Yes, however the Foreign Acquisition and Takeovers Act 1975 (Cth) (FATA) sets out the requirements associated with foreign investment in Australia. The FATA regime is administered by the Federal Treasurer and the Foreign Investment Review Board (FIRB).
The Commonwealth's stated approach to foreign investment is to encourage it consistent with Australia's national interest. Proposals concerning acquisition of an interest in Australian land requires notification to, and approval by, FIRB if the value of the interest being acquired exceeds prescribed thresholds.
Any acquisition of commercial real estate by an agreement country investor (currently being a non-government entity from the USA, New Zealand, Chile, Japan, the Republic of Korea and China) will be subject to a threshold of AUD1,094 million. Acquisitions of such land by a foreign person which is not an agreement country investor or a foreign government will be subject to a AUD252 million threshold unless the land is characterized as ‘sensitive’ in which case an AUD55 million threshold will apply. These lower thresholds also apply to Australian special purpose vehicles established by agreement country investors for the purposes of making the investment.
An interest in Australian land includes acquisitions of an interest in a share in an Australian land corporation and a unit in an Australian land trust.
The above mentioned thresholds are indexed annually on 1 January.
In the case of vacant land and residential land (as well as acquisitions by foreign government entities), the threshold is zero and accordingly all acquisitions of such land or by such entities require approval by FIRB.
A foreign person includes:
Australian land is broadly defined and includes all agricultural land, commercial land, residential land and a mining tenement or production tenement situated in Australia.
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'Permanent establishment' is a taxation concept in Australia and not a corporate vehicle as such.
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The main types of corporate vehicle available to investors are:
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A proprietary company is a form of corporation, which must either be:
Most common is a proprietary company that is limited by shares. A proprietary limited company must have at least one shareholder and must have no more than 50 non-employee shareholders and at least one director who must ordinarily reside in Australia.
A public company is similar to a proprietary company as regards the limited liability of its shareholders. However, there is no restriction on the number of shareholders and public companies may raise funds from the public. A public company must have a minimum of three directors, two of which must ordinarily reside in Australia, and a minimum of one company secretary who must also ordinarily reside in Australia. All Australian companies listed on the Australian Securities Exchange are public companies.
It is also possible to incorporate a ‘no liability’ public company (where the company’s sole objects are ‘mining purposes’) or a public company ‘limited by guarantee’. However, in general these types of corporate vehicles are unlikely to be suitable for commercial real estate investment.
A company incorporated or formed outside Australia may carry on business in Australia provided it has registered under the Corporations Act.
Partnerships are not considered separate legal persons. While partnership names are commonly registered, there is no system of registration of general partnerships.
The partners are all jointly and severally liable for the debts of the partnership and have unlimited liability.
In some states, limited liability partnerships can be registered with state regulatory authorities. In such partnerships, special partners are liable only to the extent of their capital contributions but have no participation in the management of the partnership which is carried on by a general partner (which has unlimited liability).
A discretionary trust is a trust under which beneficiaries have no fixed entitlements to the capital or income of the trust, with the trustee having a discretion to choose which beneficiaries are entitled to receive distributions of trust property.
In general, a discretionary trust is used for family investment purposes rather than for public investment purposes. Unit trusts are more commonly used for public investment purposes.
A discretionary trust is not a separate legal entity in the same way as an individual or a company, rather it is a relationship which exists whereby a person (trustee) is authorized to hold property for the benefit of others (beneficiaries), acting in accordance with the powers conferred on the trustee under a deed of settlement.
The requirements for a discretionary trust are:
The trustee is the legal owner of the trust property, although not the beneficial owner. The trustee carries out all transactions of the trust in its own name and signs documents for and on behalf of the trust. The law imposes upon a trustee a duty to act in good faith for the benefit of beneficiaries, and the trustee must administer the trust in accordance with the terms, conditions and powers contained in the trust deed and implied by law. Provided that a trustee acts in accordance with the terms, conditions and powers contained in the trust deed and implied by law, the law will protect it from any liability in respect of those actions or any claim by any beneficiary, despite the result of those actions. It is common for the trustee to be a limited liability company (see above).
The trust fund is all the property of the trust including the settled sum, accumulated income and any other money and property held by the trustee pursuant to the terms of the trust.
