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Australia: Market Profile

Picture: Australia factsheet
Picture: Australia factsheet

1. Overview

Australia is a free economy with a very stable political environment. These factors are supportive of a high GDP per capita, and there is a strong positive correlation between GDP per capita and things such as a strong rule of law, limited government, and openness to foreign investment. While the mining industry is a key contributor, the Australian economy has been diversified into and dominated by the services sector, which comprises some 60% of its GDP and about 80% of its labour force. Since 2010, information, media and telecoms, accommodation and food services, and finance and insurance have been the standout industry performers. Recently, the Australian government has conducted a performance review of Australia’s innovation, science and research system, and is in the process of developing a 2030 strategic plan. The strategic plan will provide a vision of the innovation, science and research system by 2030, set goals, outline the actions required, and advocate reforms on key issues, such as investment, innovation, collaboration and skills, delivering and operating research infrastructure, and how to better plan and use Australia’s investment in research and development.

Source: HKTDC, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

November 2017
Constitutional crisis arose as several MPs, including the deputy prime minister, quitted over a once-obscure rule barring dual citizens from federal office.

February 2018
Deputy Prime Minister Barnaby Joyce stepped down.

February 2018
The government reiterated its commitment to raising defence spending to 2% of GDP, amid growing threats from terrorism and cybercrime.

August 2018
Malcolm Turnbull stepped aside after an unsuccessful challenge to his leadership, allowing finance minister Scott Morrison to take over as Prime Minister and Liberal Party leader.

Source: BBC Country Profile – Timeline

3. Major Economic Indicators

Graph: Australia real GDP and inflation
Graph: Australia real GDP and inflation
Graph: Australia GDP by sector (2017)
Graph: Australia GDP by sector (2017)
Graph: Australia unemployment rate
Graph: Australia unemployment rate
Graph: Australia current account balance
Graph: Australia current account balance

e = estimate, f = forecast
Source: International Monetary Fund, World Bank

4. External Trade

4.1 Merchandise Trade

Graph: Australia merchandise trade
Graph: Australia merchandise trade

Source: WTO
Date last reviewed: August 21, 2018

Graph: Australia major export commodities (2017)
Graph: Australia major export commodities (2017)
Graph: Australia major export markets (2017)
Graph: Australia major export markets (2017)
Graph: Australia major import commodities (2017)
Graph: Australia major import commodities (2017)
Graph: Australia major import markets (2017)
Graph: Australia major import markets (2017)

Source: Trade Map, Fitch Solutions
Date last reviewed: August 29, 2018

4.2 Trade in Services

Graph: Australia trade in services
Graph: Australia trade in services

Source: WTO
Date last reviewed: August 29, 2018

5. Trade Policies

  • Australia has been a WTO member since January 1, 1995 and a member of GATT since October 11, 1967. Goods are classified according to the Harmonized System (HS) for the purposes of tariff categorisation.
  • Australia is a signatory to the WTO “Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures”. Foreign exporters, however, may find it difficult to comply with Australia’s import quarantine requirements. Aside from issues relating to the importation of fresh food and animals, Australia’s quarantine measures cover a number of other imported products such as farm, mining and construction machinery, some packaged foods, and other products that may pose a contamination risk to Australia’s agricultural industry or natural environment. The Australian government enforces its quarantine measures very seriously. Importers have little recourse once a shipment encounters quarantine issues.
  • Machinery imports may require an import permit - especially used machinery. It is a condition of entry that motor vehicles, motorcycles, machinery (or their parts) or tires are clean and free of contamination of biosecurity concern (internally and externally) before they arrive in Australia. Contamination of biosecurity concern includes, but is not limited to: live insects, seeds, soil, mud, clay, animal faeces, animal material and plant material such as straw, twigs, leaves, roots and bark. For quarantine purposes, new field-tested equipment is classified as ‘used machinery’, and will require an Import Permit. The Department of Agriculture and Water Resources (DAWR) has the power to re-export machinery.
  • The DAWR is the federal body responsible for enforcing Australia’s quarantine regulations, including issuing permits and inspecting shipments. Packaging of imported goods can present a challenge to exporters, particularly where the packing materials include wood or other natural products.
  • Australia is a member of the Asia-Pacific Economic Cooperation (APEC) and became the first of the Association of Southeast Nations (ASEAN) ten dialogue partners in 1974. While not a regional economic bloc, Australia’s free trade agreement with New Zealand provides for a high level of integration between the two economies with the ultimate goal of a single economic market. Australia has been active in pursuing free trade agreements (FTAs), with respective FTAs in force with New Zealand, Singapore, the US, Thailand, Chile, ASEAN, Malaysia, South Korea, Japan and China. Australia has recently signed the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and Pacific Agreement on Closer Economic Relations (PACER) Plus.
  • Australia also has a number of FTAs under negotiation: Australia-Gulf Cooperation Council (GCC) FTA, Australia-India Comprehensive Economic Cooperation Agreement, Environmental Goods Agreement, Indonesia-Australia Comprehensive Economic Partnership Agreement, Pacific Alliance Free Trade Agreement, Peru-Australia Free Trade Agreement, Regional Comprehensive Economic Partnership (RCEP), Trade in Services Agreement (TiSA) and Australia-Hong Kong Free Trade Agreement.

