China’s Five million dollar entrepreneurs

Australian states and territories are clambering to sponsor applicants of the new Significant Investor Visa, but proving the source of funding remains a chief hindrance, writes Sophie Loras.

 
In May, six months after the Australian government opened up the application process for the new Significant Investor Visa, the first successful applicant was given the green light to deposit his $5 million dollars into a complying investment in Australia.
 
The recipient was a Chinese toy manufacturer and his young family.
 
It is no coincidence that the first successful applicant of this much-hyped visa would be Chinese. Falling under the new Business Innovation and Investment subclass 188 and subclass 888, the SIV has been specifically designed with China’s high net worth entrepreneurs in mind – the number eight is a particularly fortuitous number in China and is associated with good luck and good fortune.
As of May 31, 2013, the department had received 504 expressions of interest for the SIV – and around 90 percent of those applicants have been from Mainland China.
 
Of the total 504 expressions of interest, 335 were invited to apply for an SIV and of those, 234 continued with the process to lodge an application.
 
In monetary terms, the possibility that 234 applicants might be invited to deposit their $5 million into Australia, would be a windfall for the Australian economy – an investment injection of close to $1.2 billion.
 
However to date, just four SIV applicants have made it through to the final hurdle, and many in the industry are asking why the process is taking so long.
 
The application process itself is relatively simple. The applicant first puts in an expression of interest on the Department of Immigration and Citizenship’s SkillSelect online platform and applies for Australian state or territory nomination. Once state or territory nomination has been granted, an automatic invitation is lodged, and the applicant has 60 days to lodge the application (with the option of requesting a further 60 days if needed). Once approved, the applicant is asked to make their $5 million investment into Australia and the application process reaches the final stage.
 
Currently, all Mainland Chinese applications are being processed out of the department’s Hong Kong centre. (Applicants from most other countries are processed in Adelaide).
 
Current processing times are around four to five months.
 
A spokesperson for the Department of Immigration and Citizenship says the department places a priority on delivering outcomes from the SIV program.
 
“Application processing times for the SIV are a function of assessing that the applicant’s funds were lawfully acquired, as well as other visa requirements such as health, character and national security checks,” the spokesperson said.
 
“As with anything newly introduced, processes do become more streamlined naturally. We expect they will naturally speed up into the future.”
 
The SIV has no innovation points test, upper age limit or specific English language requirement, but applicants must prove the source of funding for their $5 million investment has been legally obtained. For the Chinese market in particular, this is an additional time constraint on the SIV application process.
Ivan Chait, a Sydney-based registered migration agent and an Associate Fellow of the Migration Institute of Australia believes the ultimate success of an application does, to a great extent, depend on the quality of the application.
 
“In other words the application should provide a good understanding of the applicant’s background and how their wealth was accumulated. In addition, the statement of assets and liabilities must be supported with clear evidence of the applicant’s ownership of the assets and value,” says Mr Chait.
 
Mr Chait says the applicant or their advisors need to take care showing the source of funds such as how the applicant has accumulated their wealth.
“One problem which is likely to result in a refusal is that applicants may not be able to explain a rapid unexplained growth in assets.”
 
Tony Le Nevez, the Managing Director of Melbourne-based Hamilton Watts International Migration Services believes that despite some initial hiccups, the programme is working relatively successfully.
 
He says previous skilled business migration visas also had long wait times and he believes the department has taken this into consideration with the new SIV – with experienced staff who understand the process and how to deal with the specific challenges of the Chinese market, as well as facilitating a number of seminars in Hong Kong, China and Australia explaining the new skilled migration visas and its requirements.
 
Not surprisingly, the states and territories are competing fiercely to attract these five million dollar entrepreneurs, offering interesting investment terms and other perks to woo these would be investors. Victoria and New South Wales, which have the advantage of strong well-established existing links with China and large Chinese communities are faring the best – the Chinese toy manufacturer for example, is being sponsored by the state of Victoria.
 
Department figures for all SIV nominations (all countries) at March 31, 2013, show New South Wales in top position with 101 invitations, followed by Victoria at 81. Queensland, Western Australia and South Australia all trail behind with less than 50.
 
The terms and conditions for migrant investors of the SIV are for a minimum $5 million investment into compliant investments for a minimum of four years.
Compliant investments include Commonwealth, state or territory government bonds, certain managed funds or direct investment into Australian propriety companies.siv nsw tourism australia 112464-573
 
New South Wales has one sponsorship requirement – that $1.5 million is invested into the state’s Waratah bonds.
 
“This is our only financial requirement,” says Deputy New South Wales Premier, Andrew Stoner.

