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Setting Up Business in Australia: Branch Or Subsidiary?

You are here: Home / Doing Business In Australia / Setting Up Business in Australia: Branch Or Subsidiary?

Is a foreign branch office or a subsidiary company the better choice when setting up your Australian business operations? The INTAS team look at what you need to consider.

Quick Navigation

  • Key considerations
  • Business structure options
      • Operate as a foreign branch
      • Set up an Australian subsidiary company
  • Branch vs. subsidiary; which is best for my business?
    • Foreign branch
    • Australian Subsidiary
    • Branch or Subsidiary Comparison Table
  • What about Australian taxation laws?
    • Taxation details of a foreign branch
    • Taxation details for an Australian subsidiary
    • The Double Tax Agreement (DTA)
  • Can we help?

One of the most common questions we get asked from international businesses wanting to establish in Australia is whether they should set up a foreign branch office or an Australian subsidiary company.

This can be a complex decision and there are many implications to consider.

There are no clear-cut rules which entity is the best choice – both setups have their advantages and disadvantages over the other. The decision lies in the specific situation of each business and the intention of the business in Australia.

Your decision will most likely be based on the most beneficial outcome in terms of taxation, contractual obligations, employment of staff and immigration visas, and from an efficiency and operational viewpoint.

Key considerations

The key considerations when deciding which is the best structure to set up your business in Australia include:

Today – How are your existing business structures set up globally?
Strategy – Looking at the big picture of your global entity and seeing how your expansion in Australia will fit in with this strategy. What are the aims of your business wanting to set up in Australia?
Future – Your plans for the future. What will your global company look like in two years, five years, ten years’ time? Will you be hiring employees?
Taxation – The taxation implications of the different structures and what is the most effective way to structure your business in Australia. There are double taxation treaties available for some global businesses, can you benefit from these?

Although we will not attempt to tell you the best setup for your business, as this depends entirely on a case by case basis, it does help to distinguish between a foreign branch or an Australian subsidiary.

Start the conversation with us as to the best option for your business and which solution offers the most beneficial outcome.

Get professional advice to help you set up business in Australia

Business structure options

Let’s start from the very beginning.  Foreign businesses generally have two options when establishing operations in Australia:

Operate as a foreign branch

This is the establishment of an Australian branch of your existing overseas business.

The overseas business trades in Australia.  A foreign branch office is not a separate legal entity, however, the branch must comply with Australian legislation.

Set up an Australian subsidiary company

The foreign company establishes an Australian company.  This becomes a subsidiary of the foreign company, and it is this Australian subsidiary company which trades in Australia.  In most instances, the foreign company will own the shares of the Australian company.

An Australian subsidiary 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 (this can be arranged by International Accounting Solutions).

Branch vs. subsidiary; which is best for my business?

Here is a brief overview of each entity.

Foreign branch

To open and register a foreign branch in Australia, you will need to provide considerable corporate and supporting documentation to the Australian Securities Investment Commission (ASIC), much more than if you were starting an Australian company.

A branch will then be subject to Australia regulations.

ASIC requires foreign branches to annually lodge a balance sheet, P&L and any other documents the company is required to prepare by law in its country of origin.

No audit is required, however, ASIC has the authority to request audited financial reports if previously lodged reports are insufficient.

Australian Subsidiary

ASIC requires Australian companies to submit an annual review statement verifying their shareholders, directors, and addresses with a small annual fee.  A solvency resolution signed by the directors must be drawn, as well.

Branch or Subsidiary Comparison Table

OperationSubsidiaryBranch
Corporation Law (regulated by ASIC)
  • Separate legal entity
  • Registered with ASIC and given a unique identifying number, an ACN (Australian Company Number)
  • Liabilities remain with subsidiary in the absence of guarantees and like arrangements or if the subsidiary trades while insolvent
  • Not a separate legal entity
  • Foreign company may be required to register with ASIC and be given a unique identifying number, an ARBN (Australian Registered Body Number)
  • Liabilities are those of the foreign company
Officeholders
  • Australian resident director is required
  • Australian resident public officer is required
  • Australian resident local agent is required
  • Australian resident public officer is required
Ongoing administrative responsibilities
  • Must lodge annual returns and usually financial reports with ASIC
  • Exemption from lodging financial reports if relieved from doing so under Corporations Law
  • Must lodge annual returns with ASIC
  • Foreign company must lodge financial reports, including profit and loss, balance sheet, and statement of cash flows with ASIC
How is the entity taxed in Australia
  • Subject to Australian income tax on income from worldwide sources
  • Foreign source income may be exempt or subject to a Foreign Income Tax Offset
  • Subject to Australian income tax on income sourced in Australia
Applicable taxation rate
  • Corporate tax rate is 27.5% - 30%
  • Withholding tax applies to various international payments
  • Corporate tax rate is 30%
  • Withholding tax applies to various international payments
  • No branch profits tax
Auditing
  • Audit required under Australian Corporations Law if controlled by a foreign corporation
  • Class relief may be available removing the need for audit
  • Audit not required
  • ASIC has the authority to request audited financial reports if previously lodged reports are insufficient

