Australian Desk Newsletter

"Brexit": Impact on Australia

Many Australian companies chose the UK for their EU headquarters because of their joint Commonwealth background. However, in the light of the UK’s intention to part ways with the EU, more and more Australian companies see the need to move their activities and investments to alternative countries within the EU.

The UK is one of Australia’s largest trading partners in the EU. However, a material part of Australia’s trade with the UK concerns other EU countries, i.e. goods are received by or come from other EU countries via the UK. Therefore, Australian companies are advised to take action if they want to continue operating under the free European market. Australia’s second largest trading partner in the EU is Germany. For many Australian companies a transition of their activities and investments from the UK to Germany can therefore be considered a valid and strategically valuable option.

Deloitte Legal already advised numerous clients on the impacts of Brexit and would be more than happy to support and guide you as well as a competent advisor.

Free Trade Agreement EU-Australia

The EU is Australia’s biggest source of foreign investment and an important trading partner. A comprehensive free trade agreement between the EU and Australia would enable a better use of the trade and investment relations by removing trade barriers, extending investment and service relations and by improving the regulatory cooperation in business relevant areas.

Already in 2015, the EU and Australia agreed on negotiations concerning a free trade agreement. The EU is currently preparing for the start of these negotiations. The official commencement of the negotiations was expected for the end of 2017 and they should be concluded by 2019. In August 2017, the EU and Australia agreed on a closer collaboration in material areas such as foreign and security policy, sustainable development and trade politics (so-called framework agreement). This bilateral agreement is a first step to the negotiations on the planned free trade agreement.

Changes of the law on foreign direct investments

As soon as a German company invests in Australia or even just wants to change its holding structure in Australia, the Foreign Acquisitions and Takeovers Act 1975 (FATA) applies. According to FATA foreigners and foreign government investors have to obtain the consent of the Australian treasurer for certain investments in Australia. Until 2015, private investors regularly needed consent whenever corporate acquisitions in the media sector as well as real estate and land purchases were concerned. As of 1 December 2015, material changes of FATA and related statutes came into force. The thresholds for purchases of agricultural land were lowered, a register for foreign-owned agricultural land holdings (irrespective of value) as well as fees for all foreign investment applications and stricter penalties were introduced. The agricultural land register is administered by the Australian Tax Office (ATO).

In 2016, a general review of critical state-owned infrastructure assets to private foreign investors was introduced. Before, exemptions only existed when an interest in a critical infrastructure asset was purchased directly from state and territory governments. Since April 2017, the screening of internal reorganization (restructure) foreign investment applications is conducted by ATO. Also in 2017, amendments to streamline and enhance Australia’s foreign investment framework came into force. Besides others, a new business exemption was created with which foreign investors may seek a broad pre-approval for a program of investment activity over a specified period of time. For further information on the implemented changes to FATA in 2017, we refer to the article of our Australian colleagues Like Imbriano and James Fabijancic.

Changes to the migration system

The last important tightening of Australia’s immigration laws took place during the financial crisis starting in 2007. In March 2009 the skilled migration program was reduced with the stated objective of protecting local jobs. The statutory changes in 2017 are a step in a similar direction: (i) the eligibility requirements for employer sponsored permanent visas were tightened, and (ii) a new Temporary Skill Shortage visa was introduced in order to address genuine skill shortages. Both changes mean that a permanent immigration of skilled personnel becomes more difficult. This could lead to difficulties when posting skilled employees from German companies to Australian branch offices.

Arbitration in Australia

Australia is in the process of becoming a reliable and neutral seat for international arbitration. Amendments to the International Arbitration Act (already implemented in 2015) mean that Australia is now in compliance with internally renowned practice and is increasing its activity as arbitration seat. In addition, the Commercial Arbitration Act 2017 (CAA) came into force on 1 July 2017.

The CAA applies to all arbitration agreements, including those which were concluded before the Act came into force, but excluding such which are currently subject to a legal dispute. In accordance with the International Arbitration Act 1974 and other Commercial Arbitration Acts the CAA implements an “opt-out” confidentiality regime. This means that arbitration proceedings are confidential from the very start, except if the parties agree otherwise. This is a material improvement to the prior legal situation which was not concerned with the confidentiality of arbitration proceedings at all. Moreover, arbitration judgements shall be executed more easily. In comparison with the former applicable law, the court does not have to issue a permit anymore but rather executes the judgement upon written request of the prevailing party.

Australia’s economic development and outlook to 2018

Australia is listed under the “Top 5” countries worldwide of the index on economic freedom and is a safe, stable and reliable business environment for international corporations. Australia’s economic growth has continued steadily since 1992.

The cooperation of both countries, Australia and Germany, is actively pursued. In 2017, the 40th anniversary of German-Australian cooperation took place. Germany opened its first chamber of commerce in Australia in 1977. Australia launched five international Landing Pads for Australian Startups in global innovation centers, one of which is in Berlin. 2017 was the Australian cultural year in Germany and various Australian artists and works were presented and displayed in Germany. Furthermore, at the beginning of November, the first bilateral conference between Germany and Australia as well as the Asia-Pacific Region took place in Perth with high-ranking representatives from the governments and business attending.

In 2018, the Australian government will implement a tightening of the anti-corruption laws. According to the new laws, a corporation would be immediately punishable as soon as one of its employees, representatives or contractors bribes a foreign official (e.g. in order to seek a profit). A corporation can prevent such a penalty only if it can prove that it used adequate compliance systems to prevent such offences. German corporations with branches in Australia should act already now and ensure that their compliance systems are up to date. Similar rules apply in Germany and increasingly in other EU countries. If you have any questions on this topic, do not hesitate to contact our experts for Business Integrity. For further information we refer to an article of our experts on Business Integrity.

Furthermore, the Australian government concerns itself with changes of the Australian intellectual property laws. However, those changes are still subject to public consultation and it is unlikely that the Government will amend new laws soon.

We appreciate your interest and will keep you informed on developments in the German-Australian legal relations. Do not hesitate to contact us in case of any questions.