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A significant investment

Feature Articles

Cite as: December 2013 87 (12) LIJ, p.38

Private wealth in Asia, particularly China, is at historically high levels and the introduction of the Significant Investment Visa provides a new avenue for Australian businesses and managed funds to tap into this market. By Valerie Pereira

By Valerie Pereira

On 24 November 2012 the federal government introduced a new visa pathway, the Significant Investment Visa (SIV)1 for migrant investors coming to Australia to stimulate foreign investment in Australia. The SIV enables a citizen of any country to invest A$5 million over four years to receive a provisional visa to reside in Australia with the ultimate aim of securing permanent residency. Investors also have the option to consider similar schemes in the United States, Canada, New Zealand and Portugal.

SIV scheme

The Significant Investor Visa (SIV) is part of the Business Innovation and Investment (Provisional) (Subclass 188) visa and Business Innovation and Investment (Permanent) (Subclass 888) visa. This visa category allows an applicant, 18 years or older, with no English language skills and no educational qualifications or work experience in occupations on the skilled occupations list, to secure permanent residency in Australia with a tiered physical presence in Australia of 160, 240 or 320 days over four, six or eight years respectively. The applicants will not be subject to the points test of age, language, skills or experience like other skilled migrants, but will be subject to background checks including health, character and national security. Early indications suggest that most interest in the visa will come from China.

Once the permanent sub-class 888 visa is approved, the investor has the opportunity to send their children to schools or universities in Australia.

Process

Any person wishing to apply for the visa must submit an expression of interest in Skill Select, a program established by the Department of Immigration and Border Protection whereby the state or territory government agencies are required to nominate the investor in order to meet the criteria of the visa. Once nominated, a minimum of A$5 million must be placed in complying investments.

Visa holders who satisfy the extension requirements can extend their provisional visa for two years, with a maximum of two further extensions.

Eligible managed fund investment

When the SIV program was introduced the list of complying investments was limited to federal, state or territory government bonds, Australian Securities and Investment Commission (ASIC) regulated managed funds with a mandate for investing in Australia, and direct investment into Australian proprietary companies.

Eight months later, on 25 July 2013, the Minister for Immigration, Multicultural and Citizenship, acting under Migration Regulations 5.19(B)2 announced an expanded generous list of managed funds investment listed in Instrument IMMI 13/0923. The new list, which came into force on 23 November 2013, was warmly welcomed by the financial industry and includes:

a) cash held by Australian deposit taking institutions;

b) bonds issued by federal, state or territory government;

c) bonds, equities, hybrids or other corporate debt in companies and trusts listed or expected to be listed on the Australian Stock Exchange;

d) bonds or term deposits issued by Australian financial institutions;

e) real property;

f) Australian agribusiness;

g) annuities issued by Australian registered life companies;

h) derivatives used for portfolio management;

i) loans secured by mortgages over investment listed in a) to h); and

j) other managed funds invested in a) to h).

The initial list was expanded as it was considered too narrow and did not reflect fund management industry practices. The new instrument 13/092 will enable the existing managed funds to qualify as acceptable SIV investments. The instrument will also give investors a choice to access quality funds that have a track record of performance and create a competitive environment among managed funds for SIV investments.

The two major drawbacks that may cause delays in processing are the legislative clarity in the source of funds and accumulation of assets, and the legal transfer of funds from countries that have strict foreign exchange controls.

PossiblE changes to the eligible investments

After analysing the financial position of the country, there is a possibility that the new government will revoke the instrument and introduce a new one to target investments in the areas most needed including infrastructure projects – roads, tunnels, education, hospitals, farms, venture capital and regional expansion.

Some of the large projects that the Coalition promised during the federal election include:4

  • $6.7 billion – Queensland Bruce Highway
  • $5.6 billion – Pacific Highway
  • $1.5 billion – Melbourne East West link
  • $1.5 billion – Sydney WestConnex
  • $1 billion – Brisbane Gateway Motorway
  • $686 million – Perth Gateway
  • $615 million – Swan Valley bypass
  • $500 million – the South Road Project in Adelaide
  • $400 million – Midland Highway, Tasmania
  • $200 million – annual fund for National Stronger Regions Fund
  • Building of dams
  • NBN Project

The Federal government could adopt the American EB-5 visa model5 of approving specific projects.

