Doing Business And Investing In Australia

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Doing Businessand Investingin AustraliaA guide to legal issues

WelcomeWelcome to Russell Kennedy Lawyers’ Guide to“Doing Business and Investing in Australia”.The purpose of this Guide is to provide a generaloverview of the key legal issues that foreignorganisations should be aware of when seekingto do business in, or investing in Australia.Russell Kennedy Lawyers is an Australian law firmoffering a comprehensive range of commercial legalservices, with a diverse list of clients operating ina range of industries and across many states andcountries.In conjunction with Ally Law, we also advise nationaland international clients whose business interestsbring them to Australia and beyond.In existence for more than 150 years, RussellKennedy consists of more than 200 personnel. Ourfirm is the perfect size to effectively manage largeor complex matters while delivering personal andprompt service.We act for a broad range of clients, including majorpublic and ASX-listed companies, larger privatecompanies, foreign corporations, banks, stateand federal governments, local governments andstatutory authorities, not-for-profits, and privateindividuals. We serve clients in a number of sectors,including aged care and retirement living, all levels ofgovernment business services, healthcare, insurance,and real estate and property development.What this guide coversAustralia in 2017A brief history of Australia and information ondemographics. It also provides an overview of Australia’slegal system and structure of government.How to conduct business in AustraliaHow foreign persons can conduct business in Australia,including business structures and visa requirements.Foreign Investment Review BoardOther regulatory bodiesCorruption and briberyInvesting in propertyIndustrial relations &occupational health & safetyCompetition and consumer lawIntellectual propertyPrivacyTaxationThe Guide is not intended to provide comprehensivedetails of the topics referred to.Organisations seeking to do business in, or invest inAustralia should seek advice tailored to their specificindustry and circumstances. Laws and regulationschange. Information contained in this Guide shouldnot be relied on without first seeking advice that theinformation remains current and is applicable to thereader’s specific circumstances.23

Australia in 2017Australia, the legal systemand structure of governmentA brief history and demographicsFor more than 50,000 years before British settlement in thelate 18th century the land mass now known as Australia wasinhabited by the continent’s Indigenous people.The Commonwealth of Australia was formed on 1January 1901 when the British self-governing colonies ofQueensland, New South Wales, Victoria, Tasmania, SouthAustralia and Western Australia agreed to unite to form afederal based system.The Statute of Westminster passed by the BritishParliament in 1931 formally ended most of the constitutionallinks between Australia and the United Kingdom. Thepassing of the British Parliament and the AustralianParliament of the Australia Acts of 1986 removed any lastingavenue of control by Britain and judicial appeals to the PrivyCouncil in London.Strong connections with the United Kingdom remain,Queen Elizabeth II remains the head of State, representedin Australia by the Governor General. A referendum forAustralia to become a republic was defeated in 1988.Australia has a population of approximately 24.7 millionpeople. As a continent it covers 7,692,024 km2. In contrastChina and the United States cover 9.5m km2 while theUnited Kingdom covers 242,495 km2.Australia is a highly urbanised country with most of itspeople living in or near the State Capitals. Major citiesinclude Sydney, the State Capital of New South Wales(approximately 5,000,000 people), Melbourne, the StateCapital of Victoria, (approximately 4,700,000 people),Brisbane, the State Capital of Queensland (approximately42,400,000 people), Perth the State Capital of WesternAustralia (approximately 1,950,000 people) and Adelaide,the State Capital of South Australia (approximately1,320,000 people).The Nation’s Capital is Canberra located in theAustralian Capital Territory. Canberra has a population ofapproximately 390,000 people.Australia has the world’s 13th largest economy and ninthhighest per capita income. Australia has the world’s ninthhighest immigrant population, with immigrants accountingfor 26% of the population.Australia is transitioning from a mining and housing boom towhat is expected to be an infrastructure boom. Macquariehas estimated that the Federal and State governments willcollectively spend around A 323 billion over the next fouryears on planning and building infrastructure projects.Structure of governmentAustralia’s structure of government is derived from theAustralian constitution, and is based on a federationof states and territories with a central Commonwealthgovernment based in the nation’s capital Canberra. Becauseof Australia’s historical links to the United Kingdom,Australia’s system of government has been influencedby the Westminster system of government.Federal governmentThe Australian Parliament consists of the Queen(represented by the Governor-General), the Senate andthe House of Representatives. The Parliament has powersto enact laws in certain defined areas, such as laws relatingto corporations, industrial relations, foreign affairs and thearmed forces.There are three arms of government in Australia: he legislature (or Parliament) is responsible for Tdebating and voting on new laws to be introduced. he executive (the Australian Government) is Tresponsible for exercising the powers of government.Certain members of the executive (called ministers)are also members of the parliament, with specialresponsibilities for certain departments of state. he judiciary is the judicial arm of the federal Tgovernment. It is independent of the other two arms,and is responsible for exercising the judicial powerof government.5

