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SIGNIFICANT INVESTOR VISASUBCLASS 188 and 888:

A pathway to permanent residence

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CONTENTS

1. Introduction............................................................................................................................................32. Process....................................................................................................................................................33. Conditions...............................................................................................................................................44. StateGovernmentNominationorSponsorship...................................................................................45. ComplyingInvestment..........................................................................................................................46. Commonwealth,StateorTerritoryBonds............................................................................................57. ASICRegulatedManagedFunds.........................................................................................................5 StructureofManagedFunds....................................................................................................6 OpportunityforForeignInvestors............................................................................................68. DirectInvestmentintoAustralianProprietaryCompanies.................................................................79. QualifyingBusiness................................................................................................................................710. OwnershipInterestofBusiness..............................................................................................................711. InvestinginanewprivateAustraliancompanywhichhasnottraded............................................712. Investinginanexistingandtradingprivate(unlisted)Australiancompany...................................713. Ownershipofinvestment.......................................................................................................................814. OpportunityforForeignInvestorsarisingfromtheSIV.......................................................................8 Whatcanmslandamldo?...................................................................................................................9 Contactdetails.......................................................................................................................................9

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1.IntroductionThe new Significant Investor Visa sub-class 188 came into effect on 24 November 2012.

It is a pathway to permanent residence in Australia based on a 2 stage migration process.

Through this pathway, the new visa facilitates the permanent entry of wealthy investors overseas who wish to make Australia their new home. This new visa class is directed at wealthy investors or business people who have at least $5M to invest in Australia.

Many Australian business owners and corporate interests have been excited at the prospect of significant investment of off-shore capital, and will welcome the opportunity of forming business relationship and joint ventures with successful foreign businessmen.

2.ProcessThe process for securing a permanent residency to Australia through this 2 stage subclass 188 and 888 Visa is a 4 year process and is as follows:

a) Applicants must first lodge an Expression of Interest (“EOI”)in SkillSelect expressing their interest in where they wish to live;

b) A State or Territory Government will need to sponsor them for the case to proceed. They may contact the Applicant to seek further information

c) If the Applicant can demonstrate an “economic benefit” to Australia and the State, then the Applicant may be sponsored by that State or Territory Government; and

d) Based on this sponsorship, the applicant will receive an invitation from the Department of Immigration & Citizenship (DIAC) to apply for the Significant Investor Visa (SIV).

e) DIAC will process the visa application, and scrutinise the supporting documents provided. When all requirements are satisfied, DIAC will grant the visa.

f) Before successful Applicants are granted a SIV subclass 188 Visa they must make investments of at least $5million into a “complying investment”, and over the next 4 years comply with the conditions for ` a subclass 188 visa.

g) Upon the expiration of 4 years under the Subclass 188 visa, the Applicant applies for the second stage Subclass 888 visa. When all the qualifying conditions are met, the permanent residence visa will be awarded.

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3.ConditionsIn making an application for the initial Subclass 188 the Visa, the applicants:

• Do not need to satisfy a points test; • Do not need to have English language competency; • Do not need to show any business or trading history;• Do not need to be below any upper age limit.• Will need to show good health & character; & • Must be able to show the source of funds is legitimate and is unencumbered.

Applicants must spend 160 days in Australia over a 4 year period while holding a Business Innovation Investment (Provisional) Subclass 188 Visa. This must be demonstrated by the principal applicant-and cannot be time shared, by say family members.

Upon the completion of all requirements and 4 years investment in a complying investment, Visa applicants may apply for permanent residency (subclass 888). They must give a commitment that they will continue to invest in Australia.

4.StateGovernmentnominationorSponsorshipBefore a state government will offer sponsorship to an applicant, it will consider the EoI and may request further information about the Applicant and their proposal.

In order to secure state sponsorship, an applicant will be required to demonstrate some economicbenefitto the specific state and to Australia.

Economic benefit is a term widely interpreted and is not restricted by definition.

Economicbenefit may be demonstrated in several ways including investment into :• state bonds• a new business in the state• a partnership or joint venture with an existing business• a managed fund that will invest in assets in the state - ie property, mining or other businesses

5.ComplyingInvestmentThe sum of $5,000,000 must be invested by the Applicant for 4 years in a “complying investment”.

A “complying investment” for a Significant Investor Visa includes:

A. Commonwealth State or Territory Government Bonds (some States will require that applicants invest some portion of the $5million into State or Territory Bonds);

B. A managed investment fund with a mandate for investing in Australia, (regulated by ASIC); and

C. Direct investment into Australian proprietary companies (non-listed).

Visa applicants may invest their $5million in any one or any combination of the above complying investments.

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6.CommonwealthStateorTerritoryGovernmentBondsCommonwealth or state or territory bonds are generally capital guaranteed and will show a return of around 3-4% on current information.This is a passive form of investment and will suit parties who do not want to pursue business opportunity or capital growth.Note that the Queensland Government has not stipulated any amount to be invested into government bonds to secure state sponsorship. In contrast, NSW has stipulated that $1.5M must be invested in Waratah (Government) bonds or similar. Victoria is yet to announce its position.