Source: WTO - Trade Policy Review, Fitch Solutions

6. Trade Agreements

6.1 Trade Updates

Australia is currently engaged in bilateral FTA negotiations with the EU, India and Indonesia, and in the following plurilateral FTA negotiations: the RCEP (consisting of the ASEAN + Six group of nations); the GCC; and a Pacific trade and economic agreement (PACER Plus).

6.2 Multinational Trade Agreements

Active

  1. The Australia-United States Free Trade Agreement (AUSFTA): The AUSFTA came into force on January 1, 2005. The Agreement provides for increased market access for most Australian agricultural products and the elimination of tariffs over time on almost all US agricultural tariff lines. The Agreement also provides for increased duty free access for certain agricultural products in the form of tariff rate quotas. All Australian agricultural tariffs were eliminated immediately when the Agreement entered into force. Most of these tariffs are already zero. The remainder are currently applied at 4% or 5% (except for a small number of dairy tariffs). Australia’s biosecurity and food safety regimes remain unchanged under the Agreement. Both Australia and the US reaffirmed that decisions on matters affecting biosecurity and food safety will be based only on science.

  2. The China-Australia Free Trade Agreement (ChAFTA): ChAFTA was signed on June 17, 2015 and entered into force on December 20, 2015. ChAFTA opens significant opportunities for Australia in the world’s second-largest economy, and by far their largest export market. The Agreement enhances a growing trade and investment relationship between two complementary economies. ChAFTA has delivered two tariff cuts to date, one on entry into force and a second round on January 1, 2016. The agreement provides significant opportunities for Australia’s agriculture, food, fishery and forestry products by eliminating tariffs on a wide range of our exports including beef, sheep meat, livestock, dairy, wine, seafood, horticulture, hides and skins, barley and sorghum and some other grains. China was Australia’s largest trading partner for agriculture exports worth USD10.9 billion in 2015.

  3. The Japan-Australia Economic Partnership Agreement (JAEPA): JARPA was signed on July 8, 2014 and entered into force on January 15, 2015. JAEPA has delivered three tariff cuts to date: one on entry into force, one on April 1, 2015, and one on April 1, 2016, along with increased preferential quotas for Australian agricultural exports. The agreement provides valuable preferential access for Australia's agricultural exports by eliminating or significantly reducing tariffs on a wide range of Australian exports including beef, wine, horticulture, seafood, grains and sugar over timeframes of up to 18 years. JAEPA also includes new quota access for a range of products.

  4. The Korea-Australia Free Trade Agreement (KAFTA): KAFTA was signed on April 8, 2014 and entered into force on December 12, 2014. It has delivered three tariff cuts in quick succession: one on entry into force, a second on January 1, 2015 and a third on January 1, 2016. KAFTA is a strong and liberalising agreement for agriculture that secures improved market access through elimination of very high tariffs on a wide range of exports including beef, wheat, sugar, dairy, wine, horticulture and seafood.

  5. The Australia New Zealand Closer Economic Relations and Trade Agreement (ANZCERTA): ANZCERTA came into effect on January 1, 1983 and is central to the Australia-New Zealand trade and economic relationship. ANZCERTA is one of the world’s most open and successful free trade agreements. As well as underpinning bilateral trade in goods and services, ANZCERTA is the umbrella for close collaboration across biosecurity, customs, transport, regulatory and product standards and business law issues. ANZCERTA does not affect Australia or New Zealand’s ability to impose biosecurity measures to protect animal, plant and human health.

  6. The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA): This was the first plurilateral FTA that Australia concluded. AANZFTA entered into force on January 1, 2010 for eight of the 12 signatories (Australia New Zealand, Brunei, Burma, Malaysia, the Philippines, Singapore and Vietnam). This was followed by Thailand in March 2010, Cambodia and Laos in March 2011 and Indonesia in January 2012. AANZFTA will eliminate tariffs on 96% of Australia’s current exports to ASEAN nations by 2020 (only 67% of Australia’s exports to the region were tariff-free pre-AANZFTA).

