There are two main options to set up a business in Australia:
- An Australian Company (Subsidiary); or
- Registering the foreign company in Australia (Branch)
The correct business structure is largely dependent on the firm’s’ unique circumstances and goals.
The following elements are important considerations when choosing the most appropriate business structure for your business.
A company must have at least one director that is an Australian resident. A branch does not require a resident director.
The income tax rates differ between a company and a branch. All branches are taxed at of 30% of net income. Companies with an annual turnover of less than $10 million AUD are taxed at a rate of 27.5%, as opposed to companies with a turnover in excess of $10 million AUD that are taxed at 30%.
It is also important for foreign companies to consider which structure is most suitable from the point of view of their home country’s tax landscape.
An Australian subsidiary is a separate legal entity, with its own corporate identity. A branch on the other hand, is viewed as an extension of the foreign company operating in Australia, where the liability of the branch extends to its foreign parent.
When considering the winding up of business operations in Australia, a company has to go through a formal process. If the company is not operational at the time it is being wound up, and does not have any assets or liabilities, this process is relatively straightforward. The exit of a branch from the Australian market can be done at any time and does not require any formal process.
Annual financial disclosure and compliance
All branches must file annual accounts with the Australian regulatory body ASIC for the total operations of the business – including the operations of the parent company. ASIC requires the balance sheet, cash flow statement, profit and loss statement, as well as any other documents the company may be required to lodge in the country of origin (unless it is exempt in the home country). Australian companies are also required to lodge financial statements with ASIC for Australian operations, however may be eligible for an exemption from lodgement depending on the size of operations in Australia.
A suitable employment visa is required for a non-resident employee seeking to work in Australia. These visas typically require the employer to obtain prior approval from the Department of Immigration to sponsor the employee. Separate rules apply for companies and branches seeking to sponsor employees. This has a bearing on the duration of the visa and the costs.
Companies are generally perceived to have a stronger, more permanent business presence than a branch. Local clients may prefer to deal with a company due to an associated sense of permanence.
Can you move from a branch to a company later in the future?
It is possible to transition from a branch to a company if the business feels that it is more appropriate in the future. However, this may have associated transaction and taxation costs.