Australia’s low unemployment rate and mixed market economy make it an ideal overseas location for company expansion. Moreover, with a harmonious presence of government regulation and centralized economic planning, Australia offers ample private freedom for international businesses looking to establish a presence.
Choosing to expand your subsidiary business in Australia is a big decision and often a complicated one. This article will walk you through the essentials you need to know before considering a subsidiary company formation in Australia.
What are the Types of Subsidiaries in Australia?
The subsidiary system in Australia refers to an international organization incorporating an Australian company. Thus, the Australian subsidiary of the foreign company carries out company trading and operations in Australia while the global company owns and controls the subsidiary.
While an Australian subsidiary can be under the full ownership of a foreign shareholder, the country’s law mandates a minimum of one Australian resident director.
Depending on the size, liability, and where they’re listed, a subsidiary business in Australia can be of the following types:
1. Private (proprietary)
A proprietary company in Australia is a type of privately held company. Private or proprietary companies are further classified into two categories:
- Proprietary companies limited by shares: Such companies usually have ‘Pty Ltd’ at the end of their name, with the liability of its members limited to the nominal value of their shares.
- Proprietary companies (unlimited) with a share capital: If a company bears only ‘Pty’ at the end of its name, it is an unlimited proprietary company with a share capital. The liability of the shareholders of such a company is unlimited.
Australian subsidiaries are usually private limited liability companies.
A public company is one with legal permission to offer its shares for sale to the public and raise capital by listing them on the share market. People who purchase these shares are called shareholders. A public company can be of the following kinds:
- Public companies limited by guarantee: A public company limited by guarantee is one where members known as guarantors undertake to contribute a fixed amount if the company is dissolved.
- Public companies limited by shares: In this case, the liability of the company’s shareholders is determined by their share value.
- Public companies (unlimited) with a share capital: The liability of the members of such a company is not limited.
How to Set Up Subsidiary in Australia?
Setting up a subsidiary in Australia is relatively hassle-free. The step-by-step process to set up a subsidiary in Australia is as follows:
- Register your subsidiary with the Australian Securities and Investments Commission (ASIC). File the form ASIC 201, registering your shareholders and board of directors. Pay the registration fee.
- Secure your Tax File Number (TFN) and Australian Business Number (ABN) for trading in Australia.
- Obtain a certificate of incorporation and your Australian Company Number (ACN) using the Business Registration Services (BRS).
- Compliance with Australian tax measures is mandatory. Therefore, register for the Pay As You Go (PAYG) withholding tax and Goods and Service Tax (GST). GST applies if turnover exceeds $75,000.
- Select your company’s name. Ensure that it’s original and meets the country’s requirements.
- Appoint a local representative to ensure that the subsidiaries adhere to the legal system. Get the local representative authorized to accept legal notices.
- Open a corporate bank account in Australia to manage payrolls. Furthermore, establish a physical location and comply with local regulations since Australian subsidiary laws vary with states.
- Finally, register with the State Insurance Regulatory Authority (SIRA) to insure against any damage/accidents after incorporating a foreign subsidiary in Australia.
Benefits of Setting Up an Australian Subsidiary
There are several reasons why Australia is the preferred destination of many businesses looking to set up a subsidiary. Here’s a list of some benefits of setting up a subsidiary company in Australia:
- A flexible and robust economy
- Easy access to the Asia-Pacific region
- Relative low cost of set-up
- Diversified cultures with an entrepreneurial spirit and an ability to adapt to global changes
- Stable government and solid regulatory bodies
- Low unemployment rate with an abundance of technology, innovation, and skills
Strong international relationships and agreements, including FTAs with 45 countries
Documents to Prepare When Opening a Subsidiary in Australia
Since your subsidiary in Australia will be a foreign company registered outside Australia, you must register it with the ASIC to practice business in the country. Therefore, you must keep the following documents ready for registering and setting up your subsidiary in Australia:
- Australian Business Number (ABN)
- Business name
- Licenses and permits
- Tax registration
- Company governance structure
- Form 402 (Application for registration as a foreign company)
- Memorandum stating the rights and powers of directors
- Memorandum of appointment of the local representative or power of attorney
- Certified copy of the company’s certificate of registration/incorporation
- Certified copy of the company’s constitution
What Business Forms Can Australian Subsidiaries Take?
An Australian subsidiary is a separate legal entity from its parent corporation and functions as a resident for Australian tax purposes.
The parent organization owns 100% of the shares to incorporate a wholly-owned subsidiary. On the contrary, the company is simply a subsidiary when its parent company owns 50% or more of its shares. Thus, when opening a company as a subsidiary in Australia, you must pick a business form applicable to subsidiaries.
The Australian subsidiary can either be registered as a private or a public company and is most often a private limited company. Irrespective of the business form, Australian subsidiaries must be registered with the ASIC and given a unique Australian Company Number (ACN).
Australian Subsidiary Laws
Private companies: According to the Corporations Act, 2001, Australian private companies must:
- Have at least one shareholder
- Have at least one director
- Have a maximum of 50 non-employee shareholders
- Have at least one director ordinarily residing within Australia
- Do not need to keep its registered office open to the public
- Do not need to appoint an auditor
- Can have one or more company secretaries, with at least one being an ordinary resident of Australia.
