PROPOSED CHANGES TO THE SIGNIFICANT INVESTOR VISA (“SIV”) AND THE INTRODUCTION OF THE PREMIUM INVESTOR VISA (“PIV”)
On 14 October 2014 the Australian Government announced reforms to improve the SIV (Significant Investor Visa) programme. This includes the introduction of a new Premium Investor Visa (PIV).
Readers need to understand that these are only proposals and the government is assessing feedback from interested parties before formalising the new rules.
Proposed changes to the SIV
1) “Loan Back” arrangements are to be excluded;
2) The investor is prohibited from investing in Australian Government Bonds. Instead, investors can only invest in Australian issued corporate bonds;
3) The investor is prohibited from directly investing in residential real estate and private companies;
4) Introduction of a new complying investment framework including two mandatory investment components and one balancing investment component;
5) Austrade will also be an agency that will be responsible for nomination of what is an approved investment alongside with state and territory governments.
The main concerns with the SIV
The main concerns that many wealthy businessmen have with the SIV are:
1) that they have to hold a subclass 188 pathway visa for four years before they can be eligible to apply for the SIV permanent residence visa;
2) The investor is required to stay in Australia for at least 160 days in the four years period.
Most wealthy businessmen would find the time period they need to spend in Australia to be a big inconvenience impacting on their business life style.
Risks associated with the proposed changes to the SIV
The Mandatory Investment components
Under the new framework of complying investment proposed by Austrade, the monies that must be invested in these two mandatory components must equal 50% of the $5m investment.
1) Mandatory Venture Capital investment. the investors must invest at least $1 million out of the $5 million in venture capital companies at the time of application;
2) Mandatory Micro Capitalised investment. Under the new framework of complying investment proposed by Austrade, the investors must invest at least $1.5 million in micro capitalized companies.
The purpose of venture capital is of course to invest in early-stage, high-potential and growth startup companies. Of course there are obvious risks to such venture capital investments including:
(a) The investment is high risk and may fail resulting in the SIV holder losing their capital.
(b) There is no control for the SIV holder over the money invested in the venture capital companies.
In comparison with the venture capital investment, the Micro-Cap may seem less risky. However, there are still some risky elements associated with the Micro-Cap investment:
(a) The SIV investors are only allowed to invest in a public listed company with less than $500 million market capitalisation. With such restriction on the SIV, it is likely the investor will receive less potential returns. A listed public company with less than $500 million market capitalisation is not large enough to render high potential returns.
The Balancing Component
It seems that Austrade is aware of the risks associated with the two mandatory components. Austrade propose to use the balancing investment component to trade off the foregoing mentioned two high-risk mandatory components.
Under the proposed balancing components, the investor can invest in:
· Australian issued corporate bonds;
· Australian friendly society insurance bonds; and
· Commercial and industrial property.
Whether the balancing investment component can lower the risks of the other two mandatory components and its workability is the question the SIV and PIV applicants have to ask themselves.
THE DIFFERENCE BETWEEN THE PIV AND SIV
1) Investors under the PIV can get permanent residency if the investor meets a $15 million investment threshold. They have to meet the requirements of the yet to be disclosed complying investment regime for 12 months with no residency requirement.
2) The Austrade will be the sole agency which will be responsible for nominating and monitoring the PIV requirements.
Austrade is trying to make the PIV more flexible compared to the SIV criteria. This may help wealthy businessmen who still need to look after or continue management of their business before settling in Australia.
The risks associated with the PIV
Austrade has not released sufficient information on the proposed structure of the complying investments for the PIV. Austrade may adopt for the PIV, the same investment proposals outlined for the SIV investments. If that is the case, it then follows that the PIV will have the same risks as discussed in the proposed changes to the SIV.
However their risks will in fact be higher as their required capital investments will be higher.
The impact on the proposed changes of the SIV and the PIV
More detailed information pertaining to the PIV and the SIV requirements are expected to be released in early May 2015 by the Minister for Trade. We will endeavor to update information on the PIV and SIV once more detailed information becomes available.
Written with assistance from Nathan Wong