“As long as SIV applicants demonstrate that they have the required funds and will submit $1.5 million into Waratah bonds and the balance into complying investments, NSW will be pleased to nominate them.”

 
*Pictured above: NSW-sponsored SIV applicants must commit $1.5 million for investment into the state’s Waratah bonds. (Tourism Australia / Anson Smart)
 
As of July 5, 231 expressions of interest had been put through SkillSelect nominating New South Wales as the preferred state. Of those, NSW has submitted 182 SIV nominations to the Commonwealth – the vast majority of them from China.
 
“The majority of our applicants – 93 percent – are from China,” says Mr Stoner.
“We continue to think that the SIV offers an excellent opportunity to develop our relationship with China,” he says.
 
Victoria has no specific investment guidelines when it comes to investing the $5 million – which can be invested into one or a mixture of complying investment options specified by the Commonwealth Government.
 
“Any additional investment, beyond the $5 million complying investment, that Significant Investors choose are expected to generate additional business activity, investment and jobs,” says Louise Asher, Victorian Minister for Employment and Trade.
 
Ms Asher says the Victorian Government offers assistance to all Significant Investors wishing to undertake additional business activity or investments in Victoria.
 
“Applications from Significant Investors are a welcome addition to the hundreds of applications Victoria receives every year from business migrants who have chosen to invest and reside here,” says Ms Asher.
 
Smaller states such as Tasmania, South Australia and Western Australia are working hard to attract potential SIV applicants to their states.
 
Tasmania has experience sponsoring Chinese business migrants under previous and other business migration schemes, and plans to increase and strengthen its promotional effort in China.
“Tasmania is a strong supporter of the SIV scheme,” says Mark Kelleher, CEO of the Tasmanian Department of Economic Development, Tourism and the Arts.
 
“The number of Chinese applications sponsored by other states indicates that there is strong interest in the program from China, and Tasmania will be aiming to attract as many Chinese migrants as possible under the SIV,” he says.
 
As part of the process, Tasmania has undertaken to provide personal case management to each applicant.
 
Mr Kelleher says Tasmania has taken a flexible approach to making the state an attractive SIV destination and does not require Tasmanian- sponsored SIV applicants to live in the state.
 
“While Tasmania itself is an attractive, clean and safe place to live and offers every modern convenience you could require, it is not compulsory to live in the state and SIV visa holders can choose to live in another part of Australia, as long as their investment brings significant benefits to Tasmania,” says Mr Kelleher.
 
Applicants can also choose any complying investment they wish. There is no restriction on types or percentages of investment.siv tassie taste10-11-90 cmyk
 
“Of course, investment opportunities in Tasmania provide their own attraction to investors with the potential to invest in businesses that take advantage of the respected Tasmanian brand to produce highly marketable products,” says Mr Kelleher.
 
“We believe that the strength of investment opportunities across our food and agriculture, mining and tourism sectors in particular will be attractive to SIV applicants.”
 
*Pictured above: Tasmania is actively promoting its investment capabilities and quality of life to potential Chinese SIV applicants. Pictured: The Taste of Tasmania festival. (Tasmanian Department of Economic Development, Tourism and the Arts)

To date the Western Australian Government has received 32 SIV applications seeking Western Australian sponsorship.

 
Bruno Delfante, Manager, Business Migration, Small Business Development Corporation, says Western Australia’s top selling points include its position as Australia’s leading region in economic growth, its low unemployment rate, its wide range of investment and business opportunities and its world class lifestyle, recreational, education and health facilities.
 
Western Australia is also flexible with how the money is invested.siv wa cottesloe beach
 
“Provided the funds meet the complying investment criteria set by the Department of Immigration and Citizenship, the investor has the choice of which ‘complying investment’ and how much they invest in each one,” says Mr Delfante.
 
“The primary factor, considered by the state, in approving a nomination is the extent of the investment’s economic benefit to Western Australia,” he says.
 
*Pictured above: Perth’s famous Cottesloe Beach in Western Australia. (Small Business Development Corporation Western Australia)

 

Sean Keenihan, President of the South Australian branch of the Australia China Business Council and Chairman of Partners of Norman Waterhouse lawyers – a firm with a long history of representing high end business migrants and investors from China to South Australia, believes South Australia offers some of the most competitive investment terms for potential SIV entrepreneurs.