What about Australian taxation laws?

Taxation laws vary greatly between countries, and Australia’s tax laws can be complex for foreign companies.

That’s why it’s important to understand the tax implications of how to set up your Australian operations, to ensure your business is compliant with Australia’s tax laws, as well as effective and efficient.

Taxation details of a foreign branch

  • The foreign branch may not be taxable in Australia depending on whether it constitutes a ‘permanent establishment’ in Australia. Permanent establishment includes considerations such as a fixed place of business in Australia, the representatives in Australia closing contracts, the plant and equipment in Australia if construction projects are taking place and how long your staff are spending in Australia.
  • A branch may not have to pay withholding tax.
  • Losses can be utilised in the ‘home’ company
  • A sale of branch assets will generally be subject to capital gains tax (CGT).

Here is further information on taxation of branch profits.

Taxation details for an Australian subsidiary

  • It is taxed in Australia on taxable income at a rate of 27.5 – 30%, depending on annual turnover.
  • Profit repatriation is lost if an unfranked dividend from the Australian subsidiary were to be paid to its parent company.
  • Losses are trapped in a subsidiary company
  • A capital gains tax (CGT) exemption may apply upon the ultimate disposal of shares in the Australian subsidiary.

The treatment of assessable income for Australian tax purposes is where the two entity considerations differ greatly.

Assessable income for branches includes all Australian source income, while assessable income for subsidiaries includes all worldwide income, subject to any deductions or credits.

However, both branches and subsidiaries are subject to the application of Double Taxation Agreements. These tax agreements vary between countries.

The Double Tax Agreement (DTA)

The tax rules regarding the repatriation of profits and dividend withholding tax are more complex.

The dividend withholding rate under the DTA depends on each DTA and is generally capped at 15% but can be as low as 0%.

List of countries with which Australia has a Double Tax Agreement
ArgentinaIreland Russia
AustriaItaly Singapore
BelgiumJapan Slovakia
CanadaKiribati South Africa
ChileKorea South Korea
ChinaMalaysia Spain
Czech Republic Malta Sri Lanka
Denmark Mexico Sweden
Fiji Netherlands Switzerland
Finland New Zealand  Taipei
France Norway Thailand
Germany Papua New Guinea Turkey
Hungary Philippines United Kingdom
India Poland United States
Indonesia Romania  Vietnam

Can we help?

As you have read, choosing between a branch versus subsidiary company is a complex decision and needs careful thought and planning to choose the right structure suitable for your business.

International Accounting Solutions would love to help you go through your options to work out the best structure when setting up your business in Australia.

Get in touch via the contact form, or call us on +61 2 8298 5301, we would be happy to arrange a convenient time to go through your business, address any concerns and outline the timeline for a speedy setup.

We want to get you up and running, so you can start kicking goals in Australia.

Want to know more?  Download our Doing Business in Australia guide for a comprehensive overview of everything you need to know and do to set up business in Australia. Don’t miss it!

Published: February 22, 2018 Filed Under: Doing Business In Australia

Reader Interactions

Comments

  1. Lee, Byung Moo

    December 16, 2018 at 6:38 pm

    1. Is there any difference between branch office and liaison office in Australia?
    2. Can a foreign entity’s liaison office convert to branch office and after that do sales activities?
    3. Can liaison office register to the ACNC to play as a not-for-profit organization related with education adn culture?
    Thank youfor your comment in advance~

  2. Shahed

    July 5, 2019 at 10:52 am

    what implication applies if a company in Australia open a subsidiary company in China?

  3. Admin

    November 3, 2019 at 2:10 pm

    Can a subsidiary of an American company (like Amazon) headquartered in Sydney be held to account for violation of Australian corporate, privacy or business law by its parent company?

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