  7. The Thailand-Australia Free Trade Agreement (TAFTA): TAFTA entered into force on January 1, 2005. Thailand’s high tariff barriers were either eliminated immediately, have since been phased out, or are being phased out over an agreed timeframe. A number of agricultural products are subject to tariff rate quotas (TRQs) or special agricultural safeguards (SSGs) under TAFTA. These TRQs and SSGs are being progressively phased out and include products such as mandarins and fresh grapes which phase to 0% in 2015 with full tariff and quota elimination in 2016; and some cheese as well as beef and beef offal which phase to 0% in 2020 with tariff and quota elimination in 2021.

  8. The Australia-Chile FTA: The Agreement entered into force on 6 March 2009, as Australia’s first FTA with a Latin American country. This FTA presents Australia with new trade and investment opportunities in Chile, and enhances Australia’s relationship with Latin America in general. The FTA resulted in the immediate elimination of Chile’s tariffs for all meat and wine products, as well as on key dairy export lines. All remaining tariffs on both sides will be eliminated by year six of the agreement (2015) except for one component of Chile’s sugar tariff which will remain subject to its current ‘price band’ system.

  9. The Malaysia-Australia Free Trade Agreement (MAFTA): MAFTA was signed on May 22, 2012 and entered into force on January 1, 2013. The agreement builds on commitments made by both countries in AANZFTA. MAFTA delivers important improvements to market access for a range of agricultural portfolio industries. These include a phased reduction of rice tariffs from 2023, with all rice tariffs fully eliminated by 2026 and tariff elimination by 2016 on certain horticulture products, including melons, mangoes, pineapples and longans.

  10. The Singapore-Australia Free Trade Agreement: The Agreement was signed on 17 February 17, 2003 and entered into force on July 28, 2003. SAFTA eliminated tariffs on all goods from entry into force of the Agreement and precludes the use of export subsidies and the application of safeguard measures against each of the two countries.
Under Negotiation
  1. The RCEP: RCEP is an ASEAN initiative bringing in its FTA partners (Australia, China, India, Japan, Korea and New Zealand). It aims to consolidate these FTAs and achieve more coherent regional trade and investment. RCEP countries account for almost half the world’s population and almost 30% of global GDP. It is an economic cooperation and trade agreement that began in May 2013.

  2. Comprehensive and Progressive Trans-Pacific Partnership (CPTPP): Australia concluded negotiations of the Trans-Pacific Partnership Agreement in October 2015; however, the US has withdrawn from the original negotiations that had to be revisited by the remaining 11 members. Australia is among 11 nations who have signed up to the new CPTPP. The accord has 11 member countries - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. This agreement will enter into force following completion of each country’s domestic implementation processes.

  3. Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA): Negotiations on the IA-CEPA commenced on September 26, 2012. The second round of negotiations were held on July 29-31, 2013 in Canberra, and the two countries met most recently at an intersessional meeting in Bali on November 11-12, 2013. IA-CEPA aims to strengthen and expand the trade, investment and economic cooperation relationship between Australia and Indonesia. It is expected that the IA-CEPA will build on the outcomes of the ASEAN-Australia-New Zealand Free Trade Agreement. A pilot project on agriculture, focused on red meat and tropical fruits, is under consideration.

  4. Australia-GCC FTA: Negotiations on an FTA with the GCC remain on hold while the GCC reviews its trade agreement policies. Negotiations on an FTA started on June 30, 2007 with four rounds of negotiations having been held, the most recent taking place in June 2009. The agreement would provide an opportunity to address a range of tariff and non-tariff barriers related to Australia’s agricultural exports.

  5. The European Union (EU), Australia's second largest trade partner, has launched negotiations for a comprehensive trade agreement with Australia. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017, while bilateral trade in services added an additional EUR27 billion. The negotiations aim at removing trade barriers, streamlining standards and putting European companies exporting to or doing business in Australia on an equal footing with those from countries that have signed up to the Trans-Pacific Partnership or other trade agreements with Australia. The Council of the EU authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018.

  6. PACER Plus: The Australian government announced on August 18, 2009 that it would commence negotiations on a new regional trade and economic integration agreement with the Pacific Forum. Known as the PACER Plus negotiations, these involve Australia, the Cook Islands, the Federated States of Micronesia, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New Guinea, the Republic of the Marshall Islands, Samoa, the Solomon Islands, Tonga, Tuvalu and Vanuatu. Australia's primary objective with PACER Plus is a more sustainable and prosperous Pacific.

