{"id":2415,"date":"2018-02-22T16:49:23","date_gmt":"2018-02-22T05:49:23","guid":{"rendered":"https:\/\/intas.com.au\/?p=2415"},"modified":"2020-12-11T16:12:09","modified_gmt":"2020-12-11T05:12:09","slug":"setting-up-branch-subsidiary","status":"publish","type":"post","link":"https:\/\/intas.com.au\/setting-up-branch-subsidiary\/","title":{"rendered":"Setting Up Business in Australia: Branch Or Subsidiary?"},"content":{"rendered":"\n

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.<\/p>\n\n\n\n

This can be a complex decision and there are many implications to consider.<\/p>\n\n\n\n

There are no clear-cut rules which entity is the best choice \u2013 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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Key considerations<\/h2>\n\n\n\n

The key considerations when deciding which is the best structure to set up your business in Australia include:<\/p>\n\n\n\n

Today<\/strong> – How are your existing business structures set up globally?
Strategy<\/strong> – Looking at the big picture of your global entity<\/a> 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<\/strong> – Your plans for the future. What will your global company look like in two years, five years, ten years\u2019 time? Will you be hiring employees?
Taxation<\/strong> – 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?<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Start the conversation with us as to the best option for your business and which solution offers the most beneficial outcome.<\/p>\n\n\n\n

\n
Get professional advice to help you set up business in Australia<\/a><\/div>\n<\/div>\n\n\n\n

Business structure options<\/h2>\n\n\n\n

Let\u2019s start from the very beginning.  Foreign businesses generally have two options when establishing operations in Australia:<\/p>\n\n\n\n

Operate as a foreign branch<\/h4>\n\n\n\n

This is the establishment of an Australian branch of your existing overseas business.<\/p>\n\n\n\n

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

Set up an Australian subsidiary company<\/h4>\n\n\n\n

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.<\/p>\n\n\n\n

An Australian subsidiary is recognised as a separate legal entity with limited liability and is an Australian resident for tax purposes.<\/p>\n\n\n\n

The subsidiary can be wholly owned by a foreign shareholder, however, it is required to have at least one Australian resident director<\/a> (this can be arranged by International Accounting Solutions).<\/p>\n\n\n\n

Branch vs. subsidiary; which is best for my business?<\/h2>\n\n\n\n

Here is a brief overview of each entity.<\/p>\n\n\n\n

Foreign branch<\/h3>\n\n\n\n

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.<\/p>\n\n\n\n

A branch will then be subject to Australia regulations.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

No audit is required, however, ASIC has the authority to request audited financial reports if previously lodged reports are insufficient.<\/p>\n\n\n\n

Australian Subsidiary<\/h3>\n\n\n\n

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.<\/p>\n\n\n\n

Branch or Subsidiary Comparison Table<\/h3>\n\n\n\n\n\n\n\t\n\n\t\n\t\n\t\n\t\n\t\n\t
Operation<\/th>Subsidiary<\/th>Branch<\/th>\n<\/tr>\n<\/thead>\n
Corporation Law (regulated by ASIC)<\/td>
  • Separate legal entity<\/li>
  • Registered with ASIC and given a unique identifying number, an ACN (Australian Company Number)<\/li>
  • Liabilities remain with subsidiary in the absence of guarantees and like arrangements or if the subsidiary trades while insolvent<\/li><\/ul><\/td>
  • Not a separate legal entity<\/li>
  • Foreign company may be required to register with ASIC and be given a unique identifying number, an ARBN (Australian Registered Body Number)<\/li>
  • Liabilities are those of the foreign company<\/li><\/ul><\/td>\n<\/tr>\n
Officeholders<\/td>
  • Australian resident director is required<\/li>
  • Australian resident public officer is required<\/li><\/ul><\/td>
  • Australian resident local agent is required<\/li>
  • Australian resident public officer is required<\/li><\/ul><\/td>\n<\/tr>\n
Ongoing administrative responsibilities<\/td>
  • Must lodge annual returns and usually financial reports with ASIC<\/li>
  • Exemption from lodging financial reports if relieved from doing so under Corporations Law<\/li><\/ul><\/td>
  • Must lodge annual returns with ASIC<\/li>
  • Foreign company must lodge financial reports, including profit and loss, balance sheet, and statement of cash flows with ASIC<\/li><\/ul><\/td>\n<\/tr>\n
How is the entity taxed in Australia<\/td>
  • Subject to Australian income tax on income from worldwide sources<\/li>
  • Foreign source income may be exempt or subject to a Foreign Income Tax Offset<\/li><\/ul><\/td>
  • Subject to Australian income tax on income sourced in Australia<\/li><\/ul><\/td>\n<\/tr>\n
Applicable taxation rate<\/td>
  • Corporate tax rate is 27.5% - 30%<\/li>
  • Withholding tax applies to various international payments<\/li><\/ul><\/td>
  • Corporate tax rate is 30%<\/li>
  • Withholding tax applies to various international payments<\/li>
  • No branch profits tax<\/li><\/ul><\/td>\n<\/tr>\n
Auditing<\/td>
  • Audit required under Australian Corporations Law if controlled by a foreign corporation<\/li>
  • Class relief may be available removing the need for audit<\/li><\/ul><\/td>