9 Jan 2020
Australia: Market Profile
- Picture: Australia factsheet
- Graph: Australia real GDP and inflation
- Graph: Australia GDP by sector (2018)
- Graph: Australia unemployment rate
- Graph: Australia current account balance
- Graph: Australia merchandise trade
- Graph: Australia major export commodities (2018)
- Graph: Australia major export markets (2018)
- Graph: Australia major import commodities (2018)
- Graph: Australia major import markets (2018)
- Graph: Australia trade in services
- Graph: Australia FDI stock
- Graph: Australia FDI flow
- Graph: Australia short term political risk index
- Graph: Australia long term political risk index
- Graph: Australia short term economic risk index
- Graph: Australia long term economic risk index
- Graph: Australia vs global and regional averages
- Graph: Major export commodities to Australia (2018)
- Graph: Major import commodities from Australia (2018)
- Graph: Merchandise exports to Australia
- Graph: Merchandise imports from Australia
While the mining industry is a key contributor to economic growth in Australia, the economy has been diversified and is dominated by the services sector, which comprises about 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. The Australian government recently conducted a performance review of Australia's innovation, science and research system, developing a strategic plan called Australia 2030: Prosperity through Innovation. The strategy provides a vision of the innovation, science and research system aspired to by 2030, sets goals, outlines the actions required and advocates for reforms on key issues, such as investment, innovation, collaboration and skills, delivering and operating research infrastructure, and how better to plan and use Australia's investment in Research and Development (R&D).
Sources: OECD, Department of Industry, Innovation and Science, Fitch Solutions
2. Major Economic/Political Events and Upcoming Elections
A constitutional crisis arose when several members of parliament, including the deputy prime minister, quit over a rule that barred dual citizens from federal office.
Deputy Prime Minister Barnaby Joyce stepped down.
Prime Minister Malcolm Turnbull stepped down. Former Treasurer Scott Morrison became the country's 30th prime minister and leader of the Liberal Party.
Scott Morrison, prime minister of a minority conservative Liberal-National coalition government, achieved a shock general election victory after opinion polls and exit polls had predicted a win for the opposition Labour Party. Morrison secured an outright parliamentary majority, winning 76 seats in Australia's 151-seat parliament. The result sent Australian banking, property and health-related stocks to an 11-year high on May 20, 2019.
Electric vehicle start-up ACE-EV (Australian Clean Energy Electric Vehicle Group), in partnership with Aldom Motor Body Builders, announced that it was in the process of signing an agreement to manufacture electric vans and a pickup, and eventually passenger vehicles in Southern Australia by 2020. The company also noted that it hoped to have an eventual production capacity of around 15,000 units annually, the majority of which would be exported. This marked the first time a large-scale vehicle manufacturer has opted to operate in the Australian market over its lower-cost Asian neighbours since the end of General Motors' operations in the country in 2017.
India's Adani Enterprises was given permission to begin constructing a coalmine in Queensland's Galilee basin after the state government approved a permit on groundwater management. The site was first acquired in 2010 but delayed by opposition from environmental groups. The approval means several thermal coalmines might come online once the remote basin connected by rail infrastructure to the coast at Abbot Point a couple of hundred miles away.
During the first five months of 2019, Australia supplied over 53% of Mainland China's liquefied natural gas imports (LNG) – up from around 40% in 2016 – as Mainland China's appetite for the fuel surged as it tried to shift away from dirtier fuels such as coal. Satisfying Chinese demand puts Australia on track to surpass Qatar as the world's top exporter of LNG.
Meat & Livestock Australia reported that the air trade in sheep carcasses to Persian Gulf ports had overtaken sea-freighted sheep for the first time. In 2018 the Middle East and North Africa market for sheep meat was worth AUD859 million to Australian exporters, ahead of the United States (AUD823 million) and Mainland China (AUD678 million).
Figures from the Australian Bureau of Statistics revealed that Australia's trade surplus was short of estimates in April but nevertheless achieved its 16th-consecutive month in the black.
Having cut interest rates in June for the first time in three years, the Reserve Bank of Australia again cut the rate by 25 basis points to a historic low of 1% to boost the economy and steady the housing market. Governor Philip Lowe hinted there might be further cuts because uncertainties arising out of trade and technology disputes were affecting investment, causing the economy to grow at its slowest pace since 2009.
The Reserve Bank of Australia (RBA) cut its policy cash rate by 25bps to 0.75% during its monetary policy meeting on October 1. The RBA held its policy cash rate at 0.75% during its monetary policy meeting on November 5.
3. Major Economic Indicators
f = forecast
Sources: IMF, World Bank, World Economic Outlook Database
Date last reviewed: November 9, 2019
4. External Trade
4.1 Merchandise Trade
e = estimate
Date last reviewed: November 9, 2019
Sources: Trade Map, Fitch Solutions
Date last reviewed: November 9, 2019
4.2 Trade in Services
e = estimate
Date last reviewed: November, 2019
5. Trade Policies
- Australia has been a World Trade Organization (WTO) member since January 1, 1995 and a member of the General Agreement on Tariffs and Trade since October 11, 1967. Goods are classified according to the Harmonized System for the purposes of tariff categorisation.