State and territory governmentCommon law legal systemThe six states retain the power to make their own lawsover matters not controlled by the Commonwealth, suchas health, education, policing and property law. StateGovernments also have their own parliaments, as wellas a structure of legislature, executive and judiciary.There are two sources of law in Australia. The first isstatute law, passed by the Commonwealth and variousState or Territory Parliaments. The second source of law isthe common law, which is the law developed by the courtsthrough the decision of judges over the years. The commonlaw of Australia was originally inherited from the UnitedKingdom during Australia’s colonial history and is based onprecedent which means that the decision of a senior courtbinds a lower court. This is intended to ensure consistencyin court decision making. The common law applies to allof Australia but can be overridden by federal and statestatute law.Australia’s ten territories are either self-governing oradministered by the Federal Government. The two mainlandterritories are the Northern Territory and the AustralianCapital Territory. External territories include a number ofislands and the Australian Antarctic Territory (covering 42percent of the Antarctic continent).Local governmentThe third tier of government in Australia is localgovernment. Responsibility for local government lieswith the state and territory governments. Localgovernments make rules and regulations in relation to arange of local matters including planning zones, wastedisposal and road management.Important areas of commerce and business are regulated bythe common law such as the law of contract, some aspectsof employment law and banking and finance.The common law system of precedents is set bysuperior courts such as the Supreme Court in each State,the High Court of Australia and the Federal Court. Oncea precedent has been set, all the lower courts must followit. A precedent may change if a higher court overturns it.Decisions of foreign courts including the United Kingdomare considered persuasive. They cannot form the basis ofa binding precedent.Common law precedents may also arise from theinterpretation of statute law. The wording of the statutemay require interpretation to the specific context of a casewhich is recorded in a judgment. The interpretation of astatute is binding on lower courts.All jurisdictions have established tribunals to hear appealsagainst government decisions, administer particular areasof business (such as industrial relations) or administerparticular laws (such as planning laws or retail tenancylaws). These tribunals are not courts but can be animportant regulatory factor in various industries.Business in Australia is generally regulated by both Federaland State statute law rather than common law. The Courtsare therefore responsible for interpreting and enforcingparticular legislation.67