Pathway to permanent residence

Successful SIV applicants will be granted a temporary Subclass 188 visa, which is valid for four years. At the end of the four year period SIV applicants can apply for the Subclass 888 (Australian permanent residence) provided they meet the criteria in Schedule 1 and Schedule 2.6

In order to qualify for permanent residency, the SIV applicant must continue to hold complying investments. Further, the SIV applicant must demonstrate that they have been in Australia for an average of 40 days for each year the Subclass 188 visa was held. For example, if the applicant had held a Subclass 188 visa for four years, they would be required to demonstrate a cumulative 160 days residence in Australia. It is not necessary for the applicant to have been in Australia for 40 days in each calendar year in the period.

Visa holders who do not meet requirements for permanent residence may request a two-year extension to the Subclass 188 visa with a maximum of two extensions being granted.

Conclusion

The SIV industry is gaining momentum and could generate at least $5 billion in new capital to Australian corporations and fund managers, which is equivalent to one sixth of the superannuation industry. The SIV scheme will impact on investment management, capital markets, property and professional services in Australia, and channel providers in Asia.

Between 24 November 2012 and 30 June 2013, the Department of Immigration had received 544 expressions of interest from offshore investors and had invited 409 investors to submit applications, out of which 305 have lodged applications, with NSW (138) and Victoria (129) getting the bulk of these followed by Queensland (24), WA (16) and South Australia (3).7 The number of intending migrants who received nominations from state and territory governments in August 2013, were Victoria (86), NSW (33), Queensland (12), Western Australia (9) and South Australia (3).8

With the new legal instrument in force from 23 November 2013, many banks and fund managers are developing new products to comply with the instrument. The list of eligible managed investment funds raises the issue whether it gives banks and financial institutions an opportunity to create complex financial products in which some may fail. Australia does not want to see the SIV program collapse in the same manner that the USA property market crashed with complex collateral debt obligations.

As the list of new managed funds investment comes into force, there is a strong possibility that the new government is likely to amend it to specifically target the infrastructure projects announced during the elections.

The SIV program has seen financial institutions and banks selling these products through financial planners and brokers on one hand and registered migration agents on the other, with both groups of professionals coming under different regulatory authorities. The question to be considered is, are migration agents breaching financial planning laws by selling managed fund investments or are financial planners and brokers providing immigration assistance breaching the Migration Act?

Similar schemes in other countries:

USA

In the USA, congress established the pilot EB-5 program in 1990 for the sole purpose of securing investment capital for projects that would create or preserve jobs. The projects are approved by US Citizenship and Immigration Services (USCIS) and termed as Regional Centres.

As part of a plan to stimulate the US economy through job creation and capital investment, Congress opened up a program that allowed 10,000 EB-5 immigrant visas per year. Of those 10,000, a total of 3000 EB-5 visas are set aside for investors in regional centres such as Florida Regional Centre and US Immigration Fund Companies.

The three elements of the EB-5 program are the immigrant’s investment of capital in a new commercial enterprise that creates jobs.

It is based on the assumptions that the US economy will benefit from an immigrant’s contribution, the benefit to the US economy is greatest when capital is placed at risk and invested into a new commercial enterprise and that the investment would create at least ten jobs for US workers.

Prospective immigrants who invest their capital in the USCIS-approved projects receive a conditional permanent residence status for a two-year period. After two years, if the prospective immigrant meets the eligibility criteria, which includes the investment of funds for the period, the prospective immigrant becomes an unconditional lawful permanent resident of the US. Congress created the two-year conditional status period to ensure compliance with the statutory and regulatory requirements.

The statute governing the EB-5 program provides that the immigrant investor must invest at least US$1,000,000 of capital in a new commercial enterprise that creates not fewer than ten jobs. Congress reduced the investment amount to US$500,000 in rural areas and areas of high unemployment in order to attract immigrants to invest in new commercial enterprises.