- Australia is a signatory to the WTO Agreement on the Application of Sanitary and Phytosanitary 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 strictly. Importers have little recourse once a shipment encounters quarantine issues.
- Imports into Australia are subject to duties under the Australian Customs Tariff Act of 1995. The top duty rate is 5%.
- Machinery imports may require an import permit – especially used machinery. It is a condition of entry that motor vehicles, motorcycles, machinery (or their parts) and tyres are clean and free of contamination of biosecurity concern before they arrive in Australia. Biosecurity concerns include 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 has the power to re-export machinery.
- The Department of Agriculture 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 and New Zealand trade through Closer Economic Relations, which is a free trade agreement (FTA) eliminating all tariffs between the two countries. This allows for close collaboration across biosecurity, customs, transport, regulatory and product standards and business law issues.
- Australia became the first of the Association of Southeast Nations' (ASEAN) 10 dialogue partners in 1974 and was a founding member of the Asia-Pacific Economic Cooperation forum in 1989. Australia has recently signed the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the regional development-centred Pacific Agreement on Closer Economic Relations Plus.
- Australia's position had improved by one place in the most recent IMD World Competitiveness Rankings, which rated the country consistently highly but noted the need for better value for money from government services and programmes, and building public infrastructure projects that have the highest net benefit.
6. Trade Agreements
6.1 Trade Updates
Australia has entered into 11 FTAs, with both groups of countries and individual countries, including seven of its top eight export markets. FTA negotiations are currently underway with the European Union (EU), the Gulf Cooperation Council (GCC) and India. Prospective FTA negotiations with the United Kingdom, Australia's eighth-largest trading partner and the second-largest source of total foreign investment in Australia, have also been announced and four formal meetings have been held since September 2016. In the meantime, a Mutual Recognition Agreement (MRA) on Conformity Assessment was signed by the two countries in January 2019 that will maintain all relevant aspects of the current EU-Australia MRA and help to facilitate trade flows between the two nations if the UK departs the EU without an agreement.
6.2 Multinational Trade Agreements
- The Mainland China-Australia FTA (ChAFTA): ChAFTA, which covers goods and services, was signed on June 17, 2015 and entered into force on December 20, 2015. The agreement opens significant opportunities for Australia. As the world's second-largest economy, Mainland China is Australia's largest export market for goods and services and a growing source of foreign investment. In 2017 Mainland China bought almost 30% of Australia's exports, worth AUD116 billion, while Mainland Chinese investment in Australia reached AUD65 billion by the end of 2017. The agreement enhances a growing trade and investment relationship between two complementary economies. ChAFTA has delivered two tariff cuts to date: the elimination of tariffs on 85% of goods exported to Mainland China from Australia in 2015, and another which eliminated a further 8% of tariffs (including those on wine), which came into force on January 1, 2019. The agreement provides significant opportunities for Australia's agriculture, food, fishery and forestry products by eliminating tariffs progressively on a wide range of exports including beef, sheep's meat, livestock, dairy, wine, seafood, horticulture, hides and skins, barley and sorghum and some other grains. Mainland China is Australia's largest services market, with exports valued at AUD15.8 billion in 2017. ChAFTA improves market access in Mainland China for Australian banks, insurers, securities and futures companies, law firms and professional services suppliers, education services exporters, as well as health, construction, manufacturing and telecommunications services businesses. The agreement also makes commitments on the movement of people to support increased trade and investment between the two countries, reduce barriers to labour mobility and improve temporary entry access within the context of each country's immigration and employment frameworks. Specifically, ChAFTA provides mutual guaranteed access to: intra-corporate transferees (including executives, managers and specialists) for up to three years in Mainland China and four years in Australia; contractual service suppliers, in certain sectors, for one year (or longer if stipulated under the relevant contract) in Mainland China and up to four years in Australia; installers and maintainers for up to 180 days in Mainland China and up to three months in Australia; and business visitors for up to 180 days in Mainland China and up to 90 days, or 6 months for business visitors who are service sellers, in Australia.
- Australia-United States FTA (AUSFTA): AUSFTA came into force on January 1, 2005, covering both goods and services. The agreement provides increased market access for most Australian agricultural products. All tariffs have been eliminated for products imported into Australia from the United States, whereas most tariffs have been eliminated for products exported from Australia to the United States. Australia's biosecurity and food safety regulations remain unchanged under the agreement. Both Australia and the United States reaffirmed that decisions on matters affecting biosecurity and food safety will be based only on science. The United States is an important trading partner for Australia, accounting for 10.3% of goods imported into Australia in 2017 and purchasing almost 4% of Australia's exports.