How to conductbusiness in AustraliaForeign corporations can carry on business in Australia intheir own right. Doing so brings with it a requirement toregister as a foreign company with a branch in Australia.Corporate structuresAlternativesProprietary companies limited by sharesFor asset protection and tax reasons, it is common forforeign businesses looking to operate in Australia to set upan Australian subsidiary, which generally takes the form of aproprietary company limited by shares.Foreign companies most commonly conduct businessin Australia through a local proprietary company limitedby shares. Benefits of proprietary companies limited byshares include:Alternatives to proprietary companies limited byshares include:Foreign company registrationTo open an Australian branch, a foreign company mustregister with the Australian Securities & InvestmentsCommission (“ASIC”).Prior to registration, the foreign company should confirmwith ASIC that the company name is available and doesnot infringe any existing trademark. The foreign companymust have a registered office in Australia and appoint a localagent to ensure it is compliant with Australian Law.To register with ASIC, the foreign company must providegeneral information about its structure and how it willoperate. This includes providing certified copies of itscertificate of incorporation, constitution and a memorandumstating the powers of certain directors.Whether the foreign company is “carrying on a business”in Australia is determined by its activities in Australia.Merely being involved in legal proceedings, holding directormeetings or maintaining a bank account in Australia is not,in itself, sufficient to require registration.Once the application has been approved, the foreigncompany will receive a registration certificate and a uniquenine digit number (known as an Australian RegisteredBody Number) that must appear on all public documents.The foreign company will have regulatory complianceobligations, including lodging financial statements andnotifying ASIC of certain matters.8 a ll shares in the Australian subsidiary can be ownedby a foreign company or person; no minimum capital requirements; n on-residents may be appointed as directors,but at least one director must be ordinarily residentin Australia; t here is no requirement to have a company secretary,but if one or more secretaries are appointed, at leastone must be ordinarily resident in Australia; t here is no requirement to hold an annual generalmeeting; and l ess onerous reporting obligations for smallerbusinesses and corporate groups.Other types of companies: P ublic company limited by shares - Similar to aproprietary company limited by shares but suitablewhere the number of shareholders exceeds 50.More onerous reporting obligations apply. C ompany limited by guarantee - Not-for-profitorganisations often adopt this structure. Companieslimited by guarantee do not have share capital andthe liability of members is limited to the amount of theincorporators’ guarantee. N o liability company - This structure can only beadopted by mining corporations.Joint venturesA joint venture is an agreement between parties towork towards a common goal while remaining legallyseparate entities.Joint ventures can be unincorporated (created bycontract) or incorporated.PartnershipsPartnerships comprise between two and twenty(or more, depending on the industry) partners whoagree to work together in conducting a joint business.Partnerships are generally not separate legal entities.Partners can be jointly and severally liable for theobligations and debts of the business.9

TrustsImmigration and visa requirementsBusinesses can be conducted through a trust. The trustee,who may be an individual or a corporation, holds thebusiness’ assets, distributes the business’ income andcomplies with the trust deed.Australia’s migration and visa program provides for thepermanent and temporary entry of skilled individuals. Visarequirements vary depending on the applicant’s citizenship,purpose in visiting and length of stay.The two most common types of trusts under whichbusinesses can be conducted are a discretionary trustand a unit trust. A discretionary trust gives the trusteediscretion over what income or capital is distributed to eachbeneficiary, while unit trusts divide the property into fixedand quantifiable parts called units.Electronic Travel Authorities (“ETA”) or an “EVisitor” visaare generally available to business people, entitling theholder to remain in Australia for a period of up to threemonths from each entry to participate in business activitiessuch as attending board meetings and conferences,attending to contract negotiations and making generalemployment enquiries.Office holders and personal liabilityWhere a company has been managed responsibly the debtsof the company will generally be confined to the company.Persons appointed as directors are responsible for themanagement of the company. A number of common law andstatutory duties and obligations are imposed on directors,including to act in the company’s best interests.Directors may incur personal liability if they breach theirduties and obligations to the company. Personal liabilitymay also be imposed if a company continues to trade whileinsolvent, if the company fails to discharge certain taxationor superannuation obligations, or if the company breachesparticular laws such as occupational health and safety lawsand environmental protection laws.On 18 April 2017 the Australian government announcedthe abolition of the popular 457 Visa, an aspect of whichprovided for the sponsorship of employees by foreigncompanies wishing to establish business in Australia.The 457 Visa will be replaced by the new TemporarySkill Shortage (TSS) Visa in March 2018. Organisationslooking to establish a business presence in Australiausing foreign workers should seek specific advice tailoredto their circumstances.FundraisingFundraising activities are regulated by the CorporationsAct. The Act applies to all financial products offered withinAustralia irrespective of whether a financial product isissued by an Australian or foreign issuer and regardlessof where any resulting issue, sale or transfer occurs. Theconcept of offering securities includes inviting applications.“Financial Products” are defined in include numerous typesof financial instruments including shares and debentures.Offers of financial products generally require disclosurein accordance with the Act. There are however a numberof exceptions including rights issues, small scale personaloffers and certain offers to sophisticated investors.There are two main types of disclosure documents,prospectuses and offer information statements. Dependingon the circumstances a requirement to prepare a prospectusmay be satisfied by the preparation of a full prospectus, ashort form prospectus or a transaction specific prospectus.1011

