Contact: David Prichard; ESV Group (New South Wales, Australia)
Australia’s tax laws can be complex for foreign companies. That’s why it’s crucial to understand the tax implications of how you set up your operations, to ensure your business is efficient and effective in line with Australia’s tax laws.
Foreign businesses generally have two options when establishing operations in Australia:
- A foreign branch; or
- An Australian subsidiary company.
An Australian subsidiary company is recognised as a separate legal entity with limited liability and is an Australian resident for tax purposes. The subsidiary can be wholly owned by a foreign shareholder, however it is required to have at least one Australian resident director.
Conversely, a foreign branch office is not a separate legal entity, however the branch must comply with Australian legislation.
TAX TREATMENT
For both branches and subsidiaries the corporate tax rate is 30%. Both vehicles must file income tax returns each year and quarterly tax returns for the payment of income tax and goods and services tax (GST).
However, the two options differ on what is considered assessable income for Australian tax purposes. Assessable income for branches includes all Australian source income, while assessable income for subsidiaries includes all worldwide income, subject to any deductions or credits. Both branches and subsidiaries are subject to application of Double Taxation Agreements.
Rules regarding repatriation of profits and dividend withholding tax are more complex. The dividend withholding rate under DTA’s depends on each DTA and is generally capped at 15%, but can be as low as 0%. In addition the choice of structure can lead to ongoing reporting obligations and ASIC compliance costs.
The decision of whether to establish a subsidiary or branch office will depend on a number of factors, including legal and taxation considerations as well as commercial considerations.
If you are considering setting up your business in Australia or have questions about Australian taxation in general, please contact your ESV Engagement Partner on +61 2 9283 1666.