- Japan-Australia Economic Partnership Agreement (JAEPA): JAEPA was signed on July 8, 2014, and entered into force on January 15, 2015. Japan is Australia's second-largest export market and fourth-largest source of foreign investment. Once JAEPA is fully implemented on April 1, 2034, around 98% of Australia's merchandise exports to Japan will be able to receive preferential access or enter the country duty free. JAEPA has delivered three tariff cuts to date – the first on entry into force on January 15, 2015; the second on April 1, 2015; and the third on April 1, 2016 – along with increased preferential quotas for Australian agricultural exports. Japan has a heavily protected agriculture market and Australia is the first significant agricultural producer to have a meaningful trade agreement with Japan, providing Australian exporters with a competitive advantage. 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. Because this agreement may be superseded by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) an FTA Portal has been created so that importers and exporters can browse goods and services outcomes under each FTA.
- Korea-Australia FTA (KAFTA): KAFTA was signed on April 8, 2014 and entered into force on December 12, 2014. South Korea is Australia's fourth-largest trading partner. KAFTA has delivered three tariff cuts in quick succession: the first on entry into force in 2014; the second on January 1, 2015; and the third on January 1, 2016. Under KAFTA more than 99% of Australia's goods exports to Korea are eligible to enter the country duty free or with preferential access. KAFTA is particularly beneficial to agriculture because it secures improved market access for Australia's exports through the elimination of very high tariffs on a wide range of exports including beef, wheat, sugar, dairy, wine, horticulture and seafood. Tariffs on 88% of Australia's manufactures, resources and energy exports entered Korea duty free from entry into force, with all remaining tariffs being phased out by January 1, 2023. Australian services exporters also have better access to the market under KAFTA and investment commitments in the agreement protect and enhance investment in both directions.
- Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA): ANZCERTA is an FTA eliminating all tariffs between the Australia and New Zealand. ANZCERTA came into force in January 1983. All tariffs and quotas were eliminated by 1990, five years ahead of schedule. New Zealanders and Australians are free to visit, live and work in each other's country under the Trans-Tasman Travel Arrangement. Furthermore, New Zealand and Australia have committed to creating a seamless trans-Tasman economic environment, which will make it as easy for New Zealanders to do business in Australia as it is to do business in and around New Zealand. This initiative will build on the foundation of ANZCERTA. Although superseded by the CPTPP, the effect is likely to be minimal given the already-low barriers to cross-border business.
- ASEAN-Australia-New Zealand FTA (AANZFTA): AANZFTA came into force on January 1, 2010, for eight countries (Australia, Brunei Darussalam, Burma, Malaysia, New Zealand, the Philippines, Singapore and Vietnam), joined later by four more – Thailand (March 12, 2010), Laos (January 1, 2011), Cambodia (January 4, 2011) and Indonesia (January 10, 2012). AANZFTA is a comprehensive and single-undertaking FTA that opens up and creates new opportunities for the almost 700 million people of the ASEAN, Australia and New Zealand. Through AANZFTA, tariffs will be progressively reduced and eliminated for at least 90% of all tariff lines by 2020. The movement of goods will be facilitated via simplified customs procedures and barriers to trade in services will be liberalised. 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 before the AANZFTA). On September 1, 2018, AANZFTA ministers endorsed recommendations to upgrade the agreement, in keeping with Australia's commitment to have its FTAs remain up to date and relevant for business. AANZFTA is complemented by bilateral FTAs with Malaysia, Singapore, Thailand and New Zealand.
- The CPTPP: Following the withdrawal of the US from the original Trans-Pacific Partnership (TPP) a broad agreement on the TPP's core elements was reached between the remaining 11 countries, comprising Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These countries represent 13.4% of global GDP, making this the third-largest trade agreement after the North American FTA and the EU. By October 2018 six countries (Australia, Canada, Japan, Mexico, New Zealand and Singapore) had ratified the CPTPP agreement, which meant it automatically came into force on December 30, 2018. The agreement aims to cut tariffs, improve access to markets and set common ground on labour and environmental standards and intellectual property protections. Vietnam came on board in January 2019 and the remaining countries are expected to follow in accordance with the terms of the treaty.
- Australia-Hong Kong FTA (A-HKFTA): Hong Kong and Australia announced the conclusion of negotiations on the A-HKFTA on November 15, 2018. The agreement and an associated Investment Agreement was signed on March 26, 2019. Overall, Hong Kong is Australia's 12th-largest trade partner, with total trade valued at USD18.8 billion in goods and services in 2017. The FTA will govern the trade and investment relationship between the two countries going forward. Once entered into force, all tariffs will be bound at zero. Hong Kong is also Australia's fifth-largest source of inward investment. The FTA is awaiting ratification by the respective parliaments and is not yet in force. A strong relationship with Hong Kong is in Australia's long-term strategic interests. The A-HKFTA will strengthen Australia's relationship with one of its most significant trading partners, and the conclusion of the FTA means that Australia now has FTAs with seven of its top eight export markets for goods and services.