Foreign InvestmentReview BoardForeign investment in Australia is regulated by legislation,regulations and the Australian Foreign Investment Policy.The Foreign Investment Review Board (“FIRB”) is the bodythat advises the Treasurer and Government on Australia’sForeign Investment Policy. With the advice of FIRB, theTreasurer reviews investment proposals and either prohibitsor permits a proposed investment based on whether itsatisfies the national interest test.Considerations including the economic benefits offoreign investment will be weighed up against concernssurrounding foreign ownership of Australian assets, inaddition to issues surrounding Australian governmentpolicies, national security, competition and the characterof the investor.The foreign investment scheme applies to‘foreign persons’, meaning: a n individual who is not ordinarily resident in Australia;or a corporation in which an individual not ordinarilyresident in Australia, a foreign corporation or a foreigngovernment holds an interest of at least 20 percent; or a corporation in which two or more persons, eachof whom is an individual not ordinarily residentin Australia, a foreign corporation or a foreigngovernment, collectively hold interests comprising atleast 40 percent; or t he trustee of a trust in which an individual notordinarily resident in Australia, a foreign corporation ora foreign government holds an interest of at least 20percent; or t he trustee of a trust in which two or more persons,each of whom is an individual not ordinarily residentin Australia, a foreign corporation or a foreigngovernment, collectively hold interests comprising atleast 40 percent; or12 a foreign government; or a ny other person, or any other person that meets theconditions, prescribed by the Foreign Acquisitions andTakeovers Regulation 2015 (Cth); or p erson deemed to be a foreign person under section54(7) of the Foreign Acquisitions and Takeovers Act1975 (Cth).Notification requirementsForeign investors may need to notify the Governmentof the proposed acquisition and seek approval from theTreasurer. Failure to comply with notification requirementscan result in a fine or imprisonment. Further, the Treasurermay prohibit or order the divestment of an investment ifthe acquisition is subsequently found to be contrary to thenational interest.Fees are payable for FIRB approval. It is recommended thatapproval be sought in advance of any purchase of propertyor a foreign person bidding at an auction.Notification thresholds vary for different countries andwhether Australia has a treaty or free trade agreement withthe specific country.These thresholds also differ based on the type ofinvestment in Sensitive Businesses, Non-Sensitive Business,Media Sector, Agribusiness and land investments and if theinvestor is a government entity.A sensitive businesses include investments in media;telecommunications; transport; defence and militaryrelated industries and activities; encryption and securitiestechnologies and communications systems; and theextraction of uranium or plutonium; or the operation ofnuclear facilities. These have different thresholds.13

Thresholds for business investments(not including investments in land)Thresholds for investments in landInvestor NationalityInvestment TypeThreshold – more than:Investor NationalityInvestment TypeThreshold – more than:From FTA partner countriesthat have the higherthreshold (being Chilean,Chinese, Japanese, NewZealand, South Korean andUnited States investors)except foreign governmentinvestors.Acquisitions in non-sensitivebusinesses 1,094 millionAll investorsResidential land 0Agricultural landFor Chile, New Zealand and United States, 1,094 millionAcquisitions in sensitivebusinesses 252 millionPrivately owned investorsfrom FTA partner countriesthat have the higherthreshold (being Chilean,Chinese, Japanese, NewZealand, South Korean andUnited States investors,except foreign governmentinvestors.Media sectorFor investment in the media sector, a holding of at leastfive percent requires notification and prior approvalregardless of the value of investment.AgribusinessesFor China, Japan, Korea,

“Doing Business and Investing in Australia”. The purpose of this Guide is to provide a general overview of the key legal issues that foreign organisations should be aware of when seeking to do business in, or investing in Australia. Russell Kennedy Lawyers is an Australian la

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