Choosing to expand your company overseas and into the Australian market is a big decision. One of the most important decisions that you will make when looking to expand into Australia is whether to structure your business as a branch or subsidiary. Both structures have advantages and disadvantages. This article will explain the important things that you will need to consider when choosing between structuring your business as a branch or subsidiary.
Setting Up an Australian Branch
The Australian branch of your company will be a ‘foreign company’ under Australian law. However, the foreign company will still need to comply with Australian law and tax requirements.
Registration
You must register your business as a foreign company with the Australian Securities and Investments Commission (ASIC). The ASIC registration is very complex. It requires far more documentation then if you were setting up an Australian subsidiary company. Incomplete applications are a major cause of delay and unsuccessful registrations.
Your business will need to operate an Australian registered office that is open to the public daily. Therefore, you will need to ensure that it is operated by an agent representative. This agent is responsible for carrying out any actions required of the company. Your company must also appoint a public officer, who is responsible for all tax requirements. Going forward, your company must also lodge an annual return and financial statements with ASIC every year.
Tax
Your foreign company may be a tax resident in a country that Australia has entered into a Double Taxation Agreement with. If so, the Australian branch of your business may not be taxable if it isn’t constituted as a ‘permanent establishment’. Determining whether your business is a permanent establishment takes into account:
- whether your company has a fixed place of business in Australia;
- whether your Australian representatives undertake core business work; and
- how much time your staff spend in Australia.
A branch is taxed in Australia on all Australian income. Unlike the subsidiary model, tax will not be withheld if you are sending your Australian profits offshore.
Setting Up an Australian Subsidiary
A subsidiary is a company that is owned and controlled by another company. Most subsidiaries are set up as proprietary companies that are limited by shares.
Registration
If you set up a proprietary company, you must register it with ASIC. This is a relatively simple and cheap procedure. Additionally, there is no minimum amount of the company that you’re required to fund with shares. However, there are requirements on the people who will be running the subsidiary. These requirements include that:
- at least one director is a resident in Australia;
- all directors are at least 18-years-old;
- the company must operate from a registered office in Australia; and
- a public officer, who is responsible for complying with tax requirements, is appointed.
The business must apply for:
- an Australian Business Number (ABN);
- a tax file number (TFN);
- goods and services tax (if turnover exceeds $75,000); and
- pay as you go (PAYG) tax.
Going forward, your company must also submit an annual review statement that verifies its details to ASIC, along with a small annual fee.
Tax
A subsidiary is taxed in Australia on its worldwide income from all sources at a rate of 27.5-30%. This is largely depending on turnover and the type of income that your business derives.
Unfranked dividends paid to the global parent may incur a withholding tax. This is at a general rate of 30% or a lesser rate under an applicable Double Tax Agreement.
Further, no dividend withholding tax applies to the extent that the dividend is franked. Additionally, a capital gains tax exemption may apply when disposing of shares in the Australian subsidiary.
Other Important Legal Considerations
| Company Name | Firstly, before bringing your company to Australia, you should undertake a check of the Australian trade marks register. This ensures that your company’s name will not be infringing on any intellectual property (IP) rights. |
| Employees |
Prior to hiring employees or contractors, it is important to familiarise yourself with the current law (Fair Work Act 2009) and any applicable Award conditions. Breaching Australian employment law can result in high fines. You can draft appropriate employment agreements to reduce your legal responsibility and the potential for disputes. |
| Non-Resident Employees |
Sponsoring foreign workers can be complex and costly. This is because Australian immigration requirements change rapidly. It is important to seek legal advice to ensure that the sponsorship is within the law. Knowingly or recklessly employing a foreign person who does not have permission to undertake the work is a criminal offence. |
| Australian Consumer Law (ACL) | Finally, companies must strictly comply with the ACL. It functions to:
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Key Takeaways
Deciding on the best Australian structure for your expanding business involves choosing between setting up a:
- branch of your offshore business; or
- subsidiary of your offshore business.
When choosing the best option for your business, it is important to consider all procedural and tax issues. If you have any questions about structuring your business, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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