[ESTABLISHING A BUSINESS ENTITY IN AUSTRALIA]
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the FIRB and/or seek FIRB approval vary significantly depending on the characteristics of the target entity or business, and generally apply to businesses or companies which are valued at more than $310 million AUD. Importantly, there have been significant changes to Australia’s foreign investment framework as a result of and since the COVID- 19 pandemic. These include the introduction of a new ‘Register of Foreign Ownership of Australian Assets’ and related reporting obligations on foreign persons in respect of their Australian assets. Any person or entity seeking to invest in Australian land or companies should seek legal advice regarding the relevant FIRB approvals which must be obtained. The overarching policy objective behind the FIRB’s regulation of foreign investment into Australian companies and businesses is to ensure that any proposed foreign acquisitions are not contrary to Australia’s national interest. Capitalization Obligations In Australia, “thin capitalization” rules apply to: • “Outward investing entities” – being Australian entities with specified overseas investments; and • “Inward investing entities” – which are foreign entities with certain investments in Australia, regardless of whether they hold the investments directly or through Australian entities. One of the key objectives of the thin capitalization rules is to ensure that inward and outward investing entities fund their Australian operations with a sufficient amount of equity capital. This is achieved by limiting the debt deductions that inward and outward investing entities are able to claim in their annual tax returns, which would otherwise have the effect of minimizing their Australian taxation liabilities.
• a corporation or the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; and • a corporation or the trustee of a trust in which two or more persons, who together hold an aggregate substantial interest , are: (a) not ordinarily resident in Australia; (b) a foreign corporation; or (c) a foreign government entity. A “substantial interest” for the purposes of the above means an interest of 20% or more in the relevant company or trust. Acquisitions of Residential and Commercial Property There are certain restrictions imposed on the purchase of residential and commercial property by foreign persons. Acquisitions of interests in Australian Companies and Businesses As a general rule, foreign persons are required to obtain FIRB approval prior to entering into an unconditional agreement to acquire substantial interests (i.e. interests of 20% or more) in Australian companies or businesses which have an annual turnover above a specified threshold. Acquisitions of interests in Australian companies by foreign government entities or in respect of Australian companies that conduct “sensitive business”, such as media, telecommunications, transport, military related industries and activities and securities technologies, are subject to a very strict foreign investment approval process. The relevant monetary thresholds which trigger the requirement of foreign investors to notify
ILN Corporate Group – Establishing a Business Entity Series
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