Public companies: The Corporations Act, 2001 also mandates that public companies must:
- Have at least one member
- Have at least three directors
- Have at least three directors ordinarily residing within Australia
- Have at least one company secretary
- Have at least one company secretary ordinarily living within Australia
- Must appoint an auditor
- Have to keep its registered office open to the public during specific hours
Although a subsidiary business in Australia needs to appoint directors ordinarily resident in the country, there is no regulation around foreign ownership. Moreover, there is no minimum share capital requirement to form an Australian subsidiary. Even though companies must register with the ASIC, there is no need to share any of the company’s financial reports.
Post Incorporation Compliance
Once your subsidiary business in Australia is registered, there are several post-registration mandates that you need to follow, including the following:
- Displaying your ACN: Your Australian Company Number (ACN) must appear on all public documents, documents lodged with the ASIC, and on the company’s seal and letterhead, if applicable.
- Displaying your business name: The name under which you have registered your Australian subsidiary company must be displayed at your business premises or any business location open to the public.
- Registering for GST: You may also need to register for the Goods and Services Tax (GST) depending on your annual turnover.
- Opening a bank account: Post-registration, you need to set up a corporate bank account to deposit your company earnings.
- Appointing an auditor: It is not mandatory for private companies to appoint an auditor, provided all shareholders enforce the decision. However, if your subsidiary is registered as a public company, it is mandatory to appoint an auditor within a month of registration.
- Maintaining registers and financial records: All subsidiaries must maintain a share registry, a minute book, a log of company charges, a standard seal register, and a register of option holders. In addition, the company’s directors have to establish and maintain coherent financial records that must be kept for at least seven years.
- Notifying the ASIC: Most importantly, Australian subsidiaries must inform the ASIC of all changes to their officeholders, business location, and share allotment to the ASIC.
Taxes on Subsidiaries in Australia
A subsidiary business in Australia is considered an Australian resident by law and pays taxes on its global income and capital gains. The Australian financial year begins on 1st July and ends on 30th June of the following year. Therefore, businesses and individuals must file their tax returns to the Australia Taxation Office from 1st July to 31st October.
The following pointers outline the taxation of foreign subsidiaries in Australia:
- Taxable income: Corporate tax payable on global assessable income is subject to credits, deductions, double taxation agreements (DTAs), etc. Generally, DTAs support the taxation of profits arising from Australian activities.
- Tax rate: All companies are subject to a corporate tax rate of 30% on their taxable income.
- Fringe Tax Benefits (FBT): If the FBT liability for the previous year was $3,000 or more, an FBT of 47% has to be paid in four quarterly payments.
- Type 1: higher gross-up rate, liable to GST credit claims.
- Type 2: lower gross-up rate, not liable to GST credit claims.
- Tax on repatriation of profits: Withholding tax is deducted from unfranked dividends (standard rate 30% ) paid to non-residents. The rates are liable for reduction under DTAs.
- Filing tax returns: Australian subsidiaries must file income tax returns each year. In addition, quarterly returns are mandatory for income tax and GST payments.
Tax Incentives for Businesses Setting Up a Subsidiary in Australia
A subsidiary business in Australia is subject to several tax exemptions, credits, and deductions which include:
- Although the fixed corporate tax rate is 30%, a lower company tax rate of 25% is applicable to base rate entities with an aggregated turnover more minor than the threshold of $50 million.
- A capital gains tax (CGT) exemption is applicable if the Australian subsidiary disposes of shares after a minimum holding period of one year.
- Reduction of the rate of taxes withheld is subject to DTAs. Under the DTA, the withholding rate for dividends is typically 15% but may also be minimal, even 0%. However, this reduction criteria varies with the agreement. Australia has DTAs with over 40 countries.
It is crucial to remember that the Australian tax regime is subject to amendments and is complicated for international companies. Therefore, you should seek professional advice to get the hang of the foreign tax laws.
Other Important Considerations
While you plan to incorporate a foreign subsidiary in Australia, other legal considerations mustn’t slip your mind. For instance, you should thoroughly check the Australian trademark register to ensure that your company’s name doesn’t infringe on IP rights. Moreover, you must acquaint yourself with the latest Australian employment laws to avoid breaches and hefty fines. In addition, it is vital to seek legal advice before sponsoring foreign workers, lest you violate the law. Finally, your company must strictly comply with the Australian Consumer Law (ACL).
How Multiplier’s Employer of Record Can Help You Hire & Expand in Australia?
The most beneficial aspect of setting up a subsidiary business in Australia is that it can operate like any other business, especially if you plan to establish a long-term presence. Besides, Australian subsidiaries can take advantage of the Australian government tax incentives while operating in a strong economy and transparent legal environment.
A third-party service provider like Multiplier can guide you towards setting up a subsidiary company in Australia. Establishing offshore companies can be a time-consuming process. But with Multiplier, you can leverage global talent, get local law-compliant employment contracts, and handle the onboarding, pay, and management of your international employees from a single platform!
Talk to our experts to learn more.