- Choosing the right business structure for your Australian operations
- Key considerations
- Business structure options
- Branch vs. subsidiary; which is best for my business?
- What about Australian taxation laws?
- Can we help?
Choosing the right business structure for your Australian operations
One of the most common questions we get asked from international businesses wanting to establish in Australia is whether they should set up a foreign branch office or a subsidiary.
This can be a complex decision and there are many implications to consider.
There are no clear-cut rules which entity is the best choice – both setups have their advantages and disadvantages over the other. The decision lies in the specific situation of each business and the intention of the business in Australia.
Your decision will most likely be based on the most beneficial outcome in terms of taxation, contractual obligations, employment of staff and immigration visas, and from an efficiency and operational viewpoint.
The key considerations when deciding which is the best structure to set up your business in Australia include:
- Today – How are your existing business structures set up globally?
- Strategy – Looking at the big picture of your global entity and seeing how your expansion in Australia will fit in with this strategy. What are the aims of your business wanting to set up in Australia?
- Future – Your plans for the future. What will your global company look like in two years, five years, ten years’ time? Will you be hiring employees?
- Taxation – The taxation implications of the different structures and what is the most effective way to structure your business in Australia. There are double taxation treaties available for some global businesses, can you benefit from these?
Although we will not attempt to tell you the best setup for your business, as this depends entirely on a case by case basis, it does help to distinguish between a foreign branch or an Australian subsidiary.
Start the conversation with us as to the best option for your business and which solution offers the most beneficial outcome.
Business structure options
Let’s start from the very beginning. Foreign businesses generally have two options when establishing operations in Australia:
Operate as a foreign branch
This is the establishment of an Australian branch of your existing overseas business.
The overseas business trades in Australia. A foreign branch office is not a separate legal entity, however, the branch must comply with Australian legislation.
Set up an Australian subsidiary company
The foreign company establishes an Australian company. This becomes a subsidiary of the foreign company, and it is this Australian subsidiary company which trades in Australia. In most instances, the foreign company will own the shares of the Australian company.
An Australian subsidiary is recognised as a separate legal entity with limited liability and is an Australian resident for tax purposes.
The subsidiary can be wholly owned by a foreign shareholder, however, it is required to have at least one Australian resident director (this can be arranged by Penguin Management).
Branch vs. subsidiary; which is best for my business?
Here is a brief overview of each entity.
To open and register a foreign branch in Australia, you will need to provide considerable corporate and supporting documentation to the Australian Securities Investment Commission (ASIC), much more than if you were starting an Australian company.
A branch will then be subject to Australia regulations.
ASIC requires foreign branches to annually lodge a balance sheet, P&L and any other documents the company is required to prepare by law in its country of origin.
No audit is required, however, ASIC has the authority to request audited financial reports if previously lodged reports are insufficient.
ASIC requires Australian companies to submit an annual review statement verifying their shareholders, directors, and addresses with a small annual fee. A solvency resolution signed by the directors must be drawn, as well.
Branch or Subsidiary Comparison Table
|Corporation Law (regulated by ASIC)|
|Ongoing administrative responsibilities|
|How is the entity taxed in Australia|
|Applicable taxation rate|
What about Australian taxation laws?
Taxation laws vary greatly between countries, and Australia’s tax laws can be complex for foreign companies.
That’s why it’s important to understand the tax implications of how to set up your Australian operations, to ensure your business is compliant with Australia’s tax laws, as well as effective and efficient.
Taxation details of a foreign branch
- The foreign branch may not be taxable in Australia depending on whether it constitutes a ‘permanent establishment’ in Australia. Permanent establishment includes considerations such as a fixed place of business in Australia, the representatives in Australia closing contracts, the plant and equipment in Australia if construction projects are taking place and how long your staff are spending in Australia.
- A branch may not have to pay withholding tax.
- Losses can be utilised in the ‘home’ company
- A sale of branch assets will generally be subject to capital gains tax (CGT).
Here is further information on taxation of branch profits.
Taxation details for an Australian subsidiary
- It is taxed in Australia on taxable income at a rate of 27.5 – 30%, depending on annual turnover.
- Profit repatriation is lost if an unfranked dividend from the Australian subsidiary were to be paid to its parent company.
- Losses are trapped in a subsidiary company
- A capital gains tax (CGT) exemption may apply upon the ultimate disposal of shares in the Australian subsidiary.
The treatment of assessable income for Australian tax purposes is where the two entity considerations differ greatly.
Assessable income for branches includes all Australian source income, while assessable income for subsidiaries includes all worldwide income, subject to any deductions or credits.
However, both branches and subsidiaries are subject to the application of Double Taxation Agreements. These tax agreements vary between countries.
The Double Tax Agreement (DTA)
The tax rules regarding the repatriation of profits and dividend withholding tax are more complex.
The dividend withholding rate under the DTA depends on each DTA and is generally capped at 15% but can be as low as 0%.
Australia has a DTA with the following countries
|Czech Republic||Malta||Sri Lanka|
|Germany||Papua New Guinea||Turkey|
Can we help?
As you have read, choosing between a branch versus subsidiary company is a complex decision and needs careful thought and planning to choose the right structure suitable for your business.
Penguin Management would love to help you go through your options to work out the best structure when setting up your business in Australia.
Email us on firstname.lastname@example.org, or call us on +61 2 8298 5301, we would be happy to arrange a convenient time to go through your business, address any concerns and outline the timeline for a speedy setup.
We want to get you up and running, so you can start kicking goals in Australia.
Want to know more? Download our Doing Business in Australia document for a comprehensive overview of everything you need to know and do to set up business in Australia. Don’t miss it!