Overview of Anticipated Changes in Australia’s Significant Investor Program

Australia announced the suspension of its Investment Immigration scheme pending the introduction of revised rules for the Significant Investor stream of the Business Innovation and Investment Provisional Visa (subclass 188). All new nominations under the program will take place under the new rules set to come into force from 1st July, 2015.

The Department of Immigration and Border Protection announced the statement related to transitional arrangements for the new investment framework on 9th April, 2015. Post suspension of the program, all Expressions of Interest submitted during the suspension period will have to comply with the revised rules applicable to the SIV program.

However, the DIBP is yet to release a draft of the new rules. Currently, investment immigration applicants have access to just the new investment framework proposed by the Australian Trade Commission. Analysis of the proposed changes reveals that the new framework may impose the following requirements on investment immigration applicants:

• All investments under the SIV program will have to comply with the rules of the Foreign Investment Review Board.
• Applicants will be prohibited from making direct investments into the Australian residential property sector. Indirect exposure in the sector through managed funds cannot exceed 10% of the net assets of such funds.
• Applicants will no longer be permitted to use the SIV investment as collateral for loan-back arrangements.
• Investments in derivatives are permissible solely for risk management purposes. The combined cash and derivative exposure should not exceed 20% of the notional exposure of the net assets of the fund.
• Investments are made through managed funds regulated by the Australian Financial Services. Further, the managers of such funds should be independent of the applicant and his or her spouse.
• Investors will be permitted to invest in ‘Funds of Funds’ managed funds

With regard to permissible asset classes for investment of the minimum requirement of $5 million, the new rules are expected to impose the following conditions.

1. Venture Capital
   • Mandatory investment of at least $1 million in an Australian Venture Capital Limited Partner funds.
   • Such funds must be managed by a fund manager licensed by the AFS, and who is domiciled in Australia.
   • No single investment immigration applicants can hold more than 30% ownership in such funds.
   • The funds must comply with Early Stage Venture Capital Limited Partnerships and Venture Capital Limited Partnerships registration requirements.
2. Small and Micro Companies
   • The new rules are expected to require a minimum investment of $1.5 million in a managed fund for investment in small and micro capital companies.
   • Such funds must be licensed under the AFS, and the fund manager must reside in Australia.
   • The manager must have and maintain funds worth at least $100 million in order to be eligible to receive investment from investment immigration applicants.The investment amount received must be allocated in the following manner:
     • Companies receiving the investment must be listed on the Australian Stock Exchange, and must not have market capitalization exceeding $500 million at the time of investment.
     • Investment must be made in 20 companies within three months of the inception of the fund.
     • Not more than 10% of the fund’s assets can be invested in a single company.
     • Up to 30% of the net assets of the fund can be held in previously invested companies that now have market capitalization of more than $500 million.
     • Fund must be independently assessed by a rating agency or asset consultant licensed by the AFS. Such assessment must be shared with the applicant.
3. Other Investment Options:The balance investment of $2.5 million can be invested in the following asset classes
   • Companies listed on the Australian Stock exchange
   • Australian real estate investment trusts and infrastructure trusts
   • Preference shares, convertible bonds or floating rate notes issued by corporations
   • Financial and nonfinancial corporate bonds issued in Australia
   • Society insurance bonds issued in Australia
   • Annuities issued by life insurance companies registered in Australia that commences payout only after the expiry of the qualifying period
   • Commercial and industrial property in Australia

The consensus view is that the proposed changes published by Austrade are unlikely to be altered by the Government when bringing the new rules into force on 1st July, 2105.

Source: Lexology.com