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EMDG

Branch vs. Subsidiary – Australia

If you are considering expanding your business offshore, or perhaps entering the Australian market, there are many factors you need to consider.

 

As you will see the main differences centres around the registration process with our local company regulator and our tax office as well as the reporting obligations. There is in essence no tax difference. The legal protection of a subsidiary compared to a branch cannot also not be easily ignored.

Topic Australian Subsidiary Australian Branch Office
Corporate Law Issues A subsidiary is a separate legal entity, an Australian company is incorporated and registered with the Australian Securities and Investments Commission (‘ASIC’);An Australian Resident Director will be required to be appointed, this must be an Australian resident individual who is over the age of 18 years old;It will be assigned an Australian Company Number;It will be required to lodge annual financial reports with ASIC and undergo an annual audit (which may be costly) unless exempted from doing so by ASIC; of note small proprietary companies may be excluded from undergoing an audit (subject to meeting certain specific requirements see below ).A company can be set up within 48 hours.A company owned by a foreign entity could be subject to audit as mentioned above however exemptions can be applied especially if the foreign parent is not audited in their local jurisdiction and the Aust company is deemed small.

A company is small if it fails two of the following three tests

  • the consolidated revenue for the financial year of the company and any entities it controls is $25 million, or more
  • the value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $12.5 million, or more
  • the company and any entities it controls have 50 or more employees at the end of the financial year

If a company passes 2 of the 3 tests it is therefore deemed large and then more likely be required to lodge financial statements with ASIC

A branch is not a separate legal entityThe foreign company must be registered with the ASIC;An Australian Public Officer and Local Agent will be required to be appointed, this must be an Australian resident individual who is over the age of 18 years old;It will be assigned an Australian Registered Body Number;It will be required to lodge annual  financial reports with ASIC, including the financial accounts of foreign company unless exempted from doing so by ASIC (ASIC may accept reports prepared in accordance with laws of the foreign company’s origin)In order to register a branch it is necessary to have company documents approved by ASIC  such as certificate of incorporation and the company’s constitution which can take a number of weeks as they require verification by attorneys etc

As above it is also normal that foreign branches file the company’s annual financial statements with ASIC which means it will be available for inspection. There is no reference to a small or large company as discussed with a Subsidiary as it applies to all branches.

A large branch will also be required to be audited.

 

Taxation Issues A subsidiary will automatically be deemed an Australian resident for tax purposes;It will be taxed on all income and capital gains regardless of source at 30% corporate tax rate (subject to the terms of any applicable double tax treaty);Based on your project size you will be subject to Goods and Services Tax (‘GST’) and  therefore required to obtain an Australian Business Number (‘ABN’) and Tax file number (“TFN”);TFN , ABN and GST registration can take up to 28 days but normally obtained with 7-14 days.If it employs staff in Australia it will have employer tax, lodgement and administration obligations which include but not exclusively:-       PAYG Withholding Tax

–       Superannuation

–       Payroll Tax

–       Fringe Benefits Tax;

There will be issues such as Transfer Pricing and transactional recharges such as Management Service Charge to be considered.

After tax profits can be repatriated back to the home country  by way of a dividend with no withholding tax obligations when tax has been paid.

Loans back to home country could be subject to interest under transfer pricing rules

It will be taxed as a separate entity in Australia;It will be taxed on all income and capital gains regardless of source at 30% corporate tax rate (subject to the terms of any applicable double tax treaty);Based on your project size you will be subject to Goods and Services Tax (‘GST’) and  therefore required to obtain an Australian Business Number (‘ABN’) and Tax file number (“TFN”);As a foreign branch all directors will have to provide evidence of their authenticity which requires documents to be verified and certified. Due the checking process this could take 20-90 days with the ATO.If it employs staff in Australia it will have employer tax, lodgement and administration obligations which include but not exclusively:-       PAYG Withholding Tax

–       Superannuation

–       Payroll Tax

–       Fringe Benefits Tax;

There will be issues such as Transfer Pricing and transactional recharges such as Management Service Charge to be considered.

After tax profits can be repatriated back to the home country  by way of a dividend with no withholding tax obligations when tax has been paid.

Loans back to the home country could be subject to interest under transfer pricing rules

Other Significant Issues Liabilities are quarantined within the subsidiary unless parent / foreign company gives guarantees or subsidiary trades while insolvent;From a commercial perspective, Australian third parties/customers are more likely to deal with an Australian company.Approval may be required to be sought from the Foreign Investment Review Board (‘FIRB’) prior to the purchase of assets/land where there is a foreign parent company. There will be no quarantine of liabilities in the Australian branch, the foreign company could be exposed to liabilities arising from doing business in Australia;From a commercial perspective, Australian third parties/customers may prefer dealing with an entity which is not of foreign origin;Approval will likely be required to be sought from the FIRB prior to the purchase of assets/land.




 

Note, the information on this page is general in nature and should not be relied on as advice.  If you need international tax and accounting advice please contact us or a suitably qualified profession.  The attached does not consider your home country or personal circumstances. Search our directory for an accountant.