 
Mr Keenihan says South Australia offers three investment pathways: investing $1 million into the state’s SAFA bonds for four years and the rest in a complying investment; investing an average of $3 million over two years into a SA business (the rest to invest as applicant sees fit in any complying investment); or investing the whole amount into any “complying investment” in addition to active participation in the state.
 
siv sa tourism australia 104396-573South Australian-sponsored applicants may reside anywhere in Australia.
Mr Keenihan says Investors should look closely at the terms and conditions of their investment as well as returns. The SIV process requires the investment be held in Australia for four years – but some funds may have uneven term deposits that do not fit with a four-year cycle.
 
Applicants should also be aware of fluctuating return rates. A less risky option may be funds that offer a lower but more fixed rate.

*Pictured left: South Australia offers a range of investment opportunities for SIV applicants. South Australia’s Barossa Valley wine region. (Tourism Australia / Adam Bruzzone)

The financial services industry has been fast off the mark to offer special packages.
 
Macquarie Bank for example is currently offering two SIV compliant funds: its MSI Cash Trust Fund and the Macquarie SIV Cash fund.
 
Both funds have been designed to offer foreign investors access to cash investments, while complying with all Significant Investor Visa guidelines and corresponding 1413 Form.
 
The MSI Cash Trust offers access to quality cash investments with returns linked to the Official Reserve Bank of Australia Cash Rate.
 
Scott Talbot, the Managing Director of UCHK, is the exclusive agent in China for a specialised fund set up by a big European bank. The fund is a compliant investment for the Australian SIV.
 
But Mr Talbot says some in the real estate sector have seen the SIV as an opportunity to “pitch a passport” to procure property sales with spruikers offering packages for developments while simultaneously pitching it as a $5 million SIV product.
 
His advice to SIV applicants is to have a very clear exit strategy on the investment.
 
“Scrutinize the business. Don’t buy a business unless you have an exit strategy and you have done careful due diligence on the (verified) value of the business and confirmed the revenue that is being pitched to you,” says Mr Talbot.
 
Some in the industry say there has been too much emphasis by the states and territories on what SIV investors plan to do with their money and not enough on how those funds were obtained – creating problems further down the application process.

 
The general consensus is that the onus on proof of source of funding is a Commonwealth matter. So long as applicants can prove they have the funds, and adhere to state-by-state investment criteria, they are likely to receive their state nomination. It will be up to the Commonwealth to scrutinise how the applicant came into their wealth and reject or accept the application on that basis.
“What they do with the money – how they choose to invest it into Australia – should not be the starting point,” says Ivan Chait.
 
“It is understandably an important issue but my view is that applicants should first ensure that they will meet the requirements for a successful application before focussing on how they will invest funds in Australia,” he says.
 
Mr Chait believes improvements on the application process would be looking at the profile with more attention on the individual and their career, rather than the money.siv vic great ocean road visionsofvictoria1382825-305
 
His biggest concern is that some prospective SIV applicants are already investing funds in Australia in various medium term investments before approval of their SIV application.
“There are some cowboys out there, but I feel as more reputable agents get involved, the quality of applications will also improve,” says Mr Chait.
 
*Pictured above: Victoria remains a hot spot for sponsorship nomination from Chinese SIV applicants. Pictured: Victoria’s iconic Great Ocean Road and the Twelve Apostles (Mark Watson / Tourism Victoria)

It is a sentiment echoed by others in the industry.

 
“There is nothing to stop the investor from putting the money in before they are given the go-ahead but there is a risk that the visa may fail on other grounds such as the health check, or source of funding,” says Tony Le Nevez.
 
“The recommendation is that you should not be investing the money until you have been advised by DIAC that your visa is ready to be granted. Wait until the last minute to commit.”
 
Mr Le Nevez feels investors in China do not clearly understand all the investment options available to them. His advice to prospective SIV investors:

• Understand where you want to live in Australia and why.

 
• Understand your investment options – there are many out there.
 
• There are two key people in your application process you need to be comfortable with – the person handling your investment and the person handling your SIV application.
 
For an application to be successful, key industry figures have noted the importance of having a registered migration agent, good communication lines with the case officer, having a concrete plan for the funds transfer as well as understanding the limited time allowed for the funds transfer.
 
Applicants also need to prove their source of funds, which can require the provision of bank statements listing transactions for the last three years.
 
“In short, a lot of evidence is required every step of the way,” says the Migration Institute of Australia’s CEO, Maurene Horder.
 
Ms Horder says applicants should research the way their funds will be transferred and the applicant should be certain the transfer can be done within the required time frame.
“The application process can be seen to be quite strict,” says Ms Horder.
“An applicant must demonstrate where the money is coming from and provide evidence,” she says.
 
“My advice to anyone interested in this kind of visa would be to get a Registered Migration Agent.” 

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