- Indonesia-Australia Comprehensive Economic Partnership Agreement (CEPA) (IA-CEPA): Australia and Indonesia signed the IA-CEPA on March 4, 2019, launching a new chapter in economic relations between the two countries. Indonesia is a growing market for exporters of Australian goods and services. In 2018 the two-way trade in goods and services made Indonesia Australia's 14th-largest trading partner and IA-CEPA provides Australian and Indonesian businesses with an opportunity to expand and diversify this economic partnership by building on commitments under the AANZFTA across good, services and investment. In addition to reducing non-tariff barriers to trade and simplifying paperwork, IA-CEPA will allow 99% of Australia's goods exports to enter Indonesia duty free or with significantly improved preferential arrangements. All Indonesia's goods exports will enter Australia duty free. IA-CEPA will improve conditions for services suppliers and the climate for two-way investment. Australian services suppliers and investors will have greater certainty when they enter and operate in the Indonesian market, helping to facilitate more Australian investment in Indonesia.
EU-Australia: The EU is Australia's second-largest trade partner and third-largest export destination and 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 (latest data available), while bilateral trade in services added an additional EUR27 billion for the same time period. The negotiations aim to remove trade barriers, streamline standards and put European companies exporting to or doing business in Australia on an equal footing with those from countries that have signed up to the CPTPP 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, and on June 18, 2018, negotiations began. On March 25-29, 2019, Negotiating Round Three was held in Canberra. The EU was Australia's largest source of foreign investment in 2017. Australia is seeking an ambitious and comprehensive FTA to drive Australian exports, economic growth and job creation.
Regional Comprehensive Economic Partnership (RCEP): Negotiations are underway and the partnership will include New Zealand, Mainland China, Japan, South Korea and the 10 ASEAN countries. 15 of the 16 countries have finalised the text, with India being the only country yet to sign, citing significant outstanding issues.
7. Investment Policy
7.1 Foreign Direct Investment
7.2 Foreign Direct Investment Policy
- Austrade, the investment promotion agency formally known as the Australian Trade and Investment Commission, provides coordinated government assistance to attracting foreign direct investment (FDI) and serves as the national point of contact for investment inquiries. State and territory governments similarly offer a suite of financial and non-financial incentives. National, state and territory governments provide selected grants to businesses for establishing or expanding a business, or for specific activities – such as research.
- 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.
- Certain foreign investment proposals require prior government approval, as set out by the Foreign Acquisitions and Takeovers Act 1975. These include investments in Australian land corporations or trusts, acquisitions in Australian businesses where it is substantial (upwards of 15%) or the value of gross assets exceeds AUD252 million, and direct investments by foreign governments and their agencies. For investors from New Zealand or the United States the financial threshold only applies to certain sensitive sectors, otherwise a threshold of AUD1.07 billion applies.
- Australian state investment promotion agencies support international investment at the state level and in key sectors. The Australian government uses transparent policies and effective laws to foster national competition and develop competition policy, and is consultative in its policymaking process. The government generally allows for public comment on draft legislation and publishes and makes available laws once they enter into force.
- Foreign entities intending to conduct business in Australia as a foreign company must be registered with the Australian Securities & Investments Commission.
- Australia subscribes to the 1976 declaration of the Organisation for Economic Co-operation and Development (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 covering invisible transactions.
- The Protocol on Investment to Australia-New Zealand Closer Economic Relations Trade Agreement entered into force on March 1, 2013. Investors in both countries benefit from the protocol through lower compliance costs and greater legal certainty when investing in their trans-Tasman neighbour.
- The ChAFTA includes a Memorandum of Understanding for Investment Facilitation Arrangements (IFAs) that will allow Chinese-owned companies registered in Australia and undertaking large infrastructure development projects (above AUD150 million) to be able to negotiate increased labour flexibilities for specific projects. IFAs reflect the government's aim to strengthen infrastructure development and attract investment to create jobs and increase economic prosperity for all Australians. IFAs will operate within the framework of Australia's existing 457 visa system and will not allow Australian employment laws or wages and conditions to be undermined.
- FChAFTA improves the opportunities for investors in both countries. Mainland China's commitments on investment in ChAFTA protect the competitive position of Australian businesses in Mainland China into the future. Increasing numbers of Australian businesses are entering the Mainland Chinese market with great success, with banking and wealth management the leading sector of Australian direct investment. At the end of 2017, Australian investments in Mainland China totalled AUD77.1 billion while Mainland Chinese investment in Australia had increased to around AUD65 billion from AUD6 billion a decade earlier. Investment obligations in ChAFTA can be enforced directly by Australian and Chinese investors through an Investor-State Dispute Settlement mechanism, which includes safeguards to protect governments' ability to regulate in the public interest and pursue legitimate public welfare objectives such as public health, safety and the environment. ChAFTA promotes further growth of Chinese investment into Australia by liberalising the Foreign Investment Review Board screening threshold for private Chinese investors in non-sensitive sectors from AUD252 million to AUD1.09 billion. The government will continue to screen Chinese investments at lower thresholds for agricultural land and agribusiness, and in sensitive sectors, including media, telecommunications and defence-related industries.
