We have all seen the continued impact COVID-19 has had not only on businesses in general, but more broadly the global economy.
And while Australia has had another challenging year, 2022 is more hopeful as we have a largely vaccinated nation and the country is on its way to being open again. Some industries have continued to thrive and Government support and changed consumer habits and expectations have put others in a position to seek new opportunities and markets.
This creates opportunities for foreign businesses looking to establish a presence in Australia. With foreign markets struggling with multiple waves, we expect many more overseas operations will seek opportunities in Australia.
So what things need to be considered when looking to establish a presence in Australia?
Corporate Structure
Commercial outcomes and efficiency should always be the main driver of any structure, however, other considerations should also include asset protection, taxation, funding, repatriation of profits, regulation and ease of exit or wind down.
Most businesses we assist in migrating to Australia look to incorporate an Australian Company as a subsidiary of their global structure. The most obvious structure is to operate as a foreign branch or Australian regulated business of the global parent. Whilst this may mean more straightforward repatriation of profits and lower establishment costs, in many instances, Australian customers prefer to engage with a locally incorporated entity.
Given all other obligations (both from a taxation and corporation regulatory perspective) remain similar, our experience suggests most international groups look to incorporate an Australian registered company. Asset protection is also afforded and ensures Australian operations are ‘ring-fenced’ from the rest of the group and vice versa.
Company Law Requirements
Corporate entities in Australia are regulated by the Australian Securities and Investment Commission (ASIC). In order to operate in Australia, the subsidiary will be required to be registered with ASIC and prepare annual returns.
An Australian company comes into existence when it is registered by ASIC and is provided with an Australian Company Number (A.C.N.).
Most companies only need to have one director. Although our recommendation is to have at least two directors, given at least one of the directors of the company, or the company secretary, must reside in Australia.
Generally there are no minimum or maximum levels of capital or number of shareholders required to incorporate a company in Australia, however, the company must comply with the following:
- Have a registered office;
- All companies are required to have a principal place of business within Australia, which may or may not be at the registered office;
- Audit requirements – there is an automatic obligation for all foreign-owned companies to be audited and lodge annual financial statements with ASIC. There are, however, a number of exceptions to this, including where certain thresholds in relation to revenue, assets and employees are met.
Income Tax
Like most tax systems around the world, the Australian taxation system levies income tax on the basis of residency and source of income.
While a company incorporated in Australia is automatically deemed to be an Australian taxation resident under local taxation law, consideration also needs to be given to taxation laws in the parent's country of origin, as well as the relevant international tax treaty (or Double Tax Agreement) and Multi-Lateral Instrument.
Companies who are tax residents in Australia (or where they derive Australian sourced income) are required to register for income tax and are currently subject to a tax rate between 26% and 30% depending upon their level of turnover. In coming years, it is proposed the corporate tax rate will fall to 25%, depending upon turnover.
The Australian Taxation Office (ATO) administers Australia’s federal tax system. A newly incorporated company will be required to register for Australian Income Tax.
The following should also be noted:
- A company registers for income tax by obtaining a tax file number (TFN) and by appointing a public officer.
- The company should also obtain other Federal tax registrations such as an Australian Business Number (ABN), register for Goods and Services Tax (GST) and, where wages and salaries are likely to be paid, Pay As You Go (PAYG) Withholding.
- Ordinarily, the Australian financial year is 1 July to 30 June, with taxation returns required to be lodged annually for this period. However, a substituted accounting period may be granted by the ATO to align the subsidiary’s financial year with the parent.
Goods & Services Tax (GST)
Similar to VAT in the UK and Europe, GST is a broad-based tax levied at a rate of 10% on most goods, services and other items sold in Australia or imported to Australia. Generally, registered businesses include GST in the price of sales to their customers and claim credits for the GST included in the price of the business purchases. Entities report GST through their Business Activity Statements (BAS). Frequency of BAS lodgements will depend upon the level of GST turnover.
PAYG Withholding
Business taxpayers are required to withhold from certain payments and remit these amounts to the ATO. These payments are reported through the lodgement of a BAS. Withholding generally applies to payments made in the following circumstances.
- Payments made to employees and contract workers;
- Suppliers that do not quote ABNs;
- Certain payments to offshore entities (such as royalties, dividends and interest).
Employer Obligations
Payroll Tax
Payroll tax is a state-imposed tax. It's assessed on the wages paid or payable to employees by an employer (or group of employers) whose total Australian taxable wages exceed the threshold amount.
Each state and territory has its own payroll tax legislation, with different rates and thresholds. For example, in Victoria, the current payroll tax threshold is $650,000 per annum and the rate of payroll tax is 4.85%
WorkCover
If an entity engages workers or contractors, it is required to take out a Worksafe Injury Insurance (WorkCover) policy.
WorkCover requirements vary from state to state. For example, in Victoria and NSW, employers who expect to pay more the $7,500 a year in rateable remuneration must take out a WorkCover policy. In Queensland, there are no thresholds and all employers must take out a WorkCover policy.
Superannuation
All employers have an obligation to pay superannuation contributions (retirement fund contributions) on behalf of all eligible employees. These contributions are in addition to the employees’ salaries and are levied at a minimum of 9.50% of each eligible employee’s ordinary time earnings.
Single Touch Payroll
Single Touch Payroll (STP), is an electronic way of reporting tax and superannuation information to the ATO. It requires employers to report employees' payroll information via STP enabled software to the ATO each time a payment is made to that employee. The frequency of reporting depends on the size of an employer's workforce.
Fringe Benefits Tax (FBT)
FBT is levied on employers at the rate of 47% on the ‘grossed up value’ of non-salary and wages fringe benefits provided to employees (and/or the employee’s associates) by the employer or their associates.
Employers that provide fringe benefits to employees are required to lodge a separate FBT return. The FBT year is from 1 April to 31 March.
When looking to do business in Australia, there are a number of regulatory considerations, registrations and requirements you must navigate and meet.
Our team at Grant Thornton Australia is experienced across all areas of setting up your local presence in Australia, and can give you access to a broad network of other professionals who can guide you through this process and throughout your business lifecycle.
