Key points

• Australia’s automotive market is booming, in the first three months of the year, there were 401,654 new vehicles sold which represents a 14.4% increase year over year.  All cars sold in the Australian market are imported and sold through either the dealership franchise model, agency / direct-to-consumer model or the joint venture model.
• There are a number of key considerations that international automotive makers need to be aware of when looking to enter the Australian market. These include the distribution of vehicles, vehicle importation and the Foreign Investment Review Board.
• There are also several tax considerations that are particularly relevant to makers of automotive vehicles, in particular the makers of electronic vehicles. These include the Goods and Services Tax (GST), Customs Duty, Fringe Benefits Tax (FBT), stamp duty, and the Luxury Car Tax (LCT).

Overview 

As we approach the midpoint of the year Australia’s automotive market is reaching new heights with a notable surge in sales. In the first three months of 2024, there were 401,654 new vehicle sales which represents a 14.4% increase year over year. 

For many years, high prices, limited EV models and restricted charging facilities were to blame for Australia’s slow uptake of EVs. Now, an increasing amount of affordable, high-quality EVs have arrived in Australia; many of which are, and will be, manufactured and distributed by China and European based EV automakers. In the first four months of 2024, 31,662 pure battery electric vehicles were sold compared to 23,926 during the same period last year. This trend is set to increase, especially with the introduction of longer life batteries, and is reflected in the latest sales records with battery electric vehicles accounting for 7.2% of sales and combined battery electric, plug-in hybrid and hybrid vehicles achieving 196,868 sales or 16.2% of new vehicle sales.How international automakers sell new cars in Australia 

There are no Australian vehicles entirely manufactured in Australia. All cars sold in Australia are international imports through either one of the below models:  

1. Dealership franchise model

This model is currently the most common model adopted by automakers to sell new cars in Australia. Dealerships are either privately owned, owned via a family business or owned via listed public companies. All operate under a franchise model where the dealer enters into a dealership agreement with the automaker to distribute and sell cars in defined geographic areas. Most automakers engage dealerships that have repair and service centres embedded in them (‘service dealers’).  Although less common, some automakers utilise independent service centres instead (e.g. BYD’s partnership with EVDirect.com.au. and Mycar).

Under this model, while customers may obtain an estimated quote for available cars and book test drives online, they may only purchase vehicles from a local dealership. 

2. Agency / Direct-to-consumer model (D2C)

Under the agency/D2C model: all new stock is owned by the automaker with vehicles set at a fixed, national drive-away price where a customer purchases their vehicle online and collects it from their local dealership. Under this model, the dealerships are not responsible for the shipping, insurance and financing costs of each vehicle in the showroom. The automaker’s dealerships focus on marketing, handing off and servicing the new vehicles. Customers continue to have test driving opportunities with demonstration vehicles. 

Different from other D2C automakers (including Honda, BYD, Volvo, Mercedes and Cupra), Tesla’s dealerships are also directly owned by Tesla, the parent company, as opposed to the dealerships being owned by the dealer. Tesla’s dealerships are typically initially owned by brick-and-mortar dealerships, which are then acquired by Tesla. 

3. Joint venture (JV) model

Whilst not as common, it is possible to manufacture and sell cars in Australia through JVs, followed by the use of either the dealership or D2C model (e.g., Sony and Honda). 

Important legal considerations for international automakers 

1. Distribution of vehicles

Under the dealership franchise model, a dealer obtains vehicles for sale by purchasing the new vehicles from the automaker directly. This usually entails a standard sale and purchase agreement between the automaker and the bailment financier of the dealership. Repair and maintenance services agreements are agreed between the dealership and the customer before the customer finalises their vehicle purchase.

Generally, dealers finance the purchase of their new vehicles via bailment and other financing arrangements with wholesale vehicle financiers in Australia which include banks and finance companies including related automaker finance companies such as Toyota Finance, Mercedes Finance etc.  At the point of sale to the customer, the title to the vehicle passes to the dealer under the financing contract between the dealer and the automaker.

If an automaker chooses the D2C model, no sale and purchase agreement is necessary as the Australian dealership acts as an agent of the automaker to allow customers to collect their new vehicles. The automaker will however need to enter into an agency agreement with the dealer. Repair and maintenance service agreements will either be made between a service dealer and the customer after collection of the vehicle, or the customers can visit affiliated repair and service centres. 