  7. Australia-India Comprehensive Economic Cooperation Agreement (CECA): Australia and India launched negotiations on the Australia-India CECA on May 12, 2011. The fifth round of CECA negotiations was held in Canberra in May 2013.
Source:  WTO Regional Trade Agreements database

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Australia FDI stock
Graph: Australia FDI stock
Graph: Australia FDI flow
Graph: Australia FDI flow

Source: UNCTAD
Date last reviewed: August 21, 2018

7.2 Foreign Direct Investment Policy

  1. Australia is generally welcoming to foreign investment, widely considering it to be an essential contributor to its economic growth and productivity. Within Australia, the right exists for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity in accordance with national legislative and regulatory practices. Australian accounting, legal, and regulatory procedures are transparent and consistent with international standards. Accounting standards are formulated by the Australian Accounting Standards Board, an Australian Government agency under the Australian Securities and Investments Commission Act 2001.

  2. In response to federal budget deficits and public perceptions of a lack of fairness, the Australian government has tightened anti-tax avoidance legislation that mainly affects multi-national corporations with operations in multiple tax jurisdictions. While some laws have been complementary to international efforts to address tax avoidance schemes and the use of low-tax countries or tax havens, Australia has also moved in its own direction and has gone further in its efforts than the international community. Following a number of recent investments made by foreign companies in key sectors of Australia’s economy, the laws and regulations governing foreign direct investment have been subject to a wide ranging and ongoing review.

  3. Australian state investment promotion agencies support international investment at the state level and in key sectors. The Australian Government utilises transparent policies and effective laws to foster national competition and develop competition policy, and is consultative in its policy making process. The government generally allows for public comment on draft legislation and publishes and makes available laws once they enter into force.

  4. Other than the screening processes, there are few limits or restrictions on foreign investment in Australia. Foreign purchases of agricultural land greater than AUD15 million are subject to screening. This threshold will apply to the cumulative value of agricultural land owned by the foreign investor, including the proposed purchase.

  5. All foreign persons must notify the Australian government and receive prior approval to make investments of 5% or more in the media sector, regardless of the value of the investment.

  6. Foreign entities intending to conduct business in Australia as a foreign company must be registered with the Australian Securities and Investments Commission (ASIC).

  7. Australia subscribes to the 1976 declaration of the OECD concerning International Investment and Multinational Enterprises. The instruments cover national treatment and investment incentives and disincentives, and spell out voluntary guidelines for the conduct of multinational enterprises in member countries. Australia also subscribes to two OECD codes of liberalisation, one covering capital movements and the other invisible transactions.

  8. On February 1, 2018, the Treasury of Australia in a press release announced the establishment of new conditions for future bidding for projects related to electricity infrastructure and farmland. These investments are now subject to a new restriction for foreign investors as they are considered critical national assets. According to the new conditions, the Government now sets the level of ownership and control of a single asset or within a sector on a case-by-case basis, which encourages companies to engage with the Foreign Investment Review Board at an early stage to identify the conditions that may apply to the selling or buying of one of these assets.

  9. Australia is a party to BITs with Argentina, China, Czech Republic, Egypt, Hong Kong, Hungary, India, Indonesia, Laos, Lithuania, Mexico, Pakistan, Papua New Guinea, Peru, Philippines, Poland, Romania, Sri Lanka, Turkey, Uruguay and Vietnam. Investor-State Dispute Settlement (ISDS) is included in some but not all of Australia’s 21 BITs and 9 FTAs. Australia is also a member of the International Centre for the Settlement of Investment Disputes (ICSID Convention) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The International Arbitration Act 1974 governs international arbitration and the enforcement of awards.

  10. While welcoming toward FDI, in December 2015 Australia introduced a “national interest” test to qualifying types of investment through its Foreign Investment Review Board (FIRB) review process. In March 2016, the Government announced that it would amend the Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015 to provide for greater compliance powers to the Australian Taxation Office (ATO) and introduced strict new penalties for investors circumventing foreign investment rules. This was in response to several high-profile asset sales of infrastructure and agricultural land as many State governments privatised assets to raise money either to spend on additional infrastructure or to address budget deficits. The new rules were intended to close gaps in the review system that allowed certain asset sales to take place without FIRB review and to ensure that national security was considered in determining if the sale was in the national interest of Australia. As of March 31, 2016, the FIRB has started to formally review critical infrastructure assets sold by State and Territory governments.

  11. The Australian Government introduced a new agricultural land foreign ownership register to understand the nature of foreign ownership of Australian land. The ATO collects information on the location and size of property and size of interest acquired on new foreign investment in agricultural land and residential real estate. Lower screening thresholds for agricultural land and agribusiness also mean that more agricultural investment is screened by the FIRB.

  12. In February 2016, the Government announced its intent to implement a national register of foreign ownership of water access entitlements, which is intended to enhance transparency and assist in informing the Government and the community about emerging investment trends.