The beneficiaries are the people (including entities) for whose benefit the trustee holds the trust property. A discretionary trust usually has a wide range of beneficiaries, including companies and other trusts. The beneficiaries of a discretionary trust do not have an interest in the assets of the trust. They merely have a right to be considered or a mere expectancy until such time as the trustee exercises its discretion to make a distribution.
The trust deed defines the relationship between the trustee and the beneficiaries. The trust deed specifically sets out the duties and powers of investment of the trustee.
A unit trust is also constituted by the execution of a trust deed. However, in a unit trust, entitlement to the benefits of the trust is divided into units similar to shares in a company. The investors hold a number of units according to their investment. Provided that the unit trust is not a ‘managed investment scheme’ (in which case a separate set of regulatory requirements may apply), the relationships between the parties (trustee and unitholder) are otherwise similar to those set out above for discretionary trusts except that the trustee has no discretion as to distributions or entitlements to assets as these are determined by the rights attaching to the units in the trust.
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None of the corporate vehicles normally used for real estate investment in Australia has a minimum capital requirement.
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The cost of establishing a company (proprietary or public) can be less than AUD1,000 if a specialist ‘shelf company’ provider is used. A large part of this comprises the application lodgement fee payable to the corporate regulator (ASIC). To the extent that tax registrations (for example, registration for an Australian Business Number for goods and services tax (GST) purposes) are required, additional fees may apply in connection with those registrations. If the application for incorporation is being prepared and lodged by lawyers or a bespoke company constitution is required, the cost of the lawyers’ fees in preparing and progressing the application, or drafting the constitution will usually be between AUD2,000 and AUD5,000. The cost of registering a branch of a foreign company is similar.
A general partnership is usually created by a partnership agreement. Although it can exist by conduct of the parties, it is preferable to have a written agreement. There are no filing or registration fees. The cost of establishment thus largely consists of lawyers’ fees in preparing the partnership agreement (which in turn will depend on the complexities of the arrangements between the parties). A simple partnership agreement could be prepared for approximately AUD5,000.
For a limited liability partnership, in addition to the costs of preparing a partnership agreement, registration with state regulatory authorities is required. Registration fees vary from state to state; they are approximately AUD400.
Discretionary trusts and unit trusts are both constituted by the execution of a trust deed. A simple discretionary trust or unit trust can usually be established for less than AUD1,000 if a specialist ‘shelf’ provider is used. If a bespoke trust deed is required, the cost of the lawyers' fees in drafting the trust deed will usually be between AUD3,000 and AUD5,000. Stamp duty may be payable on the trust deed. This will vary from state to state, but if the trust property at the time this duty becomes due is minimal, will generally be approximately AUD500.
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The incorporation process for a proprietary company or a public company normally takes between three and five business days from lodgement of all required information. Once the company is incorporated, additional registrations may be required (for example, registration for GST or income tax purposes), and those applications take additional time.
Registration of a branch of a foreign company may take up to four weeks from lodgement of the relevant forms and accompanying documents with the Australian Securities and Investments Commission (ASIC).
There is no specific requirement for registration of general partnerships. A partnership can become operative as soon as the agreement is finalized (or by the parties’ conduct).
A limited liability partnership is formed by and on registration of the partnership under the relevant Partnership Act. Registration is effected by recording in the register the particulars in the statement lodged with the relevant authority. Normally, the registration of a limited liability partnership can be effected in five working days.
There is no provision for registration of discretionary trusts. Normally, the trust is constituted by the payment to the trustee of an amount (the settled sum) which the trustee agrees to hold, together with any other money paid or property transferred to it, in accordance with the terms and conditions of the trust deed. The discretionary trust is thus operative on execution of the trust deed. A unit trust is operative on execution of the trust deed. However, failure to pay stamp duty in respect of the trust deed can have serious implications for future property transfers and hence payment of stamp duty should occur as soon as practicable after the trust is established.
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Proprietary companies must have at least one director (who can also be the company secretary, if one is to be appointed and sole shareholder) who must ordinarily reside in Australia.
A secretary can be appointed (but this is not mandatory). If appointed, at least one secretary must ordinarily reside in Australia. The company’s affairs are run by its directors. In addition to supervising day to day management, the directors must ensure that statutory registers and records are maintained, financial statements are prepared and (if required) lodged with the Australian Securities and Investments Commission (ASIC). All company officers owe duties (under statute, as well as under general legal principles) to the company. Fundamental changes to the company (such as changes to its capital, shareholders and officers) must be promptly notified to ASIC.
