Why invest in Australia?
Australia is more than a rich storehouse of natural resources. Its strong, diversified economy and skilled and willing workforce make Australia favored destination for investment of all kinds.
Challenges for companies
Doing business in a foreign country is a challenging prospect, particularly for investors just embarking upon the overseas investment trail.
Setting up business in Australia
Regulatory / legal
Generally, there are no restrictions on setting up a business in Australia. However foreign investments in Australian resident businesses, which exceed certain monetary thresholds, need to be notified to the Foreign Investment Review Board (FIRB) for approval.
Commonly used business entities
The main forms of business operations in Australia are a limited liability company, a branch, a joint venture or a trust. Sole proprietorships, partnerships and limited partnerships can also be used. In general, foreign businesses operate in Australia through one of the following vehicles:
Representative offices of foreign companies are also permitted.
Main legal formalities for the formation of a company or registration of a branch
A company in Australia will either be a proprietary company, with restrictions on its ability to raise finance from the public, or a public company. All registrations of companies must be made by an application to the Australian Securities and Investments Commission (ASIC).
To establish an Australian company, the name of the company must be available. There is a requirement for Australian resident subsidiaries, to have at least three directors and one secretary if it is a public company, or at least one director if it is a proprietary company. Of these, at least two directors and one secretary of a public company and one director of a proprietary company must ordinarily reside in Australia. Other requirements must be met.
The company must lodge an ASIC Form 201 (Application for registration as a company) with ASIC, together with its constituent documents and pay the relevant fee. ASIC will issue a Certificate of Registration which will specify the company’s name. Additional record-keeping requirements apply.
An Australian branch of a foreign company is required to register with the ASIC as a branch under the Corporations Act 2001 (Cth) (CA). The foreign company must ensure the business name is available and that they complete the relevant application form ASIC Form 402 (Application for registration as a foreign company). This form, and the relevant fee, must be lodged with a certified copy of the company’s current Certificate of Incorporation or Registration, or an equivalent document and a certified copy of the company’s constitution (or letter from equivalent authority, if no constitution is required).
Currency / monetary restrictions
Australia does not restrict the flow of Australian or foreign currency in or out of the country. However, certain reporting obligations must be met for amounts over AUD 10,000 or foreign currency equivalent.
Regulatory requirements for financial services
The Australian Prudential Regulation Authority (APRA) is the regulator of the financial services industry
Accounting / Finance for companies and Australian branches of foreign companies
The CA requires public companies and large proprietary companies to prepare and lodge with ASIC an annual financial statement and a directors’ report. Additional reporting requirements apply if the company is a listed company. These financial statements are public records.
A small proprietary company is generally required to prepare and lodge an audited financial report with ASIC if the company is:
Exemption from lodgment with ASIC is available for proprietary companies in certain circumstances.
Financial reports are prepared under Australian Accounting Standards equivalent to IFRS with effect from January 1, 2005.
Financial statements must be audited annually in accordance with section 301111 of the CA. However an audit exemption is available for proprietary companies in certain circumstances.
Requirements for foreign investors
Requirements for foreign investors
Foreign investments are regulated by the Foreign Acquisitions and Takeovers Act 1975 (Cth) IFATA which requires the Federal Treasurer to be notified of certain proposed acquisitions by foreign persons. Generally, smaller proposals are exempt from FATA and larger proposals are approved by the Federal Treasurer unless they are contrary to the national interest.
Book year / accounting currency
Financial statements are presented for the period ending on the accounting year end which generally covers a period of 12 months. However the first financial year of a company may extend over a period of 18 months. Financial statements can be prepared in the company’s functional currency, which can be a currency that is not Australian dollars.
Financial reports required under the CA must be prepared in accordance with AASB standards and Corporations Regulations 2001, and provide a true and fair view of the financial position and performance of the company.
Approval from the Australian Tax Office (ATO) is not required to start a business. However taxpayers should obtain a tax file number (TFN) from the ATO.
Companies and other entities carrying on an enterprise in Australia should also have an Australian Business Number (ABN) which is the main reference for dealings with the Australian Government.
Advance tax rulings / advance pricing agreements (APA)
It is generally possible to obtain tax rulings from the ATO, subject to the agreements (APA) prevailing policies and guidelines.
APAs are viewed as an efficient means of resolving transfer pricing disputes. The ATO’s policies and procedures in relation to APA applications indicates that the Commissioner supports both unilateral and bilateral APAs.
Income tax compliance
The tax year is usually referred to as the income year or year of income. The year of income runs from July 1 to June 30. If a company wishes to submit its tax returns for a different period, it must obtain an approval from the ATO to do so. The due date for tax returns is published each year in the Commonwealth Government Gazette. Company returns are generally due on the 15th day of the seventh month, after the end of the relevant income year.
Taxable income is computed by reference to the accounting profit before tax with adjustments prescribed by tax law and regulation.
Generally, companies pay their income taxes in quarterly Pay As You Go installments. These are due on the 21w or day of the month following the end of a quarter depending on the nature of the taxpayer. A final balancing payment is due on the first day of the sixth month after the year of income.
Indirect tax compliance
Australia has in place a goods and services tax (GST), which is currently levied at the rate of 10 percent. GST is payable on taxable supplies made by entities who are registered or required to register for GST
Broadly, an entity is required to register for GST where its annual turnover in taxable supplies exceeds AUD 75,000. Entities which are registered for GST are entitled to claim input tax credits on creditable acquisitions which they make in connection with their enterprise. Moreover, where an entity imports goods into Australia it may be liable to pay GST on that import.
Other tax compliance
As a consequence of having employees in Australia, the entity will need to register for PAYG Withholding, which is the term used in Australia for employer withholdings from salary and wages paid to employees. This will give rise to either monthly or quarterly reporting obligations.
Income tax applies to capital gains upon disposal of a CGT asset. Non-residents are currently only subject to tax on gains arising from events in relation to assets which are taxable Australian property.
If the entity has employees in Australia, it is likely that superannuation will be required to be paid by the employing entity on their behalf. The statutory rate for superannuation is currently 9 percent of cash salary. Limited exceptions to this exist.
Note: a range of other taxes, some levied at the State level and some at the Federal level, also exist and apply depending upon the circumstances of the taxpayer.
Director’s liability to tax
A director of a company is not automatically subject to tax by virtue of the directorship, but will be subject to income tax in Australia for the remuneration received in the capacity of director of an Australian resident company. Where the remuneration is paid / payable to a non-resident director, withholding tax provisions may apply.
This is an excerpt from A Guide to Setting up business in the ASPAC region and was up to date at the time of its publication.
For more information contact:
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+91 22 3983 5703
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