many of the PIV and SIV permitted investments are required to be held through managed funds, where the trustee or responsible entity of the fund holds an Australian financial services licence (or is exempt from the need to hold one), and has their central management and control in Australia. This was specifically done to promote the Australian funds management industry, and ensure that such significantly sized investments were managed by fund managers who meet Australian funds management legal requirements and standards. In particular, fund managers must have at least AUD$100 million in funds under management, or offer products through a responsible entity that meets this criteria. This aims to ensure that they have both the capacity and experience to manage sizeable investments.

The trustee/responsible entity must also be unrelated to the investor, their spouse or de facto partner, which ensures that funds are managed at arms’ length in accordance with standard Australian governance principles. This may cause some consternation amongst investors, given the Chinese preference to retain tight control over their own investments, rather than to outsource this to a third party.

Crack down on Residential Real Estate Investment

A major change has been the quotas on investments in residential real estate. For both SIV and PIV, these must be through a managed fund and are limited to no more than 10% of the value of the fund’s net assets. Further, the investment must not be made for the dominant purpose of deriving financial benefits, or for assisting the investor, investor’s spouse or de facto partner, or any member of any of their families, to reside in or gain legal ownership in Australian residential real property.

From a cultural perspective, investments in property are of course highly sought after by the Chinese, and there has been a flurry of Chinese property investment in Australia. These changes are seen as the Australian Government’s attempt to cool that market and to redirect investment money to other areas where it is needed.

Other Observations on the SIV Changes

In introducing the new SIV and PIV regime, it appears the Australian Government is seeking to encourage investment in emerging companies and venture capital projects. Given the nature of the investments which will comply with the new regime, the Australian Government has shifted its focus to promoting research and development and technology through these visas. However, in relation to the SIV, the permitted investments are decidedly more risky than the Government bonds and other investments permitted under the previous regime. The decrease in the size of allowable holdings in the less risky (balanced) investments is also a marked change for the SIV program.

The Chinese generally dislike the high levels of risk associated with small cap companies and venture capital. It remains to be seen what the up-take under the new system will be, given the minimum investment in these riskier assets is AUD$2 million out of the total AUD$5 million, and whether the interest from mainland China will be sustained. The State Governments seem to expect a significant drop in the number of applications. However, it may be that there are applicants who will just accept the AUD$2 million investment in the riskier assets as a cost of obtaining an SIV, and consider it a small price to pay, for the benefits that residency in Australia can bring.

Footnotes:

[1] Explanatory Statement, Migration Amendment (Investor Visas) Regulation 2015 (Cth.) pp 1.

[2] Explanatory Statement, Migration Amendment (Investor Visas) Regulation 2015 (Cth.) pp 1.

作者: Adeline Hiew

About the Author

Adeline Hiew is a partner in the Melbourne office of Holding Redlich, specialising in financial services, including pensions (superannuation), insurance and funds management.

Contact details

Melbourne

Adeline Hiew, Partner, Melbourne

T: +61 3 9321 9985

E: [email protected]

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