Expanding operations into a new country can be both exciting and overwhelming. We are here to give you a crash course on important legal and business considerations about setting up shop in Australia.
Choose a company structure
There are two main options for operating a foreign business in Australia. You can either incorporate a local subsidiary company or open a branch office.
|Operations||A subsidiary reports to the holding company but may have different operations||Runs the same operations as the head office|
|Business type||An Australian company – requires an Australian Company Number (ACN)||A foreign entity – requires an Australian Registered Body Number (ARBN)|
|Legal entity||A separate legal entity||No separate legal standing – the foreign company can be sued in Australia for the legal liabilities of the branch.|
|Liability||Liability of the subsidiary does not extend to the parent company||Liability of the branch extends to the parent company|
|Financials||Subsidiaries have their own separate financials||Branches have joint maintenance of their financials|
|Ownership||The parent company can wholly or partly own the subsidiary||The parent company owns 100% of the branch|
Key benefit of a subsidiary: A significant benefit of incorporating a subsidiary is that as a separate legal entity, your foreign holding company will be largely protected from the losses and legal liabilities of the subsidiary.
Key benefit of a branch: It is less onerous to create and maintain a branch office compared to a subsidiary. There may be tax benefits depending on how much Australian sourced income the branch brings in.
How to set up a wholly or partly-owned subsidiary
To set up a subsidiary company in Australia requires standard steps to be taken in terms of checking the availability of the company name, deciding on a business structure (private/public company, partnership, trust) and registering with the Australian Securities and Investments Commission (ASIC). Following registration, the subsidiary receives an ACN.
There is no limitation on foreign ownership of a subsidiary. However, the company will require at least 1 Australian resident director. It also needs to nominate a principal place of business and a registered office. It will need to provide annual statements to ASIC confirming the company’s shareholders, directors, solvency and address.
How to set up a branch
To set up a foreign branch in Australia, the foreign company needs to register with ASIC. To do so, they must provide:
- A current certified copy of the parent company’s incorporation and constitution
- A memorandum of appointment of the local agent – an Australian resident who is authorised to accept service of process and notices on behalf of the foreign company. The local agent is responsible for the company’s obligations and may be liable for any breaches or penalties.
- A memorandum outlining the powers of any directors who are resident in Australia and members of a local board of directors
Branches must have a registered Australian office which is open every day from at least 10am-12pm and 2pm-4pm (unless alternative hours are registered with ASIC). A company representative must be present during those hours.
Following registration, that branch will receive and be identified by an Australian Registered Body Number (ARBN). Foreign branches also have specific requirements around the display of their name and ARBN.
The branch must lodge an annual return with ASIC within one month of the annual general meeting (AGM). It must also annually lodge a financial statement with ASIC.
Every company must register with the Australian Taxation Office (ATO) and obtain a Tax File Number (TFN). Most companies will also need to register for Goods and Services Tax (GST).
Tax laws differ substantially between subsidiaries and foreign branches. It is important to understand tax obligations in-depth when deciding between the two options. Whether a foreign branch needs to pay tax in Australia and if so, how much, is dependent on a number of factors including its classification as a permanent establishment. The assessable income of a branch is Australian source income. Subsidiaries are taxed in Australia and the assessable income of a subsidiary includes all worldwide income of the business. Ultimately, this is a broad brushstroke of tax differences between the two and it is recommended that you seek the advice of a lawyer on Australian tax law.
It is important that any foreign company considering expanding their operations into Australia protects their company name, logo and other forms of intellectual property in Australia. This also protects you from infringing on other business’ intellectual property. It will be necessary to look at any available international agreements that may already extend some protection to your intellectual property in Australia.
Australia has extensive employment law which must be complied with. In particular, foreign companies should look into the National Employment Standards set out in the Fair Work Act 2009 (Cth) when considering employing people in Australia alongside other legislation covering areas such as tax, superannuation and occupational health and safety.
Setting up your foreign business in Australia can open up a number of new opportunities. The key decision is whether or not to open a local subsidiary or a foreign branch. There are benefits and disadvantages to both. The best option for you will depend on your particular business and long term goals in Australia. It is also necessary to consider other Australian laws including tax, intellectual property and employment laws which will impact the operation of your business in Australia.
If you need advice on or assistance setting up your foreign company in Australia, get in contact with us on 1300 337 997.