- Australia-United States FTA (AUSFTA) provides the basis for the two-way investment relationship between Australia and the US. The US is the largest investor in Australia, accounting for around 27 per cent of Australia's total foreign investment stock as of December 2016. The United States is also by far Australia's largest foreign investment destination, accounting for 28.4 per cent of Australia's total overseas investment stock as of December 2016. Two-way investment has almost tripled since AUSFTA came into force.
- On February 1, 2018, the Treasury of Australia announced the establishment of new conditions for future bidding for projects related to electricity infrastructure and farmland. Foreign investors are now subject to a new restriction as these areas 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.
- From July 1, 2019, changes to federal agency procurement policy mean that all new tenders for contracts worth AUD4 million or more will have to include a statement from the Australian Taxation Office confirming that the bidder's tax affairs are in order.
- In February 2016, the government announced its intention to establish a Register of Foreign Ownership of Water Entitlements, administered by the Australian Taxation Office, which is intended to enhance transparency and assist in informing the government and the community about emerging investment trends. In March 2019 the first report was released, revealing that 10.4% of water entitlement is foreign owned, mostly for agriculture and mining, with the largest sources of foreign investment the United States and Mainland China at 1.9% each.
- Foreign firms establishing themselves in Australia are not subject to local employment or forced localisation requirements, performance requirements and incentives.
- 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.
- According to the 2019 FDI Confidence Index compiled by A.T. Kearney, despite falling one place, to ninth out of 25, Australia had maintained its top-10 position for a decade and, with a quarter century of uninterrupted economic growth, the country remained a large, stable investment destination.
Sources: WTO – Trade Policy Review, ITA, US Department of Commerce, Australian Trade and Investment Commission, Parliament of Australia, Department of Foreign Affairs and Trade, Department of Immigration and Border Protection, The Mandarin, Treasury, Foreign Investment Review Board, A.T. Kearney, Fitch Solutions
7.3 Free Trade Zones and Investment Incentives
|Free Trade Zone/Incentive Programme||Main Incentives Available|
|Free Trade Zones (FTZs)||Australia does not have any FTZs 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. The types of assistance available vary by location, industry and the nature of the business activity.|
|R&D Tax Incentive||The Australian government provides incentives for companies engaging in R&D in Australia. The R&D tax incentive provides eligible companies with a tax offset for expenditure on eligible R&D activities undertaken during the year. The program is jointly administered by AusIndustry (an Australian government agency) and the Australian Taxation Office (ATO). Businesses must register R&D activities each year with AusIndustry prior to making a claim towards the tax offset with the ATO.|
In 2019, 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 AUD20 million 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 30% credit.
Generally, only genuine R&D activities undertaken in Australia qualify for the R&D tax incentive. However, R&D activities conducted overseas might qualify in limited circumstances where the activities cannot be undertaken in Australia.
Special grant programmes may be available to assist corporations in the conduct of certain R&D activities in Australia. These grants are awarded on a discretionary basis.
|Early Stage Innovation Company (ESIC) Tax Incentives||The Australian government is encouraging innovation, entrepreneurship and risk-taking. The tax incentives for early stage investors are designed to connect ESICs with investors who have funds and business experience. Investors in ESICs are eligible for the following:|
- A 20% non-refundable carry-forward tax offset on amounts invested in qualifying ESICs, with the offset capped at AUD200,000 per investor per year.
- A modified capital gains tax treatment for investments in qualifying shares in an ESIC held for between 12 months and 10 years, provided that the shares held do not constitute more than a 30% interest in the ESIC. Capital losses on shares held less than 10 years are disregarded.
|Other Incentives||Various other incentives exist, depending on the sector. Local governments offer a range of incentives to local and foreign investors, including limited financial assistance, state tax holidays and concessional land rentals.|
Sources: US Department of Commerce, Australian Taxation Office, Fitch Solutions
8. Taxation – 2019
- Goods and Services Tax: 10%
- Corporate Income Tax: 30%
Source: Australian Taxation Office
8.1 Important Updates to Taxation Information
- A corporate tax rate of 27.5% applies to corporate tax entities, small- and medium-sized companies, with a turnover of less than AUD50 million for 2018/19 and 2019/20. The rate will reduce progressively to 26% for the 2020/21 income year and to 25% for the 2021/22 income year. Under currently enacted law, the corporate tax rate for all other corporate entities will remain at 30% (a proposal to progressively reduce the corporate tax rate for all entities, not just those noted above, was not proceeded with).
