This guide has been prepared for the assistance of those interested in doing business in Australia. It does not cover exhaustively the subjects it treats, but it is intended to answer some of the important broad questions that may arise. When specific issues arise in practice, it will often be necessary to consider the relevant laws and regulations and to obtain appropriate professional advice.
Establishing an entity
The legal structures available for foreign businesses wishing to operate in Australia are: Subsidiary company or Registered foreign company (where the foreign company registers to carry on business in Australia ie. a branch registration). The concept of representative office does not exist in Australia as an option to carry on business.
The subsidiary is much simpler to establish and obtain the various registrations to trade and for this reason is the most popular approach to setting up in Australia. In order to establish a company you must have at least one Australian resident Director and also an Australian resident “public officer” for dealings with the Australian Taxation Office (ATO).
A Branch (registered foreign company) is essentially treated as the same as a company from an ongoing corporate tax perspective. The initial registration of the foreign company with the Australian Securities and Investments Commission and obtaining the various ATO registrations can be a difficult process due to the identification requirements for foreign entities. This process can add up to 3 months to the incorporation process. The branch will also have additional ASIC reporting requirements annually.
Foreign business restrictions
Under the Foreign Acquisition and Takeovers Act 1975 foreign individuals or foreign owned companies must seek approval from the Foreign Investment Review Board (FIRB) before purchasing significant interests in urban real estate, certain shares of Australian owned private companies, or shares in foreign companies which own Australian assets. The thresholds that apply to acquisitions of interests can be found at www.firb.gov.au.
The foreign investment controls have been significantly relaxed for U.S. investors/purchasers as a result of the recent Free Trade Agreement between the U.S. and Australia.
Investment incentives
There are very few investment incentives available in Australia. An Australian resident company can obtain income tax incentives for research and development expenditure and grants for exporting. A registered foreign company (branch) cannot obtain these incentives.
For large entities wishing to establish a presence in Australia with a large number of employees there may be State based grants or state payroll tax allowances available. These are negotiated individually on a case by case basis.
Work permits and visas
An expatriate travelling to Australia for more than 3 months for business purposes must obtain employment authorisation (Temporary Business Entry Long Stay visa, subclass 457). Companies operating in Australia, or those in other countries wishing to establish an entity in Australia, are able to sponsor individuals to come on the subclass 457 visa, which allows a stay in Australia of up to 4 years. Extensions are possible provided there continues to be an approved sponsor to support the visa application.
A visa holder cannot change conditions of employment without prior approval from the Department of Immigration.
Taxation
All businesses trading in Australia must obtain an Australian Business Number (ABN), Goods and Services Tax (GST) registration and Tax File Number (TFN).
The main business taxes in Australia are company tax, GST and withholding tax.
The company tax in Australia is 30%, which applies to all entities based on their taxable income. The income tax return is due annually approximately 5 months after the year end of the company. After the first year of operation the company will also pay a quarterly instalment of company tax throughout the current year. The instalments are then applied to the tax liability at year end.
The standard year end in Australia is 30 June, however you can apply to have an alternative year end to match your group reporting dates. Losses are available to be carried forward indefinitely, subject to meeting specific loss tests. All Australian entities in a group can also form a tax consolidated group.
In general GST registration is required for all businesses where turnover exceeds $75,000. The rate of GST is 10%. A registered business must lodge GST returns either monthly or quarterly via a Business Activity Statement. The net GST (GST payable minus input tax credits) is paid to the Australian Taxation Office at the same time.
Withholding tax is required to be deducted from the overseas payment of interest, unfranked dividends (i.e. dividends paid from profits not previously subject to tax in Australia) and royalties. The rate of withholding tax will be determined with reference to whether Australia has a Double Tax Agreement with the relevant country.
Audit and accounting
The reporting requirements of proprietary companies and registered foreign companies depend on whether the company is defined as large or small under the Corporations Act.
A company is classified as small if it meets two of the following three criteria:
— consolidated gross operating revenue less than $25 million a year
— consolidated gross assets less than $12.5 million at year end
— number of employees at year end is less than 50 for that entity and all controlled entities.
The proprietary company is otherwise categorised as large.
Small foreign controlled companies are required to prepare an audited financial report for lodgement with the Australian Securities and Investments Commission (ASIC) unless they obtain one of the following exemptions:
— where their results are included in consolidated financial report lodged with ASIC by a registered
foreign company or an Australian company
— where the company obtains relief from ASIC before the commencement of the financial year, or within
three months of incorporation in the first year.
Country quirks
— Fringe benefits tax applies to benefits provided to employees such as cars, entertainment, health
insurance etc.
— Payroll tax and workers compensation insurance is payable on a State by State basis depending on
which State your employees are located in.
— Superannuation (paid by the company) is compulsory for all employees at the rate of 9% of their
remuneration.
— Thin capitalisation restrictions on debt deductions means that care should be taken when setting the
level of share capital required for the business (minimum share capital is $1).
— Capital gains tax applies to the sale of capital assets held within Australia at the rate of 30% for
companies. There are exemptions for certain gains made by non-residents. As such, it may be
advantageous to invest into Australia through a subsidiary there may be no tax on the sale of the
shares in the subsidiary, however the sale of branch assets may attract capital gains tax.