There is now an increasing trend towards the adoption of the D2C model for the distribution of new vehicles in the Australian market. This has had, and is set to continue to have, a substantial impact on the operation of dealerships and their financiers in Australia in the future. This is not without legal challenge and both Honda and Mercedes have faced recent challenges by their dealers with respect to their adoption of the agency model which the dealers claim has led to less profitability for them.

In tandem with this is the challenge faced by dealers in relation to the Australian Government’s anticipated removal of the Point-of-Sale exemption under which most dealers operate in assisting with consumer finance for a vehicle, and when removed will require dealers to obtain their own credit licences.

As most customers of new vehicles require financing either by loan or lease, this aspect can also not be ignored by automakers entering the Australian market and their decision to enter into agency or franchise agreements with dealers for the distribution of the vehicles. 

2. Vehicle importation 

Importing overseas vehicles into Australia requires approval from the Department of Infrastructure, Transport, Regional Development, Communications and the Arts (the Department), a consideration of importation costs and obtaining customs clearance. Compliance under Part 2, Division 5 of RVSA is essential. Penalties will apply otherwise.

3. Foreign Investment Review Board (FIRB) and Australian Tax Office (ATO) considerations

FIRB approval may be required from foreign automakers if it is a notifiable and/or significant Australian investment. In the case of EV automakers, this may be relevant if a foreign automaker is partly foreign government owned (20% shareholding interest and above) and is looking to establish a new business in Australia or looking to acquire an interest in Australian land (either leasehold or freehold). Foreign automakers may have to register onto the Register of Foreign Ownership of Australian Assets, governed by the ATO, as well.  

4. Tax considerations

Several State and Federal taxes are relevant to electric vehicles. These include the Goods and Services Tax (GST), Customs Duty, Fringe Benefits Tax (FBT), stamp duty, and the Luxury Car Tax (LCT).

a) Luxury Car Tax: LCT is a tax on cars that have a GST inclusive value above the LCT threshold (currently AU$89,332 for electric vehicles). It is imposed at a rate of 33% on the value of the car above the LCT threshold. EVs receive the benefit of a higher LCT threshold, which makes importing and selling EVs more price competitive than their non-EV counterparts. 

b) Customs Duty: From July 2022, the Australian Government removed customs duty in relation to EVs to encourage their uptake. This means electric vehicles are given preferential treatment over other vehicles, the import of which attracts a customs duty of 5%.

c) GST: GST is imposed at a rate of 10% of the value of the vehicles. GST must be paid before vehicles are cleared from customs. Importers will be able to claim a certain portion of this tax back as the import of vehicles is generally a ‘creditable importation’. 

d) FBT: FBT applies to employers who import vehicles for use by their employees. Many EV’s will be exempt as FBT is not payable if the car provided is:

(i) a ‘zero or low emissions vehicle’ (which most EV’s will be); 

(ii) first ‘held and used’ after July 1st, 2022;  

(iii) used by a current employee or their associates (including family members); and

(iv) is valued below the LCT threshold of AU$89,332. 

This provides incentive for importers to consider importing EVs instead of their non-EV counterparts. 

e) Stamp Duty: State Governments have varied stamp duty to incentivise the uptake of EVs.

Where Dentons can help

For new entrants, Dentons provides the following services:

1. Incorporation – we can incorporate an Australian subsidiary or register a branch for the automaker if required.
2. Tax structuring advice in relation to the setup of an Australian entity.
3. Australia’s competition regulator (ACCC) – conduct a competition analysis on the potential entry into the Australian market or partnership with an existing entity.
4. Australian foreign direct investment regulator (FIRB) – analysis of whether FIRB approval is required to either establish a subsidiary and carry on business in Australia or partner with an existing entity.
5. Employment, work health & safety, immigration – we have experts in employment law and immigration law, and can provide legal advice on the employment aspect, work and health standards as well as immigration requirements if required.
6. Franchise Code expertise and advice in relation to Dealer Franchise Agreements.
7. Motor Vehicle and Repairer licence advice if the automaker intends to distribute directly to consumers.
8. Branding and IP advice in relation to the protection of the automaker’s trademarks and licensing.
9. Financial Services advice in relation to structuring and any credit licences or credit assistance licences that may be required in relation to the financing of the vehicles.
10. Contract review/preparation in relation to dealer agency contacts and customer contracts with the automaker to ensure they comply with Australian laws.