- From July 1, 2018, the Australian goods and services tax (GST) is payable on certain supplies of low value goods (valued at AUD1,000 or less) that are purchased and imported by Australian consumers. The federal government levies the GST, including on cross-border supplies of digital products and services imported by Australian consumers, and distributes the revenue to state governments.
- Australia has income tax treaties with 45 other countries, including Mainland China.
8.2 Business Taxes
|Type of Tax||Tax Rate and Base|
|Corporate Income Tax Rate||- 30%|
- 27.5% – Certain small business corporate tax entities with an aggregated turnover of less than AUD50 million for the 2018/19 and 2019/20 income years
|Capital Gains Tax Rate||30%|
|Branch Tax Rate||30%|
|Withholding Tax (WHT)||Franked dividends (those paid out of profits and subject to Australian tax) paid to non-residents are exempt (0%); unfranked dividends (from profits not subject to Australian tax) are taxed at 30%, but when paid to non-residents are exempt from dividend WHT to the extent that the dividends are declared by the company to be conduit foreign income. |
The rate on interest is limited to 10%, through a double taxation agreement (DTA) may make this higher. Royalties are generally taxed at 30%, but a DTA may reduce this – for example, the DTA with Mainland China makes this 10%.
|Social Security Contributions||Australia does not have a system of social security contributions, but to cover some of the cost of the public health system taxpayers pay a Medicare levy of 1%, 1.25% or 1.5% on taxable income, as well as a variable Medicare levy surcharge|
|Construction and Related Activities||5%|
|Fund Payments from Managed Investment: Trusts||15%|
|Land Tax||All states and territories except for Northern Territory levy a tax on the unimproved capital value of land but a principal place of residence and land used in primary production are both exempt from land tax. Some states subject foreign or absentee owners to a surcharge. Victoria levies an annual land tax of 1% on the capital improved value of vacant residential land.|
Source: Australian Taxation Office
Date last reviewed: November 9, 2019
9. Foreign Worker Requirements
9.1 Visa/Travel Restrictions
All visitors to Australia require a visa to enter the country. 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. 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.
The types of temporary residence visas, and the conditions that must be fulfilled prior to such visas being issued, are described below. 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.
The government sets quotas and planning levels for spots in state sponsorship and skilled migration, as well as visa fee increases, annually on July 1.
9.2 Foreign Worker Rules
Individuals who need to enter Australia to perform short-term, highly specialised work that is not ongoing or to assist in a national emergency can apply for a Temporary Work (Short Stay Specialist) visa (subclass 400). The subclass 400 visa can be granted for a period of up to six months. If the maximum period of six months is requested, a strong business case must be demonstrated. After being granted, applicants have up to six months to make their first entry into Australia on this visa.
If a business wants to employ foreign nationals to work in the country for a long term, it must first be approved as a sponsor by the Australian Department of Immigration and Border Protection. Sponsors must comply with a number of obligations, including paying visa holders at market salary rates. Positions must be formally nominated and must meet minimum salary and skill thresholds. Visa applicants must meet English language, health and character requirements.
9.3 Temporary Skill Shortage Visas
Individuals intending to work in Australia may apply for a subclass 482 Temporary Skill Shortage (TSS) visa. The TSS visa may be granted for up to two years if the occupation is listed on the Short-term Skilled Occupation List (STSOL), subject to international trade obligations, or up to four years if the occupation is on the Medium and Long-term Strategic Skills List (MLTSSL) or Regional Occupation List (ROL). A TSS visa may be renewed, provided that the application criteria are met each time. TSS visa holders in occupations on the STSOL may only renew their visa once in Australia with very limited options to renew again from outside Australia. The visa application process involves the following three steps:
- The employer must be approved as a sponsor
- The employer nominates the visa holder to fill a specific position
- The individual completes the visa application
Each step has separate eligibility criteria that must be met. These include business operational requirements, minimum skill, salary and experience levels, and health, character and English language criteria. Requirements for employers include the following:
- Paying a training levy
- Attesting to a strong record or commitment to employing local labour
- Following non-discriminatory employment practices
- Paying market salary rates
- Conducting labour market testing unless exempt
- Paying foreign nationals at market salary rates or higher
Business sponsors must also meet several sponsorship obligations with respect to all sponsored TSS visa holders and any accompanying family members. The Department of Home Affairs monitors all sponsors, and sanctions are imposed on sponsors that do not meet their sponsorship obligations. Visa applicants must meet skill, English language, health and character requirements and have at least two years relevant work experience.
9.4 Employer Nomination Scheme
Under the Employer Nomination Scheme (subclass 186), Australian employers may nominate highly skilled individuals from overseas for permanent residence. Applicants for a permanent residence visa under this Scheme must be nominated in an occupation on the MLTSSL or ROL and 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 or TSS visa for at least three of the last four 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 hold a subclass 444 (special category) visa or subclass 461 (New Zealand Citizen Family Relationship) visa and have worked in their nominated occupation for their nominated employer for at least three of the last four years immediately before applying.