  13. Bankruptcy is a legal status conferred under the Bankruptcy Act 1966 and operates in all of Australia’s States and Territories. Only individuals can be made bankrupt and not businesses or companies. Where there is a partnership or person trading under a business name, it is the individual or individuals who make up that firm that are made bankrupt. Companies cannot become bankrupt under the Bankruptcy Act though similar provisions (called administration and winding up) exist under the Corporations Act 2001. The Bankruptcy Act established the roles of Inspector-General in Bankruptcy and Official Receiver and Official Trustee in Bankruptcy, and the Australian Financial Security Authority (AFSA) oversees each of these roles. The relevant courts covering bankruptcy are the Federal Court of Australia, General Division, and the Federal Circuit Court. Creditors can apply to the court to make an individual bankrupt if they can satisfy the court that a debtor owes them money; however, when an individual enters bankruptcy, this limits the rights of unsecured creditors to recover their debts directly from the debtor.

  14. As a general rule, foreign firms establishing themselves in Australia are not subject to local employment or forced localisation requirements, performance requirements, and incentives.

  15. Private property can be expropriated for public purposes in accordance with Australia’s constitution and established principles of international law. Property owners are entitled to compensation based on “just terms” for expropriated property. That said, there is little history of expropriation in Australia.

  16. Under the Telecommunications (Interception and Access) Amendment (Data Retention) Bill 2015, telecommunications service providers are required to retain and secure, for two years, telecommunications data (not including content); to protect retained data through encryption; and to prevent unauthorised interference and access. The Bill limits the range of agencies that are able to access telecommunications data and stored communications, and establishes a “journalist information warrants regime.” Australia’s Personally Controlled Electronic Health Records Act prohibits the transfer of health data out of Australia in some situations.

Sources: WTO - Trade Policy Review, The International Trade Administration (ITA), US Department of Commerce

7.3 Free Trade Zones and Investment Incentives

  • Australia does not have any free trade zones or free ports; however, the Australian Government and State and Territory Governments provide a range of measures to assist investors with setting up and running a business and undertaking investment. Types of assistance available vary by location, industry, and the nature of the business activity.
  • Austrade provides coordinated government assistance to attracting FDI and is intended to serve as the national point-of-contact for investment inquiries. State and Territory Governments similarly offer a suite of financial and non-financial incentives. Australian and State and Territory Governments provide selected grants to businesses for establishing or expanding a business, or for specific activities, such as research.
  • There are a number of tax concessions aimed at encouraging investments in the venture capital sector. Non-resident pension funds that are tax-exempt in their home jurisdiction and satisfy certain Australian registration requirements are exempt from income tax on the disposal of investments in certain Australian venture capital equity held at risk for at least 12 months. A similar exemption is extended to other tax-exempt non-resident investors, including managed funds and venture capital fund-of-funds vehicles and taxable non-residents holding less than 10% of a venture capital limited partnership. These investors are able to invest in eligible venture capital investments through an Australian resident venture capital limited partnership or through a non-resident venture capital limited partnership. Eligible venture capital investments are limited to specified interests in companies and trusts. Detailed rules in the legislation prescribe the nature of such investments and the characteristics, which such companies and trusts, and their investments, must possess.
  • The Commonwealth Government also provides incentives for companies engaging in research and development (R&D), and delivers a tax offset for expenditure on eligible R&D activities undertaken during the year. R&D activities conducted overseas are also eligible under certain circumstances, and the program is jointly administered by AusIndustry (Government agency) and the Australian Taxation Office. In 2018, for companies with an annual turnover of less than AUD20 million, a 43.5% refundable R&D tax credit applies. Companies with a turnover of at least AUD20million have access to a non-refundable 38.5% tax credit. The amount of the concessional R&D tax credit is limited to eligible R&D expenditure of up to AUD100 million with any excess amount subject to a 30% credit. Generally, only genuine R&D activities undertaken in Australia qualify for the R&D tax incentive. However, R&D activities conducted overseas also qualify in limited circumstances where the activities cannot be undertaken in Australia. Special grant programmes also may be available to assist corporations in the conduct of certain R&D in Australia. These grants are awarded on a discretionary basis.
  • From July 1, 2016, investors in an Australian Early Stage Innovation Company (ESIC), broadly a company that is at an early stage of establishment to develop new or significantly improved innovations with the purpose of commercialisation to generate an economic return, are provided with a non-refundable carry forward tax offset equal to 20% of the amount paid for the investment, subject to a cap, and a capital gains tax exemption for shares that have been held for between one and ten years.
  • Accelerated deductions are available for capital expenditures on the exploration for and extraction of petroleum and minerals (other than mining rights and information acquired from a non-government third party that started to be held after May 14, 2013, which are claimed over the shorter of 15 years and the life of the asset), the rehabilitation of former mineral extraction sites, certain environmental protection activities, the establishment of certain 'carbon sink' forests, certain expenditure of primary producers, and for certain low cost depreciating assets held by small business entities.
  • There is a venture capital tax concession applicable to an 'early stage venture capital limited partnership' (ESVCLP). The thresholds for qualification include requirements where, amongst other things, the committed capital of the ESVCLP must be at least AUD10 million but not exceed AUD200 million, the investments made must fall within prescribed parameters as to size and proportion of total capital, and the ESVCLP must have an investment plan approved by Innovation Australia. Where the thresholds for their application are met, the ESVCLP provisions provide flow-through tax treatment to domestic and foreign partners, with the income and capital received by the partners exempt from taxation. As the income is tax exempt, the investor is not able to deduct investment losses.
  • It is currently proposed that a Junior Minerals Exploration Incentive (JMEI) will replace the exploration development incentive (EDI) (which ceased to apply on June 30, 2017) and enable eligible minerals exploration companies to generate tax credits for new shareholders by giving up a portion of their tax losses from greenfield mineral exploration expenditure, which can then be distributed to shareholders. The scheme applies from July 1, 2017 until June 30, 2021, with total credits limited to AUD100 million.