Public companies must have at least three directors, with at least two ordinarily residing in Australia, and must appoint at least one company secretary who ordinarily resides in Australia. The same person may act as a director and company secretary. In general, corporate governance requirements are largely similar to proprietary companies. However, all public companies are required to prepare and to lodge audited financial statements, and every public company that has more than one member must hold an annual general meeting, at least once in each calendar year and within five months after the end of its financial year. If the public company is listed on the Australian Securities Exchange, it will be required to comply with the Exchange’s listing rules (and report on its corporate governance practices). Offers of shares to the public are extensively regulated.
A foreign corporation registered to carry on business in Australia requires at least one local agent, an Australian company or person ordinarily resident in Australia, to be appointed to act on behalf of the foreign corporation. They must be authorized to accept notices on the foreign corporation’s behalf and may be held personally liable for any penalties imposed should the foreign corporation contravene the Corporations Act. The local agent is responsible for acts that a foreign corporation is required to do under the Corporations Act. The foreign corporation must also maintain a registered office in Australia and lodge documents with ASIC, as specified by the Corporations Act. These will mainly be changes to constituent documents, shareholders and officers.
Partnerships (except certain professional partnerships such as legal and accounting firms) may have no more than 20 members. In a general partnership, each partner can incur obligations on behalf of the partnership and each assumes unlimited liability for the partnership’s debts. The governance procedures for partnerships will be as agreed by the partners in their partnership agreement.
In a limited liability partnership, there is usually just one general partner (although there can be more). The other partners are called ‘limited partners’. The general partner has full management responsibility and runs the day-to-day operations of the business. A limited partner cannot incur obligations on behalf of the partnership and must not participate in the firm’s daily operations or management. A limited partner’s role usually involves nothing more than making an initial capital investment in exchange for a share of the partnership’s profits. A limited partner’s liability cannot exceed their financial contribution to the partnership.
Australian partnerships are governed on a state-by-state basis. Each state has its own partnership legislation.
A discretionary trust is not a separate legal entity in the same way as an individual or a company, rather it is a relationship which exists whereby a person (trustee) is authorized to hold property for the benefit of others (beneficiaries), acting in accordance with the powers conferred on the trustee under a deed of settlement. It is common for the trustee of the trust to be a company in which case the above requirements for a company will apply.
In a unit trust, entitlement to the benefits of the trust is divided into units similar to shares in a company. The investors hold a number of units according to their investment. Provided that the unit trust is not a ‘managed investment scheme’ (in which case a separate set of regulatory requirements may apply), the relationships between the parties (trustee and unitholder) are otherwise similar to those set out above for discretionary trusts except that the trustee has no discretion as to distributions or entitlements to assets as these are determined by the rights attaching to the units in the trust. If the trustee of the trust is a company, the above requirements for companies will apply.
If the trust is listed on the Australian Securities Exchange, it will be required to comply with the Exchange’s listing rules and the provisions of the Corporations Act dealing with registered managed investment schemes. Offers of units to the public are extensively regulated and will affect the contents of the trust deed.
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A proprietary company has to pay an annual review fee (currently AUD249) to the Australian Securities and Investments Commission (ASIC). There will be other costs, such as preparing annual financial statements, taxation returns and keeping ASIC informed of any changes to the company’s structure and officeholders. The fees payable in respect of the preparation of financial statements and tax returns will be affected by the nature and scale of the company’s activities.
A public company has to pay an annual review fee (currently AUD1,176) to ASIC. As with a proprietary company there will be other costs, which will be affected by the nature and scale of the company’s activities.
A registered foreign company has to pay a fee of AUD1,169 to lodge with ASIC either an annual return or a statement to verify financial statements (as applicable) and will incur other costs depending on the nature and scale of its activities.
There are no filing fees or reporting requirements associated with a general partnership or a limited liability partnership (beyond usual income tax compliance obligations).
There are no filing or registration fees for a discretionary trust or for a unit trust. Accounting and tax return preparation fees will depend on the nature of the activities of the trust.
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Please refer to the taxes topic for Australia.
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Does the concept of a 'permanent establishment' apply when a foreign person invests in real estate and, if so, how much does it cost to set up such a permanent establishment, how long does it take and what corporate governance requirements apply?
'Permanent establishment' is a taxation concept in Australia and not a corporate vehicle as such.
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