If a foreign company or entity would like to conduct business in Australia, they need to consider the options of either registering as a foreign company or as a branch or subsidiary in Australia. They need to apply an Australian Business Number and Tax File Number. If neither applies, then they will be going down the path of not getting the relevant ABN and TFN, and be subjected to no tax file number withholding tax for all income derived in Australia.
Since the announcements from the last budget, the company tax rate in Australia had been decreased by 1.5% from the prior company tax rate, and now it is at 28.5%, this would apply if the entity is deemed as a small business as measured by the revenue, asset and the number of employees.
For non-small business, then the tax rate would be 30%. There are measures in place to reduce the company tax rate further to 27.5% and to increase the limit of the revenue to encompass more businesses to become small businesses. This is becoming more favorable comparing to the tax rate in Indonesia which is currently sitting at 25%.
Resident vs. non-resident
It is important when setting up the company in Australia to determine whether it is a resident company or a non-resident company, the decisive variables would be CM& C – Central Management and Control. ASIC and ATO would normally look at where the directors reside, where the board meeting take place, these variable have more weight than where the business is taking place. A landmark case which send a strong message in relation to the notion of central management and control. The case is Hua Wang Bank Berhad v FCT  FCA 1392 (Federal Court, Perram J, 19 December 2014). The case found that The Federal Court (Perram J) has held that 5 foreign companies, all of whom made substantial profits from share trading in securities listed on the Australian Stock Exchange, were each managed and controlled in Australia by a Sydney accountant, Mr. Vanda Gould, and were, therefore, residents of Australia for tax purposes and liable to Australian tax on their profits.
There are two ways of setting up the foreign entity in Australia to do the business, one is setting up as the subsidiary, and the other one is setting up as a branch.
Setting up as a subsidiary
If the entity wants to set up the operation in Australia as a subsidiary, then that would mean the foreign-owned company would take shares in the nominated company, and if it takes 100% shares, the foreign company will become the ultimate holding company.
The advantage in setting up as a subsidiary is that the annual review process will be simpler, having just to lodge the annual report to asic, and telling them whether they are any changes to the entity. However, if it is deemed you are foreign owned, then you need to submit an audited financial statement to ASIC, and you can vary the reporting period up to 18 months to suit the frequency under review of your home country. However, if the entity is a small entity, then under ASIC order class 98/98, you do not need to submit the audited financial statement. The small entity is deemed as sales of under 25million, asset under 12.5 million and employee under 50.
Setting up as a branch
A foreign entity could set up its office in Australia via a status of a branch. Hence the newly established branch becomes the representative of the parent company in Australia. To set it up, ASIC would want to see a certified copy of the company constitution, incorporation and registration, and the new entity must appoint a local ASIC agent to look after the corporate affair in Australia. Also, the memorandum must be drafted to state the powers of individual directors.
It is important to remember that as a branch, it might not be able to enjoy the limited liability as commonly seen in other proprietary companies in Australia.
Also, the subsidiary company will be taxed worldwide income including Australian sourced income. However, a branch usually will be taxed on Australian sourced income.
Hence to set up as a branch or subsidiary is a matter of fact and consideration. If you are interested in setting up business in Australia, please come and talk to one of our specialist in EndureGo Tax, our website is www.endurego.com, Facebook is endurego, and email is firstname.lastname@example.org. Our mobile is 0410-829-900
Disclaimer: The information contained in this article is of general in nature and does not constitute as advice, it does not factor individual need, personal circumstances and financial position into account. Please do not rely on the general information in this article, but rather seek independent legal, financial and tax advice.