Source: US Department of Commerce, Fitch Solutions

8. Taxation – 2018

  • Value Added Tax: 10%
  • Corporate Income Tax: 30%

Source: PwC Worldwide Tax Summaries

8.1 Important Updates to Taxation Information

  • Australia is reforming its tax system through various tax reviews and government reform initiatives. As a result, various tax settings are changing over time. On June 22, 2017, the regional government of New South Wales passed the 2017/18 Budget doubling the surcharge paid by foreign investors when purchasing a real estate property. The new stamp duty has increased from 4% to 8% and applies from July 1, 2017.
  • The corporate tax rate of 27.5% is extended from the 2017/18 income year to those small business corporate tax entities with an aggregated turnover of less than 25 million AUD, and from the 2018/19 income year to those with an aggregated turnover of less than AUD50 million. After the end of the 2023/24 income year, the 27.5% rate for these entities will reduce progressively to 25% by the 2026/27 income year. Under currently enacted law, the corporate tax rate for all other corporate tax entities will remain at 30% (however, there is a proposal to progressively reduce the corporate tax rate for all entities, not just those noted above).

  • From July 1, 2018, the Australian goods and services tax (GST) is payable on certain supplies of low value goods (valued at AUD 1,000 or less) that are purchased and imported by Australian consumers.

  • The JMEI replaced the EDI (which ceased to apply on June 30, 2017) and enables eligible minerals exploration companies to generate tax credits for new shareholders by giving up a portion of their tax losses from greenfield mineral exploration expenditure, which can then be distributed to shareholders. The scheme applies from July 1, 2017 until June 30, 2021, with total credits limited to AUD100 million.
  • In addition, the 2017/18 Budget passed by the Parliament of New South Wales on June 22, 2017, also increased the land tax surcharge rate from 0.75% to 2%. The new surcharge applies from January 1, 2018, and it is entitled to foreign persons who hold residential land in New South Wales. The Australian Government has also recommitted to the broader ‘enterprise tax plan’ beyond those already legislated for small and medium enterprises. This seeks to reduce the corporate tax rate and simplify the tax system for corporate entities.
  • Australia has income tax treaties with 45 other countries.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax30%
Capital Gains Tax Rate30%
Branch Tax Rate30%
Withholding Tax: Dividends- Franked 0%
- Unfranked 30%
Withholding Tax: Interest10%
Royalties from patents, know-how, etc.30%
Construction and related activities5%
Fund payments from managed investment: Trusts15%
Goods and Services Tax10%

Date last reviewed: August 29, 2018

9. Foreign Worker Requirements

9.1 Skilled Workers

The Immigration Department has a ‘skilled occupations list’ (SOL) which can be used by potential applicants seeking to nominate skilled occupations which are acceptable for permanent and temporary skilled migration to Australia under the General Skilled Migration program, and the Employer Nominated Scheme. Applicants must have a nominated occupation when they apply, which is applicable to their circumstances.

9.2 Visa Regulations

The Malcolm Turnbull administration toughened policies on foreign worker visas, requiring better English-language and job skills. The government also targeted a clamp down on immigrants with student visas who remain in the country after the completion of their course and drift into low-skilled work. Non-residents seeking entry to Australia, including for tourism purposes, must obtain visas before entry. Individual eligibility requirements and relevant immigration legislation for each visa category must be considered before applying for a visa. Citizens of New Zealand are eligible to be granted a special category visa (permitting indefinite temporary stay with full work rights) on arrival, subject to meeting health and character requirements. Temporary residence visas are granted to people whose activities are considered to benefit Australia, including people entering for business, skilled employment, cultural or social activities.