Permanent residence applications may also be filed under the Regional Sponsored Migration Scheme (subclass 187), which has more flexible eligibility requirements (but work must be in a regional area whereas subclass 186 has no geographical restrictions). Some concessions are available for individuals who held or had applied for a subclass 457 visa on or before April 18, 2017. The subclass 457 visa was replaced by the TSS visa on March 18, 2018.
9.5 General Skilled-Points Test
Individuals may apply for permanent residence on the basis of their skills for an occupation specified in the MLTSSL. Individuals intending to apply must first lodge an expression of interest outlining their claims for points for employability factors, including qualifications, age, employment experience and language capabilities. Sponsorship from eligible relatives (who are Australian citizens or Australian permanent residents) or state governments attracts additional points. Only those scoring the most points are invited to submit a visa application. The number of invitations issued in each occupation is limited by quotas. Citizens of New Zealand may also be eligible for streamlined permanent residence visa arrangements.
9.6 Social Security
A Medicare Levy of 2% of taxable income is payable by resident individuals for health services (provided that they qualify for Medicare services). This is the only levy imposed in Australia that is equivalent to a social security levy. An exemption from the Medicare Levy may apply if the individual is from a country that has not entered into a Reciprocal Health Care Agreement with Australia.
9.7 Skilled Workers
Skilled foreign workers can be sponsored under the Employer Nomination Scheme or the Regional Sponsored Migration Scheme. Workers can also be sponsored on a temporary basis under the Temporary Work (Skilled) visa (subclass 457), allowing them to work in Australia for up to four years.
9.8 Business Innovation and Investment Visas
The Business Innovation and Investment visa (subclass 188) is intended for entrepreneurs, investors and business owners who wish to manage their own business or make substantial investments in Australia. Individuals must file an expression of interest and their business skills and other attributes are then assessed under a points test. 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 ongoing business activity for two years or investment for four years, they may apply for permanent residence.
There are several types of investor stream: an Investor must hold a subclass 188 visa and have held a designated investment of AUD1.5 million for four years; a Significant Investor must hold a subclass 188 visa and have held an eligible investment of AUD5 million for four years; a Premium Investor must have held a subclass 188 visa for 12 months and have held an eligible investment of AUD15 million for the duration of that visa; and an Entrepreneur must have held a subclass 188 visa for four years, have lived in Australia for at least two years on that visa and be able to demonstrate a successful record of entrepreneurial activity in Australia while holding the subclass 188 visa.
Applicants for the Investor stream must secure state or territory nomination, meet the innovation points test and provide evidence of skill and experience in managing a qualifying investment.
The Significant Investor visa does not attract a points test or have maximum age requirements; it also allows the dependent children or partner of the primary visa holder to work or study in Australia. Individuals applying for this stream may also maintain business interests overseas. As a result, visa holders are required to remain in Australia for only an average of 40 days per year over a four-year period to meet residency criterion for permanent residence.
Individuals in the Premium Investor stream must be invited by Austrade.
9.9 Partner Programme
Spouses (including de facto and same-sex spouses) of Australian citizens or Australian permanent residents may apply for permanent residence through sponsorship by their Australian spouse. In most cases, applicants are issued a two-year temporary visa that converts to permanent residence if the partner relationship is ongoing after the two-year period.
9.10 Designated Area Migration Agreement (DAMA)
DAMA provides flexibility for states, territories or regions to respond to their unique economic and labour market conditions through an agreement-based framework that allows employers from those areas to sponsor people who are not necessarily on the Australian occupations list. The temporary visas given to such migrants could potentially lead to permanent residency. The following regions are eligible for DAMA: the far north of Queensland, Goldfields, Northern Territory, Orana, Pilbara, Warnambool and South Australia. Under DAMA the concessions or exemptions include a lower English Language skills score, no requirement for a skills assessment or work experience.
Sources: Department of Home Affairs, Fitch Solutions
10.1 Sovereign Credit Ratings
|Rating (Outlook)||Rating Date|
|Standard & Poor's||AAA (Stable)||21/09/2018|
|Fitch Ratings||AAA (Stable)||27/10/2019|
Sources: Moody's, Standard & Poor's, Fitch Ratings
10.2 Competitiveness and Efficiency Indicators
|Ease of Doing Business Index ||14/190||18/190||14/190|
|Ease of Paying Taxes Index||26/190||26/190||28/190|
|Logistics Performance Index ||18/160||N/A||N/A|
|Corruption Perception Index||13/180||N/A||N/A|
|IMD World Competitiveness||19/63||18/63||N/A|
Note: N/A = not applicable/available
Sources: World Bank, IMD, Transparency International
10.3 Fitch Solutions Risk Indices
|Scores & Ranking|
|Economic Risk Index||N/A||20/201||25/201|
|Short-Term Economic Risk Score||66.7||71.7||69.8|
|Long-Term Economic Risk Score||73.4||74.3||73.7|
|Political Risk Index||N/A||12/201||11/201|
|Short-Term Political Risk Score||74.8||74.8||71.5|
|Long-Term Political Risk Score||88.4||88.4||88.4|
|Operational Risk Index||N/A||19/201||19/201|
|Operational Risk Score||73.3||73.0||72.0|
Source: Fitch Solutions
Date last reviewed: November 9, 2019
10.4 Fitch Solutions Risk Summary
A key strength of Australia's economic profile is its 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 regional and global peers and the fiscal deficit is expected to narrow significantly in 2019. Growth should gather pace in 2020, underpinned by favourable financing conditions and a supportive business climate. Mining and housing investment are likely to expand, which, coupled with somewhat stronger consumer spending, should prop up domestic demand. That said, a volatile external backdrop and risk of economic slowdown in key trade partners pose downside risks to the outlook.
