Foreign companies that plan to expand to Australia can choose between setting up a foreign branch office (foreign company) or a subsidiary (company). Both structures have different requirements and benefits, and you should choose the setup that best matches your company’s objectives. This guide outlines the essential requirements of the two structures and compares their similarities and differences.
A foreign branch office is an extension of a foreign parent company incorporated outside of Australia and allows the foreign parent company to conduct business activities in the country. It is not a separate legal entity; therefore, the parent company is liable for the branch office.
Branch office compliance requirements
The foreign branch office is not required to have a local director, but it must have an Australian resident local agent responsible for obligations the company must fulfil with the ASIC and comply with the Corporations Act 2001. The branch must also appoint a public officer who is a resident of Australia.
A branch must lodge annual returns and the following financial statements with the ASIC:
- Balance sheet
- Profit and loss statement
- Cash flow statement
- Other documents required by the law of their place of origin
The financial statements should be audited as required with the law in the company’s place of origin, or if an audit is not required in the place of origin, ASIC may request an audit if the financial reports submitted are insufficient
Branch office taxation
If you are a resident of a country that has entered a Double Tax Treaty with Australia, only income as attributable from activities / business conducted through a permanent establishment in Australia is taxed. To determine whether your branch office is a permanent establishment or not, the following indicators need to be considered:
- Does your branch have a fixed place of business in Australia?
- How long your employees are in Australia?
- Do your representatives close contracts in Australia?
Generally, withholding tax is not withheld when remitting branch profits to the foreign parent company.
A subsidiary company is a separate legal entity owned by a holding or parent company. Subsidiaries in Australia are commonly incorporated as a proprietary limited company. They must be registered with the ASIC. Once registered, ASIC will issue an Australian Company Number (ACN). Following receipt of the ACN, company taxation registrations with the Australian Taxation Office (ATO) can then be completed.
Subsidiary company compliance requirements
The subsidiary company requires at least one director who must be a resident of Australia and a public officer, also a resident of Australia, who is responsible for the company’s tax obligations.
The Australian government requires all disclosing entities, large proprietary companies and public companies, to have their annual financial statements audited. A proprietary company is classified as large if two out of the three criteria are met:
- The consolidated revenue for the financial year of the company and any entities it controls is AUD 50 million or more
- The value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is AUD 25 million or more
- The company and any entities it controls have 100 or more employees at the end of the financial year.
If two of the three criteria are not met, then the proprietary company will be classified as a small proprietary company and does not need to have its financial statements audited unless controlled by a foreign company, which is not a disclosing entity.
Unless relief has been obtained, small proprietary companies controlled by foreign companies must prepare audited financial reports, lodge them with the ASIC, and send them to the members within four months of the financial year-end. Relief can be obtained where two out of the three above noted criteria are met.
ASIC issues to each company an annual statement shortly after their annual review date (which in most cases is the date the subsidiary company was registered) The Australian subsidiary must review the statement and update information with respect to the directors, shareholders and business address. A solvency resolution is also required to be passed within two months of the annual review date.
Subsidiary company taxation
An Australian subsidiary company is taxed on worldwide-sourced income at a tax rate of 25% or 30%, depending on the company’s annual turnover.
Unfranked dividends paid to the foreign parent company will be subject to withholding tax at 30% or reduced rates under the Double Tax Treaties.
Branch vs subsidiary: Comparison
|Characteristic||Foreign branch office||Subsidiary company|
|Liability||Not a separate legal entity||Separate legal entity|
|Registration||Registered with ASIC|
Issued an ABRN
|Registered with ASIC|
Issued an ACN
Resident public officer
Foreign director (appointed by the parent company)
Resident public officer
|Compliance requirement||Submit annual returns with the ASIC|
Lodge balance sheet, profit and loss statement, cash flow statement and other documents required by the law in its place of origin with the ASIC
|Lodge financial returns with the ASIC unless relief has been obtained|
Review and update details as provided on the ASIC generated annual review statement
|Taxation||Taxed on Australian-sourced income|
May not have to pay withholding tax if the parent country has a double tax treaty with Australia
|Taxed on worldwide-sourced income|
Taxed at a rate between 25% to 30%
|Audit||As required with the law in the company’s place of origin , or if an audit is not required in the place of origin, ASIC may request an audit if the financial reports submitted are insufficient||Required if it is controlled by a foreign company which is not a disclosing entity, unless relief has been obtained|
Branch and subsidiary are generally the best ways to expand your company into Australia.
Branch offices are an extension of the foreign parent company , while subsidiaries are separate legal entities owned by the foreign parent company. Another difference between the two, a branch is taxed on its Australian attributed activities, but subsidiaries are taxed on worldwide income as they are considered a tax resident.
If you plan to expand to Australia and need support with the registration process, do not hesitate to contact an Acclime expert today.