Holders of temporary residence visas are generally not eligible for public health benefits in Australia, unless Australia has a reciprocal health care agreement with the country of the visa holder.

9.3 Visitor Visas

Three visitor visa categories (subclass 600, subclass 601and subclass 651) allow individuals to visit Australia for the following purposes:

  • Tourism
  • Family visits
  • Engaging in business visitor activities

9.4 Investors

The categories in the Business Innovation and Investment Program are designed for successful business persons who wish to manage their own business or make substantial investments in Australia. Individuals intending to apply, must first file an expression of interest. Their business skills and other attributes are then assessed under a points test (excluding applicants applying for the Significant Investor and Premium Investor streams). Only the highest-scoring individuals are invited to submit a visa application. Most Business Innovation and Investment visa holders enter Australia initially on a provisional (temporary) visa for four years. If they provide satisfactory evidence of a specified level of business activity for two years or investment for four years (or at least one year for the Premium Investor stream), they may apply for permanent residence. The Investor stream is designed for investors who want to make a designated investment of at least AUD1.5 million in an Australian state or territory on an ongoing basis. Applicants must secure state or territory nomination, meet the innovation points test and provide evidence of skill and experience in managing a qualifying investment.

9.5 Work Permits

An individual wishing to enter Australia for employment reasons may apply for a short stay activity visa, long stay activity visa or temporary work visa. Criteria that must be met include health, character and the possession of adequate funds for the duration of the stay. Under the Employer Nomination Scheme, Australian employers may nominate highly skilled individuals from overseas for permanent residence. Applicants for a permanent residence visa under the Employer Nomination Scheme must satisfy one of the following criteria:

  • They have worked in their nominated position in Australia for their nominating employer while on a subclass 457 visa for at least two of the last three years immediately before applying.
  • They have three years post-training experience in the nominated occupation and have their skills formally assessed by a specified skills-assessing body in Australia.
  • They are nominated for a senior management position that attracts a base salary of more than AUD180,000.
Source: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody'sAaa (Stable)14/06/2018
Standard & Poor'sAAA (Negative)06/07/2016
Fitch Ratings
AAA (Stable)01/05/2018

Source: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
13/18915/19014/190
Ease of Paying Taxes Index
42/18942/19026/190
Logistics Performance Index
19/160N/A18/160
Corruption Perception Index
13/17613/180N/A
IMD World Competitiveness17/6121/6319/63

Source: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World ranking
201620172018
Economic Risk Index Rank
21/202
Short-Term Economic Risk Score66.066.770.8
Long-Term Economic Risk Score71.873.474.3
Political Risk Index Rank12/202
Short-Term Political Risk Score75.674.875.2
Long-Term Political Risk Score88.088.488.4
Operational Risk Index Rank  19/202
Operational Risk Score72.873.373.5

Source: Fitch Solutions

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
A key strength of Australia’s economic profile is its very liberal financial sector and freely floating exchange rate. Persistent fiscal deficits in recent years will weigh on Australia's economic risk profile, but overall, the country still performs better than both regional and global peers

OPERATIONAL RISK
Australia is a very free economy with a stable political environment. Its strong operational risk profile reflects strength in categories, such as logistics risk, labour market risk, and trade and investment risk. Strong national institutions and relatively good quality of infrastructure are major advantages. In view of its relative economic openness to foreign investment, Australia will continue to benefit from increased investment inflows from countries, such as China and Japan, aiding it to develop its resources sector, while reaping the benefits from increasing resource demand. A high minimum wage is one factor weighing down on the operational risk outlook.

Source: Fitch Solutions
Date last reviewed: August 31, 2018

10.5 Fitch Solutions Political & Economic Risk Indices

Graph: Australia short term political risk index
Graph: Australia short term political risk index
Graph: Australia long term political risk index
Graph: Australia long term political risk index
Graph: Australia short term economic risk index
Graph: Australia short term economic risk index
Graph: Australia long term economic risk index
Graph: Australia long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Australia Score73.568.071.470.384.3
Developed States Average72.963.370.975.881.8
Developed States Position (out of 27)159162111
Developed States Average72.963.370.975.881.8
Developed States Position (out of 27)159162111
Global Average49.749.850.049.349.9
Global Position (Out of 201)1912263214