For more information about setting up a business in Australia please contact a William Buck advisor,
This guide has been prepared for the assistance of those interested in doing business in Australia. It does not cover exhaustively the subjects it treats, but it is intended to answer some of the important broad questions that may arise. When specific issues arise in practice, it will often be necessary to consider the relevant laws and regulations and to obtain appropriate professional advice.
Establishing an entity
The legal structures available for foreign businesses wishing to operate in Australia are: Subsidiary company or Registered foreign company (where the foreign company registers to carry on business in Australia ie. a branch registration). The concept of representative office does not exist in Australia as an option to carry on business.
The subsidiary is much simpler to establish and obtain the various registrations to trade and for this reason is the most popular approach to setting up in Australia. In order to establish a company you must have at least one Australian resident Director and also an Australian resident “public officer” for dealings with the Australian Taxation Office (ATO).
A Branch (registered foreign company) is essentially treated as the same as a company from an ongoing corporate tax perspective. The initial registration of the foreign company with the Australian Securities and Investments Commission and obtaining the various ATO registrations can be a difficult process due to the identification requirements for foreign entities. This process can add up to 3 months to the incorporation process. The branch will also have additional ASIC reporting requirements annually.
Foreign business restrictions
Under the Foreign Acquisition and Takeovers Act 1975 foreign individuals or foreign owned companies must seek approval from the Foreign Investment Review Board (FIRB) before purchasing significant interests in urban real estate, certain shares of Australian owned private companies, or shares in foreign companies which own Australian assets. The thresholds that apply to acquisitions of interests can be found at www.firb.gov.au.
The foreign investment controls have been significantly relaxed for U.S. investors/purchasers as a result of the recent Free Trade Agreement between the U.S. and Australia.
Investment incentives
There are very few investment incentives available in Australia. An Australian resident company can obtain income tax incentives for research and development expenditure and grants for exporting. A registered foreign company (branch) cannot obtain these incentives.
For large entities wishing to establish a presence in Australia with a large number of employees there may be State based grants or state payroll tax allowances available. These are negotiated individually on a case by case basis.
Work permits and visas
An expatriate travelling to Australia for more than 3 months for business purposes must obtain employment authorisation (Temporary Business Entry Long Stay visa, subclass 457). Companies operating in Australia, or those in other countries wishing to establish an entity in Australia, are able to sponsor individuals to come on the subclass 457 visa, which allows a stay in Australia of up to 4 years. Extensions are possible provided there continues to be an approved sponsor to support the visa application.
A visa holder cannot change conditions of employment without prior approval from the Department of Immigration.
Taxation
All businesses trading in Australia must obtain an Australian Business Number (ABN), Goods and Services Tax (GST) registration and Tax File Number (TFN).
The main business taxes in Australia are company tax, GST and withholding tax.
The company tax in Australia is 30%, which applies to all entities based on their taxable income. The income tax return is due annually approximately 5 months after the year end of the company. After the first year of operation the company will also pay a quarterly instalment of company tax throughout the current year. The instalments are then applied to the tax liability at year end.
The standard year end in Australia is 30 June, however you can apply to have an alternative year end to match your group reporting dates. Losses are available to be carried forward indefinitely, subject to meeting specific loss tests. All Australian entities in a group can also form a tax consolidated group.
In general GST registration is required for all businesses where turnover exceeds $75,000. The rate of GST is 10%. A registered business must lodge GST returns either monthly or quarterly via a Business Activity Statement. The net GST (GST payable minus input tax credits) is paid to the Australian Taxation Office at the same time.
Withholding tax is required to be deducted from the overseas payment of interest, unfranked dividends (i.e. dividends paid from profits not previously subject to tax in Australia) and royalties. The rate of withholding tax will be determined with reference to whether Australia has a Double Tax Agreement with the relevant country.
Audit and accounting
The reporting requirements of proprietary companies and registered foreign companies depend on whether the company is defined as large or small under the Corporations Act.
A company is classified as small if it meets two of the following three criteria:
— consolidated gross operating revenue less than $25 million a year
— consolidated gross assets less than $12.5 million at year end
— number of employees at year end is less than 50 for that entity and all controlled entities.
The proprietary company is otherwise categorised as large.
Small foreign controlled companies are required to prepare an audited financial report for lodgement with the Australian Securities and Investments Commission (ASIC) unless they obtain one of the following exemptions:
— where their results are included in consolidated financial report lodged with ASIC by a registered
foreign company or an Australian company
— where the company obtains relief from ASIC before the commencement of the financial year, or within
three months of incorporation in the first year.
Country quirks
— Fringe benefits tax applies to benefits provided to employees such as cars, entertainment, health
insurance etc.
— Payroll tax and workers compensation insurance is payable on a State by State basis depending on
which State your employees are located in.
— Superannuation (paid by the company) is compulsory for all employees at the rate of 9% of their
remuneration.
— Thin capitalisation restrictions on debt deductions means that care should be taken when setting the
level of share capital required for the business (minimum share capital is $1).
— Capital gains tax applies to the sale of capital assets held within Australia at the rate of 30% for
companies. There are exemptions for certain gains made by non-residents. As such, it may be
advantageous to invest into Australia through a subsidiary there may be no tax on the sale of the
shares in the subsidiary, however the sale of branch assets may attract capital gains tax.
For more information about setting up a business in Australia please contact a William Buck advisor,