The USCIS Scheme has a prudent disclaimer to prospective immigrants which states that the endorsement by USCIS of a regional centre does not in any way guarantee that the centre complies with securities law or is risk free. Further, USCIS encourages an investor to seek professional and independent advice when making any investment decisions.

In 2012 Congress deleted the word ‘pilot’ and extended the program up to 2015.

Statistics show that:

  • In 2012 there was a 79 per cent approval for conditional green cards (3002 approvals and 775 denials) compared to 81 per cent in 2011 (1563 approvals and 371 denials).
  • In 2012 there was an 84 per cent approval for removal of conditions (639 approvals and 371 denials) compared to 94 per cent in 2011 (1067 approvals and 46 denials).9

Canada

In Canada, the Immigrant Investor Program (IIP) is targeted towards experienced business people who are likely to contribute to Canada’s growth and long-term prosperity.10 Investors seeking permanent residence must demonstrate that they have business experience, a minimum net worth of C$1,600,000 that was obtained legally and make a C$800,000 investment.

The investment is administered by Citizenship and Immigration Canada (CIC) and is guaranteed by the Canadian provinces that uses it to create jobs and help their economies grow.

The investment of C$800,000 must be made within 30 days of approval of the visa application, and prior to the granting of a permanent resident visa.

CIC will return the C$800,000 investment, without interest, after five years and three months after payment.

New Zealand

In New Zealand, the Investor Plus category requires a prospective migrant to have NZ$10 million in funds and/or assets.11 The funds and/or assets must be owned by the prospective applicant or jointly with the applicant’s partner and/or dependent children. The funds must be earned or acquired legally or have been lawfully gifted and must be transferable through the banking system.

Once the visa has been approved, the NZ$10 million must be transferred into acceptable investments capable of commercial return under normal circumstances and invested in lawful enterprises or managed funds which invest in Government bonds or bonds issued by New Zealand firms traded on New Zealand Debt Securities Market or bonds issued by New Zealand firms with a BBB rating or equity in New Zealand firms or bonds issued by New Zealand Banks or residential developments or bonds in finance companies.

Portugal

Portugal has recently created a new “golden visa” for people willing to invest between €500,000 and €1,000,000 in Portugal for five years, with a generous residential requirement of seven consecutive days for the first year or fourteen subsequent days within the subsequent two-year period.12



Valerie Pereira is an accredited immigration law specialist at Dagama Pereira & Associates and chair of the Migration Law Committee, Law Institute of Victoria.

1. www.immi.gov.au/skilled/business/_pdf/significant-investor.pdf.

2. Migration Regulations 1994.

3. Legal Instrument, www.comlaw.gov.au/Details/F2013L01571.

4. Policies and discussion papers, www.liberal.org.au/our-policies.

5. Immigrant Investor Regional Centers, www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextoid=d765ee0f4c014210VgnVCM100000082ca60aRCRD&vgnextchannel=facb83453d4a3210VgnVCM100000b92ca60aRCRD.

6. Migration Regulations 1994.

7. Property Observer, www.propertyobserver.com.au/foreign-investment/significant-investor-visa-numbers-finally-hit-double-figures-as-fund-managers-ramp-up-compliant-offerings.

8. SkillSelect invitation round on 16 September 2013, www.immi.gov.au/skills/skillselect/index/reports/report-2013-09-16/#!.

9. Performance analysis, www.uscis.gov/USCIS/Outreach/Upcoming%20National%20Engagements/Upcoming%20National%20Engagement%20Pages/2012%20Events/July%202012/EB5_Statistics_Q3_2012.pdf.

10. Investors, Citizenship and Immigration Canada, www.cic.gc.ca/english/immigrate/business/investors/index.asp.

11. Migrant Investor Categories, Immigration New Zealand, www.immigration.govt.nz/migrant/stream/invest/investment/default.htm.

12. www.mondaq.com/x/268912/work+visas/The+New+Portuguese+Golden+Visas&email_access=on.

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