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Australia vs global and regional averages
Graph: Australia vs global and regional averages
Country
Operational Risk IndexLabour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Secruity Risk Index
Switzerland79.976.577.673.991.8
Denmark79.6
75.4
75.8
83.3
84.0
Netherlands79.1
64.5
77.9
85.5
88.4
Sweden78.7
67.6
77.8
85.5
83.8
US78.2
79.0
75.2
88.0
70.5
New Zealand78.0
73.0
75.7
73.8
89.4
Canada77.5
75.2
71.8
80.7
82.1
UK77.3
72.1
78.1
77.9
81.3
Norway77.3
62.7
72.6
81.5
92.3
Finland75.2
53.0
73.5
83.2
91.2
Japan74.9
68.8
64.9
81.4
84.7
Luxembourg74.4
52.1
77.7
78.9
88.9
Ireland74.1
65.0
77.8
71.2
82.5
Austria74.1
58.6
71.6
77.9
88.3
Australia73.5
68.0
71.4
70.3
84.3
Germany73.0
63.4
69.5
77.4
81.7
Spain
72.1
59.0
67.4
80.9
81.3
Belgium
72.1
55.3
76.5
81.4
75.3
France
71.5
60.2
70.3
79.9
75.5
Portugal70.6
50.8
66.5
80.2
85.0
Iceland70.4
59.9
66.2
69.1
86.6
Liechtenstein69.5
54.7
79.5
61.1
82.6
Israel66.7
72.4
63.0
69.1
62.4
Malta65.2
52.4
69.6
58.5
80.1
Isle of Man65.0
62.0
61.8
53.9
82.3
Italy63.1
53.9
57.6
72.3
68.7
Greece58.253.147.868.863.2
Developed Markets Averages72.9
63.3
70.9
75.8
81.8
Global Markets Averages49.7
49.8
50.0
49.3
49.9

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: August 21, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Australia

Graph: Major export commodities to Australia (2017)
Graph: Major export commodities to Australia (2017)
Graph: Major import commodities from Australia (2017)
Graph: Major import commodities from Australia (2017)
Graph: Merchandise exports to Australia
Graph: Merchandise exports to Australia
Graph: Merchandise imports from Australia
Graph: Merchandise imports from Australia

Exchange Rate HK$/US$, average
7.76 (2012)
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Source: Hong Kong Census and Statistics Department, Fitch Solutions


2017
Growth rate (%)
Number of Australia residents visiting Hong Kong567,881-1.4
Number of Australians residing in Hong Kong9,2330.02

Source: Hong Kong Tourism Board, Hong Kong Immigration Department


2017
Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong54,482,5383.5
Number of developed state citizens residing in Hong Kong65,6800.02

Source: Hong Kong Tourism Board

11.2 Commercial Presence in Hong Kong


2017
Growth rate (%)
Number of Australians companies in Hong Kong174
-2.7
- Regional headquarters35-5.4
- Regional offices48-11.1
- Local offices913.4

Source: Hong Kong Census and Statistics Department

11.3 Treaties and Agreements between Hong Kong and Australia

  • Australia has entered into double tax treaties with China. The Double Taxation Agreement (DTA) between China and Australia was signed on November 17, 1988 and has entered into force in both countries on December 28, 1990.

    Australia is currently a party to 44 DTAs (as at February 28, 2017), including the revised DTA with Germany that was signed on November 12, 2015.
  • While Australia has treaties with many trading partners (including some neighbouring Asian jurisdictions), most of them are relatively old and the existing DTA between Australia and China does not extend to cover Hong Kong. There is an opportunity here for Australia and Hong Kong to enter into a DTA to minimise barriers to key drivers of economic growth, such as investment, innovation and entrepreneurship. A DTA between Australia and Hong Kong would help ensure that Australia is in a competitive position for trade and investment with Hong Kong as well as other parts of Asia, which would provide benefits to both jurisdictions. The mutual benefit of increased cross-border trade and investment would support innovation, job creation and future economic growth for Australia and Hong Kong.
Source: National Sources

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

The Australian Chamber of Commerce in Hong Kong
Address: Room 301-2, 3/F, Lucky Building, 39 Wellington Street, Central, Hong Kong
Email: austcham@austcham.com.hk
Tel: (852) 2522 5054

Source: The Australian Chamber of Commerce Hong Kong

Australian Consulate - General Hong Kong
Address: 23/F, Harbour Centre, 25 Harbour Road, Wan Chai, Hong Kong
Email: enquiries.hongkong@dfat.gov.au
Tel: (852) 2827 8881

Source: Australian Consulate - General Hong Kong

11.5 Visa Requirements for Hong Kong Residents

Valid Hong Kong passport holders are allowed to stay in Australia for 90 days, but prior to arriving in Australia, they need to apply for a document called an Electronic Travel Authority.

Source: Visa on Demand

Content provided by Picture: Fitch Solutions – BMI Research
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