For many foreign companies, expanding business to Australia is an attractive choice. In fact, Australia was recently ranked 14th out of 190 countries (and 4th out of OECD countries) for ease of doing business. This is because of Australia’s excellent credit information standards, simple business setup and strong judicial system.
As a result, many companies may be wondering whether they can operate in Australia, and what registrations or incorporation may be required.
If this is you, read on.
Can Foreign Companies Operate In Australia?
If you ‘carry on a business’ in Australia, you must have either a local subsidiary company (wholly or partly owned) or a branch office.
But what does it mean to ‘carry on a business’ here? Australian companies are governed primarily by the Corporations Act, which unfortunately does not provide an explicit definition of what this means.
There are known examples of what constitutes carrying on business in Australia, such as:
- Dealing with property in Australia on behalf of someone else
- Taking a series of actions to advance a company’s gain in Australia
- Conducting a business in Australia with a view to profit
- Repeatedly making deals and contracts in Australia
If you are unsure whether this applies to you, you should speak to an Australian lawyer to get advice on whether your company is considered to be carrying on a business in Australia.
What If You’re Not Carrying On a Business In Australia?
If your company is not considered to be carrying on a business in Australia, you don’t need a subsidiary or a branch. Instead, you could simply start a representative office.
This will give you the ability to communicate more easily domestically and promote your company from abroad in Australia.
However, a representative office cannot do anything that might be seen as carrying on a business — or else, you’ll need to set up a branch or subsidiary.
Should A Foreign Company Incorporate A Subsidiary Or Register A Branch Office?
See the table below for a high level comparison of subsidiary and branch structures.
|Setup Requirements||Business address, Australian resident director and governance structure.||Application form and a certified copy of incorporation from the country of origin.|
|Entity||An Australian company with Australian Company number (ACN).||A Non-Australian entity with a registered Australian Registered Body Number (ARBN).|
|Liability||Limited by shares in the local company.||Attributed to the foreign company.|
A resident Australian agent will also be required and may be held liable for conduct of the company per Australian corporate regulations.
|Office Required||Yes, for the delivery of official ASIC correspondence.||Yes, and it must be manned for certain hours of the day by your agent.|
|Tax Applicable||Worldwide income and GST.||Australian sourced income and GST.|
|Tax Filings Required||Regular tax filings to the ATO for worldwide income of the Australian entity.||Annual return of the foreign company.|
Tax filings to the ATO for Australian sourced income.
|Corporate Filings Required||Yes, an annual fee applies.||An annual returns fee applies.|
Let’s take a look at these two options in greater detail.
Option 1: Wholly or Partly Owned Subsidiaries
A wholly or partly owned subsidiary is a local company owned by a foreign company. As an Australian entity, your local company will be liable to the extent of their shareholdings and will be required to follow regular Australian company regulations.
Benefits Of A Subsidiary Company
Subsidiary companies offer several benefits to foreign companies by providing a stronger separation between the entities. As a separate legal entity, potential litigation or legal issues will be limited to their local Australian subsidiary. In addition, subsidiary companies allow foreign companies to limit their financial reporting to only their Australian activities.
Starting And Operating A Subsidiary Company
To establish an Australian subsidiary, foreign companies may incorporate locally by lodging an application to register with ASIC.
As an Australian company, at least one Australian resident director will be required along with annual statement filings, which confirm to ASIC your company’s shareholders, directors, solvency and addresses. Your directors will be required to comply with their duties as directors in Australia.
Option 2: Branches
Branches are the second option for foreign companies looking to do business in Australia. Branches, unlike subsidiaries, are not local legal entities. This means the foreign company will be liable for legal issues and can sue or be sued in Australia.
Benefits Of A Branch Office
There are two main benefits to creating a branch office rather than a subsidiary company. Firstly, the process and maintenance requirements of opening a branch in Australia are less onerous than starting and maintaining a local subsidiary company.
Secondly, while the tax rate for subsidiaries and branch offices is the same, some branch offices may not be taxed at all depending on whether the income generated by the branch is considered Australian sourced income.
Also, branch offices will only be taxed on income deemed to be Australian sourced. This is unlike subsidiaries, where taxes will apply to the worldwide income of the company.
Starting And Operating A Branch Office
To establish a branch office, you will need to complete an application form with ASIC and provide certified copies of the parent company’s incorporation. Once registered, you will be provided with an Australian Registered Body Number (ARBN) for identification.
While they are not local legal entities, branch offices will still have to comply with company regulations and pay tax in Australia.
A special consideration is also that branch offices must maintain an Australian office, staffed by your legal representative, with business hours covering 10 am to 12 pm and 2 pm to 4 pm. If you wish to hold office hours outside of this, you will need to let ASIC know of your alternative hours of operation.
ASIC also requires you to make it clear that you are a branch office. So you will need to identify your company with its ARBN publically and on all documents.
Foreign companies carrying on a business in Australia will need to be registered locally as a branch or subsidiary. Subsidiary companies can provide foreign companies doing business in Australia with greater separation between their operations and financial information. In contrast, branch offices are a simpler way to create and maintain a local entity.
If you are interested in setting up the right structure for your business operating in Australia, we are here to help. The friendly team at Sprintlaw will help you get your Australian company or branch running quickly and smoothly. Call 1800 730 617 or email us at email@example.com.
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