7.ASICRegulatedManagedFundsAn ASIC regulated managed fund for the purpose of this Visa is a managed investment scheme defined in the Corporations Act 2000 and regulated by ASIC. A managed fund is a professionally managed investment portfolio that individual investors can buy into, purchasing 'units' rather than shares.

Each managed fund has a specific investment objective. This is usually based around the different asset classes (cash, fixed interest, property and shares). The money invested is used to buy assets in line with this investment objective.

When you invest in a managed fund, you are allocated a number of 'units'. The value of your units is calculated on a daily basis changes as the market value of the assets in the fund rises and falls.

There are many different types of funds, but some of the more common types are as follows:• IncomefundsThese funds focus on generating an income stream with low risk of capital loss. They are sometimes known as ‘defensive’ funds and tend to be heavily weighted in cash and fixed interest type investments.• GrowthfundsThese funds focus on long term capital growth rather than income and are generally suited to people who don't need to access their money for 5+ years. They tend to be heavily weighted in property securities, Australian shares, international shares or all three.• SinglesectorfundsSingle sector funds invest in just one asset class - either cash, fixed interest, property, Australian shares or international shares. Some single sector funds also specialise within an asset class, for example small companies funds, international resources funds and geared share funds.• Diversifiedfunds(alsoknownasmulti-sectorfunds)As the name suggests, these funds tend to diversify across a number of asset classes. Different diversified funds will have different levels of risk, so it's important to look at the asset allocation before deciding to invest.• Indexfunds(alsoknownaspassivefunds)These funds aim to achieve performance returns broadly in line with a selected market index (e.g. the ASX Top 100). The fund manager makes no judgements about companies or future market movements, they only seek to accurately reflect the index they are tracking.• ActivefundsThese funds are actively managed and aim to outperform a particular index (for example, outperform the returns of the S&P ASX Top 100). To do this the managers will actively research the market and buy and sell assets based on the fund's objective.

For a managed fund to qualify as a “complying investment” it must be limited to categories of investment including:

• Infrastructure projects in Australia;

• Cash-held by Australian deposit-taking institutions (banks);

• Bonds issued by Commonwealth or State or Territory Governments;

• Bonds, equities, hybrids or other corporate debt in companies in trusts listed on the Australian stock exchange;

• Bonds or term deposits issued by Australian financial institutions;

• Real estate in Australia; and

• Australian agri-business.

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The managed funds must be open to the general public and the fund manager must provide a compliance declaration on Form 1413 that their services will be limited to the categories investments in Australia specified by the Minister in the legislative instrument.A Product Disclosure Statement is required which is a registered offer document registered with ASIC that sets out the detail of the investment proposal and the terms and conditions of the offer. This is an important document as it has legal meaning and effect and must be prepared properly.

The establishment of a managed fund is a relatively simple process and will take 6-12 weeks to prepare, lodge and have the fund registered with ASIC.

StructureofManagedFundThe structure of a managed fund is:• a Custodian to hold the assets on behalf of the fund members• A Responsible Entity (holder of a AFSL) to ensure compliance with relevant statutory and regulatory requirements, and processing of all payments• Managers to manage the fund assets in accordance with the fund rules• Fund Members/Investors

Benefits for Significant Investor Visa holders in investing in a managed fund include:• Professional management of the fund• Diversification opportunities – growth or income• The Fund may target specific project opportunities ie mining, technology or real estate• ASIC regulated• Responsible entity with an AFSL• Assets held specifically for the benefit of members• Separation of assets exclusively for fund members• Any fund debt can be quarantined

OpportunityforForeignInvestorsThere is an opportunity for astute foreign investors to establish a managed fund or even a series of managed funds aimed at a specific country (say China) for significant investor visa applicant investors.

a) Each fund can (but does not need to be) be capped at a set amount-say $50-100M to comprise a maximum of 10-20 members.b) Each fund should (but does not need to) comprise a mixture of growth and income opportunities to suit the particular investors own choicec) Each fund should hold a fixed proportion of blue chip Australian shares, and property investments.d) Property investments should comprise either commercial real estate with sound returns and capital growth or development projects

Any property investment will need to be subject to strict valuation and feasibility studies.

These specific targeted funds can be managed by a committee comprising one or more of the initial investors, a lawyer and accountant.Marketing of the fund can be undertaken by the initial Chinese investor in their own trusted circle of family and business associates.

The establishment of specific capped investor funds may afford comfort and security to investors who may well be known to each other.

8.DirectInvestmentintoAustralianProprietaryCompaniesDirect investment into an Australian proprietary company qualifies as a complying investment provided the following criteria are met:

• The company must genuinely operate a qualifying business in Australia;

• The applicant must obtain an ownership interest in the company;

• The company must be registered with ASIC; and

• The company must have an Australian business number.

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9.QualifyingBusinessThe Migration Regulations 1994 define a “qualifying business” as an enterprise that:

• Is operated for the purpose of making profits through the provision of goods, services or goods and services (other than the provisional rental property) for the public; and

• Is not operated primarily or substantially for the purpose of speculative or passive investment.