Australia is a free market economy with a stable political environment. The country is low risk in logistics, the labour market, and trade and investment. 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 Mainland China and Japan, aiding it to develop its resources sector, while reaping the benefits from increasing resource demand.
Source: Fitch Solutions
Data last reviewed: November 10, 2019
10.5 Fitch Solutions Political and Economic Risk Indices
100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Political and Economic Risk Indices
Date last reviewed: Novmber 9, 2019
10.6 Fitch Solutions Operational Risk Index
|Operational Risk||Labour Market Risk||Trade and Investment Risk||Logistics Risk||Crime and Security Risk|
|Developed States Average||72.6||64.6||71.3||77.1||77.4|
|Developed States Position (out of 27)||15||10||15||24||12|
|Global Position (Out of 201)||19||14||22||41||15|
100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
|Country||Operational Risk Index||Labour Market Risk Index||Trade and Investment Risk Index||Logistics Risk Index||Crime and Security Risk Index|
|Isle of Man||67.6||69.1||62.4||56.6||82.4|
|Developed Markets Averages||72.6||64.6||71.3||77.1||77.4|
|Global Markets Averages||49.7||50.3||49.8||49.3||49.2|
100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: November 9, 2019
11. Hong Kong Connection
11.1 Hong Kong’s Trade with Australia
Note: Graph shows the main Hong Kong exports to/imports from Australia (by consignment)
Date last reviewed: November 9, 2019
Note: Graph shows Hong Kong exports to/imports from Australia (by consignment)
Exchange Rate HK$/US$, average
Source: Hong Kong Trade Statistics, Census and Statistics Department
Date last reviewed: November 9, 2019
|2018||Growth rate (%)|
|Number of Australia residents visiting Hong Kong||580,167||2.2|
|Number of Asia Pacific residents visiting Hong Kong||61,043,576||12.0|
Source: Hong Kong Tourism Board
|2017||Growth rate (%)|
|Number of Australians residing in Hong Kong||9,233||1.6|
|Number of developed state citizens residing in Hong Kong||65,680||1.6|
Source: United Nations Department of Economic and Social Affairs – Population Division
Date last reviewed: November 9, 2019
11.2 Commercial Presence in Hong Kong
|2019||Growth rate (%)|
|Number of Australians companies in Hong Kong||185||7.6|
|- Regional headquarters||35||0.0|
|- Regional offices||54||8.0|
|- Local offices||96||10.3|
11.3 Treaties and Agreements between Hong Kong and Australia
- Hong Kong and Australia have an investment promotion and protection agreement that entered into force on October 15, 1993.
- Australia has a bilateral investment treaty (BIT) with Hong Kong that entered into force on October 15, 1993, and a BIT with Mainland China that entered into force on July 11, 1988.
- Australia has a tax treaty with Mainland China that has been applicable since January 1, 1991. The treaty does not extend to cover Hong Kong.
11.4 Chamber of Commerce or Related Organisations
The Australian Chamber of Commerce in Hong Kong
Address: Room 301-2, 3/F, Lucky Building, 39 Wellington Street, Central, Hong Kong
Tel: (852) 2522 5054
Fax: (852) 2877 0860
Hong Kong Australia Business Association Limited
|(612) 9267 3158 ||firstname.lastname@example.org||www.hkaba.com.au|
|New South Wales Chapter |
|Queensland Chapter |
|South Australia Chapter|
|Western Australia Chapter |
Australian Consulate-General Hong Kong
Address: 23/F, Harbour Centre, 25 Harbour Road, Wan Chai, Hong Kong
Tel: (852) 2827 8881
Fax: (852) 2585 4457
11.5 Visa Requirements for Hong Kong Residents
HKSAR passport holders are allowed to stay in Australia for 90 days, but they need to apply for a document called an Electronic Travel Authority (ETA, subclass 601) beforehand. This can be done online. With an ETA, the holder can visit Australia as often as they wish in a 12-month period and stay for up to three months each time. To stay for more than three months requires a different visa, such as the Visitor visa (subclass 600), under which might a stay might be granted of three, six or 12 months.