Starting a business (whether it be local or overseas) is always exciting news! In fact, having a foreign business partner could actually be better for your business’ reach.
But like any other international business venture, you have to consider all the rules around setting up a business overseas, your tax obligations and whether your foreign partner is still bound by Australian business laws.
We can help you answer these questions before you take next steps.
My Partner Lives Overseas – Can We Start A Business Together?
The simple answer is yes! There’s nothing stopping you from engaging in a business venture with someone who lives overseas. However, this also depends on what business structure you’ve chosen.
You’ve got three main structures to choose from:
- Sole trader
Since we’re focusing on starting a business with someone overseas, we’ll look at partnership and company structures.
When people start a small business, one of the most common structures is a partnership (2-20 people). Entrepreneurs usually opt for a partnership because it’s cheaper to set up and relatively easy to maintain.
However, this also means your business is not a separate entity from you as the owner. In other words, if your business is liable for something, so are you (and your partners!).
If you and your foreign partner want to enter into a partnership, you can conduct business either in Australia or overseas, so long as you:
- Fulfil your tax obligations
- Apply for the appropriate visa/s
What Are Our Tax Obligations?
Let’s say you’re running a business and you reside in Australia. If you’re receiving income from overseas, this will be taxed alongside your local income. However, your non-Australian partner will not be taxed on overseas income.
There are some strict rules around this – for example, Australian-owned subsidiaries that are incorporated overseas will be treated as a foreign resident under Australian tax law. In light of these tax obligations, you might want to consider registering your business in Australia so your taxes can be sorted out under Australian law (this is also something you’d need to discuss with your partner).
The ATO has written more about overseas income here.
Does My Partner Need A Visa?
Your foreign partner will most likely need to apply for one of the following visas, depending on their circumstances:
- Business Talent Visa (Subclass 132)
- Business Innovation and Investment (Provisional) Visa (Subclass 188)
- Business Innovation and Investment (Permanent) Visa (Subclass 888)
To apply for any of these visas, you’ll need to:
- Provide an expression of interest through SkillSelect
- Wait for either a state government or the CEO of Austrade to to invite you to apply for a visa (otherwise you can contact them)
- Apply for a visa (you’d need to provide documents and show that you meet the criteria)
Each visa has its own application streams you’d need to apply for, so once you’ve decided which visa is right for you, it’s important to understand next steps from there.
If a partnership doesn’t look like the right option for you, you may want to consider a Company Structure. This can involve a more complex set up and higher fees, but it’s much more secure.
You also get the benefit of limited liability, so if the business is liable for something, it doesn’t affect you personally (subject to breaching director duties, of course).
A company structure might be more suitable for you and your overseas partner as it only requires one director to reside in Australia (and they need to be over the age of 18).
If this still isn’t practical, you also have the option of paying someone to be a director residing in Australia – this is known as resident director services. This might be a good idea if you’re concerned about the privacy of your personal details (as a director, some of your personal information will be in the public domain through ASIC).
Technically, We’re A Foreign Company – What Are Our Options?
It’s not uncommon to have a foreign company operating in Australia, but perhaps you’ve wondered how this works from the legal side of things.
If this sounds like something you want to pursue, you need to have either:
- A local subsidiary company (wholly or partly owned), or
- A branch office
If you opt for the subsidiary company setup, you’ll need the following things:
- A business address
- Australian resident directors
- ACN (Australian Company Number)
- An office
- Regular tax filings
The main benefit of a subsidiary company structure is that its activities are relatively separate to those of the foreign company. If something goes wrong with the Australian subsidiary, the legal issues that stem from this will not always extend back to the foreign company. Further, the business’ obligations will only apply to activities conducted in Australia.
If you choose to set up a branch office, you’ll need:
- An application form
- A certified copy of incorporation (from the country of origin)
- An Australian Registered Body Number (ARBN)
- An office
- Australian sourced income and GST
- Annual tax return
Unlike a subsidiary company, branches are not entirely separate. If they run into trouble, the foreign company can be sued and held liable. However, it is easier to run and maintain than a subsidiary, and taxes only apply to Australian sourced income (with subsidiary companies, overseas income is also taxed).
It’s important to familiarise yourself with these differences before deciding which structure to undertake – we’ve written more about branch offices and subsidiary companies here.
Hiring Overseas Workers
If you’re considering hiring overseas workers, you might be asking yourself how this might work in relation to Australian employment laws.
An “Australian employee” doesn’t actually include those engaged outside Australia. One of the main issues that arise from this is, “Does the Fair Work Act cover overseas employees?”
The answer to this question really depends on whether you’re considered an ‘Australian employer’. According to the decision in Fair Work Ombudsman v Valuair Limited , a constitutional corporation must have an appropriate and ‘sufficient connection’ with Australia to be bound by the Fair Work Act. To determine whether you fall under the Act, ask yourself some of the following questions:
- Is our company based in Australia or another country?
- Where are our employees based?
- Which country’s laws govern our contracts?
Whether the Act extends to your overseas workers depends on a range of factors, but the main takeaway from this is that it can apply to them. If this is the case, you need to make sure you’re compliant (for example, you need to meet the National Employment Standards).
Hiring contractors overseas is another option (the requirements are different to those of employees), but there are also a number of rules around this kind of arrangement. You can read more about engaging overseas contractors here.
What Else Do I Need To Know?
We’ve covered the general rules around running a business with an overseas partner, but it’s important to remember the basics. Running any business in Australia comes with certain obligations.
- Director duties
- Privacy (e.g. Non-Disclosure Agreements, Non-Compete Clauses)
- Contracts (e.g. Company Constitution, Founders Term Sheet)
- Employer obligations (Work Health and Safety)
Can My Contracts Be Enforced Overseas?
When dealing with overseas partners, it’s good business practice to ensure your contracts are internationally enforceable. In other words, you want to make sure you can act on the terms of your contract no matter which country you’re in.
When drafting your contract, consider two things:
- Which country’s laws will apply? (This is your governing law)
- Who will hear the disputes? (This is your jurisdiction)
Your contract needs to be 100% clear on both of these, otherwise you may need to consider a uniform international convention that both Australia and the foreign country are party to.
Before you dive into a business venture with an overseas partner, ask yourself:
- What structure will work best for me?
- What does my partner need to do?
- Where will my employees be based?
- Do I need to review my contracts so that they’re compliant with another country’s local laws?
- Will my tax obligations be any different?
If you need help sorting out your legals, we’ve got you covered. You can reach out to us at firstname.lastname@example.org or contact us on 1800 730 617 for an obligation-free chat.
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