Publications / Corporate Advisory
WHO SHOULD READ THIS
- Australian Financial Services licenced fund managers
- Potential foreign investors seeking to apply for the significant investor visa
THINGS YOU NEED TO KNOW
- There have been major changes proposed to the significant investor visa framework for complying investments
WHAT YOU NEED TO DO
- Note the proposed changes to the significant investor visa scheme and stay posted for further updates
The suspension of the current Significant Investor stream of the Business Innovation and Investment (Provisional) visa (subclass 188) (SIV) program was announced last week by the Department of Immigration and Border Protection (DIBP).
All new nominations for SIVs will be suspended between 24 April and 30 June 2015.
On 9 April 2015, a statement on the transitional arrangements for the new investment framework was published on the DIBP website. Any Expressions of Interest (EOIs) lodged from the announcement of the suspension and during the suspension period, will have the new SIV framework applied to them. The catch is that the DIBP has not yet released a draft of the new SIV framework.
Information about the proposed new complying investment framework is available on the Australian Trade Commission website (Austrade). The revised Migration Regulations 1994 (Cth), based on the proposed SIV framework document set out on the Austrade website, will likely require that:
- investments are to be Foreign Investment Review Board (FIRB) compliant
- direct investment into residential real estate is ineligible and indirect exposure through investment vehicles (i.e. managed funds) must be restricted to less than 10% of the fund’s net assets
- ‘loan back’ arrangements where the SIV investment is used as collateral by applicant will be prohibited
- derivatives are to be used for risk management purposes only and combined cash and derivatives to be limited to 20% notional exposure of a fund’s net assets
- investments through managed funds managed by Australian Financial Services (AFS) licensees are to be with managers independent of the applicant and their spouse, and
- ‘Fund of Funds’ managed funds will be allowed.
Of the AUD$5 million investment in complying investments, it is likely that there will be a mandatory minimum investment by the visa applicant in:
- likely to be a mandatory minimum AUD$1 million investment in an Australian venture capital limited partner fund
- fund must be managed by AFS licenced fund manager domiciled in Australia
- no single investor to have more than 30% ownership rights in the fund
- fund must be AusIndustry registered Early Stage Venture Capital Limited Partnerships (ESVCLP) and Venture Capital Limited Partnerships (VCLP), and
Small / micro cap companies (SMC)
- likely to be a mandatory minimum AUD$1.5 million investment in a managed fund (open or closed)
- AFS licenced fund manager domiciled in Australia
- fund manager is to have and maintain a minimum of AUD$100 million in firm wide funds under management to offer a complying fund to applications
- a fund is to invest according to the following criteria:
- investee companies are to be Australian exchange listed equities with a market capitalisation of less than AUD$500 million at the time of first purchase by the fund
- a minimum of 20 investee companies from three months post the fund’s inception data must be maintained
- no individual investee company to represent greater than 10% of the fund assets
- up to 30% of the fund’s net assets can be in previously held investee equities who have grown their market cap above AUD$500 million
- the fund must be independently be assessed by an AFS licenced rating agency or AFS licensed asset consultant with the fund manager obliged to share the assessment with the investor
Balancing of the complying investment for SIV
- the remaining AUD$2.5 million complying investment must be invested in one or more managed funds, managed by an AFS licenced fund manager domiciled in Australia and that has a minimum in AUD$100 million in firm wide funds under management, investing in:
- Australian exchange listed companies, Australian real estate investment trusts (A-REITS), infrastructure trusts, preference shares, convertible bonds or corporate issued floating rate notes
- Australian issued corporate bonds (financial and non-financial companies)
- Australian friendly society insurance bonds
- deferred annuities issued by Australian registered life companies but cannot commence paybacks during the qualifying period, and
- commercial and industrial property in Australia.
The proposed SIV framework document has not changed from the draft released by Austrade in February 2015 for public discussion.
If the proposed SIV framework is implemented, it will drastically change the existing investment requirements, and many EOIs lodged after the suspension was announced are unlikely to comply with the new framework. Specifically, government bonds and direct investment in Australian proprietary companies which carry on a ‘qualifying business’ will no longer be recognised as complying investments and the scope of managed funds which are complying investments will be considerably narrowed.
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.