10.OwnershipInterestofbusinessThe Migration Act defines “ownership interest” in relation to a business as:

• A shareholder in the company that carries on the business; or

• A partner in a partnership that carries on the business; or

• A sole proprietor of the business.

The investment of $5,000,000 may therefore be held personally or indirectly through one or more interposed companies, partnerships or trusts.

11.InvestinginanewprivateAustraliancompanywhichhasnottradedEstablishing a new Australian Private Company to be the recipient of funds complies with significant investor requirements.

No due diligence investigation is required for investment into a new company.

Strategy and business plan needs to be established for planning of future operation of company.

Business plans for the company must be to invest in Australian business and assets, and might include:• State bonds• Establishment of new business• Acquisition of existing business

Company structure can include different classes of shares so as to allow for preferential shareholding and profit entitlements.

You may choose to invest any part of your complying investment into establishing a new company with the purpose of operating as a qualifying business.

If you invest in the company for a period of two years or more while holding the provisional subclass 188 visa, then the company must operate a qualifying business for at least two years. If your period of investment in the company is for less than two years, then the company must operate a qualifying business for that whole period.

Otherwise you must show that you have made a genuine attempt to establish and/or maintain a qualifying business.

12.Investinginanexistingandtradingprivate(unlisted)Australiancompany

For a direct company investment to qualify as a complying investment, the applicant must acquire an ‘ownership interest’ in the company, and the company must operate as a ‘qualifying business’.

An ‘ownership interest’ means interests as a shareholder in a company that carries on the business, including interests held directly through one or more interposed companies, partnerships or trusts. You may hold your ownership in any proportion in the Australian proprietary company.

A ‘qualifying business’ means an enterprise that is operated for the purpose of making profit through the provision of goods, services or goods and services (other than the provision of rental property) to the public, and is not operated primarily or substantially for the purpose of speculative or passive investment. It must have an Australian Business Number.

Investors need to engage lawyers and accountants to do a proper valuation, due diligence and investigation into the company.

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Investment can be by way of a complete buy out or staged buy-out.

An initial purchase of 50% and an option to purchase remaining shares at a later stage at an agreed formula may afford protection to an investor.Benefits for Significant Investor Visa holders in investing in an Australian company include:• Investor level of involvement can vary - ie silent role or a more direct active role• Can bring own skills and connections to play to assist in the business• Family members may potentially be sponsored by the business in which investment is made provided they have the right skill set• Level of investment can be by stages• Lower regulatory and compliance costs compared to a managed investment fund

13.OwnershipofinvestmentThe investment must be made and held:

• Directly by the applicant, or together with their spouse or de facto partner; or

• Through a company where the total amount of issued shares are owned by the applicant or together with their spouse or de facto partner; or

• Through a valid trust, where the trustees and beneficiaries include the applicant or their spouse or de facto partner together.

• There is a strong opportunity to structure a particular class of investors so that their investment is through a SMSF, and upon retirement any income or capital gain on an asset may be tax free.

14.OpportunityforForeignInvestorsarisingfromtheSIV• There is a strong opportunity for successful foreign residents to couple sound investment opportunity with a permanent visa.• There are many opportunities for investment through managed investment funds as well as through direct investment in unlisted companies• Specially created and specifically designed Managed Funds offer an opportunity for small groups of investors to make significant and direct acquisitions of Australian assets.• This may include property development projects which upon completion may be sold off-shore back into the place of origin of the initial investors.• Where the investment is in an existing business, a full and proper due diligence should be carried out from a legal and financial perspective.• Investor may in some instances be prepared to invest capital as well as add value to an existing company by delivering new markets, expertise and skills. This may include providing access to off- shore markets in their country of origin.• Buying into an existing mature business with a buy-out based on an initial buy in and then a full buy out of initial owner interests after set period of time may afford an investor an opportunity to play an active role in their investment and to add to the value of the company by delivery of own contacts and expertise.• Holding an interest in the business may allow employer sponsorship of other foreign workers on specific visas.• A foreign investor with off shore manufacturing capacity and expertise in their country of origin may add significant value to an existing Australian business.• Exporting companies may secure an investor with established product distribution networks off-shore- for example wholesale and retail outlets

Whatwillamlandmsldo?

Visa1. PrepareExpressionofInterestforApplicants2. LodgeEoIwithSkillSelect3. MeetwithStateorTerritoryGovernmentOfficers to introduceInvestors,seektheirsponsorship,and answeranyrequestforfurtherinformation4. LodgeanyfurthermaterialrequiredtoStateorTerritoryGovernment,aswellastoDIAC5. Advocateandpresentyourapplicationinthebestpositivewaytoensureitssuccess6. Undertakeallworknecessarytosecuretherequiredvisa

Investment1. AdviseonandestablishManagedfundsforApplicantsandInvestors2. UndertakeallASICcompliancework3. Undertakeanyduediligenceofbusinessorassetstobeacquired4. Undertake all legal work to acquire the investment assets including any options Heads of Agreements,formalcontractandotherdocumentpreparation5. Arrangeintroductiontobanksforfinanceifrequired6. Introduce investors to skilled professional advisers such as accountants, valuation experts, real estateagentsandbusinessbrokers.

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