Australia provides an excellent opportunity for foreign investors due to its strong economic growth, ease of doing business, and various foreign investment opportunities. With access to Asia-Pacific markets and a highly skilled workforce, there are numerous advantages to setting up a business in Australia. However, foreign subsidiaries operating in Australia must comply with legal requirements to establish a subsidiary without facing penalties.
This guide provides insights into the set-up requirements, ongoing business compliance obligations, and accounting and tax compliance requirements of foreign subsidiaries in Australia.
Key takeaways
- Australia offers a streamlined process to establish a subsidiary with minimal capital requirements.
- Maintaining accurate records and notifying authorities of changes are crucial for ongoing compliance.
- Financial record-keeping for at least five years is mandatory. Audits may be required, depending on the company’s size and structure.
The requirements for setting up an Australian subsidiary company
Appointing directors and shareholders
If it was incorporated as a proprietary company, it must have no more than 50 non-employee shareholders. While there are no restrictions on the percentage of foreign ownership, there must be at minimum one resident director. Directors must apply for an Australian Director Identification Number (DIN) before their appointment.
Minimum share capital
There are no minimum share capital requirements to incorporate a subsidiary in Australia; a company can be registered with just AUD 1.00.
Registered office
To receive official documents, communications, or notices, a subsidiary must have a registered office in Australia. A post office box cannot be used as the company’s registered office.
Appointing a public officer
The public officer acts as the company’s representative and contact point with the Australian Taxation Office (ATO). Under section 252 of the Income Tax Assessment Act 1936, all companies must appoint one public officer to ensure compliance with the ATO. The public officer must be an Australian resident and provide written consent to assume this role.
Obtaining an Australian company number
Once the subsidiary is registered with the Australian Securities and Investment Commission (ASIC), it is issued an Australian Company Number (ACN), which is a unique, nine-digit number used to identify a company.
The ACN must be displayed on the following documents:
- All documents lodged with the ASIC
- Business letterheads
- Cheques, promissory notes, and bills of exchange
- Official company notices
- Orders for services or goods
- Receipts that are not machine-produced
- Statements of account, including invoices
- Written advertisements making a special offer
- Common seal (if any)
Ongoing corporate governance compliance requirements
Company changes
ASIC must be notified when the following changes occur:
- Officeholders (director and company secretary)
- Company addresses (Registered Office and Principal Place of Business)
- Reservation and change of Company Name
- Structure and changes in shareholding
- The company Constitution
- The Ultimate Holding Company
Any changes to the company’s details must be updated in the ASIC’s records within 28 days, or a late fee will be imposed. Current fees are:
- AUD 96 for up to one month late
- AUD 401 for over one month late
Late fees are updated annually.
Annual company statement
ASIC issues each company an annual statement and an annual review invoice shortly after their annual review date, which is typically the date the subsidiary company was registered. The Australian subsidiary must review the statement and update information regarding the directors, shareholders, and business address, as well as ensure the invoice is paid by the due date.
A solvency resolution must also be passed within two months of the annual review date. Company directors must believe that the company can pay its debts when they are due. If a negative solvency resolution is passed, indicating that directors admit the company cannot pay the debts, the company must notify the ASIC.
Record keeping
The company must maintain a corporate register, which contains signed copies of:
- Minutes and Directors’ Circulating Resolutions
- Resignations and consents to act (Directors, Secretary, Public Officer)
- Share certificates and shareholder register
Accounting and tax compliance requirements
Keeping financial records
A subsidiary must retain financial records for at least five years, including income statements, payment summaries, and receipts. Receipts should detail the:
- expense amount
- date the fee was paid
- date of the document
- supplier’s name
- the nature of goods or services.
Records must be in writing, either on paper or electronic form.
Audit requirements
Subsidiaries in Australia are commonly incorporated as proprietary companies. The Australian government requires that all disclosing entities, large proprietary companies, and public companies have their annual financial statements audited. A proprietary company is classified as large if the company and any entities it controls meet two out of the three criteria by the end of its financial year:
- Consolidated revenue is AUD 50 million or more.
- Consolidated gross assets are valued at AUD 25 million or more.
- 100 or more employees.
If two of the three criteria are not met, then the proprietary company will be classified as a small proprietary company and will not need to have its financial statements audited unless controlled by a foreign company, which is not a disclosing entity.
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 unless relief has been obtained.
Audit exemption conditions
Under ASIC Corporations (Foreign-Controlled Company Reports) Instrument 2017/204, a small proprietary company controlled by a foreign company may be relieved from the requirement to prepare and lodge audited financial reports under Parts 2M.2 and 2M.3 of the Corporations Act 2001 (Cth) (the Act).
This exemption applies if Parts 2M.2 and 2M.3 are relevant under subsection 292(2)(b) of the Act, provided the company is not part of a large group.
Relief can be obtained where two out of three of the following criteria apply:
- The company has less than AUD 50 million in revenue
- The company has less than AUD 25 million in gross assets
- The company has less than 100 employees
The term “company” includes all holding companies and sister companies registered in Australia and any subsidiaries worldwide.
Conclusion
Australia presents an abundance of opportunities for foreign investors looking to establish a subsidiary. However, fulfilling the compliance obligations outlined above is essential for successfully establishing and operating a subsidiary in Australia. By adhering to them, companies should be able to manage operations seamlessly and prevent any unexpected penalties. Engaging with experienced professionals will allow you to focus on growing your business while meeting all the necessary obligations without concern.
How Acclime can help support foreign subsidiaries
Acclime Australia provides tailored support for setting up and managing your subsidiary. Our team of experts offer guidance on compliance, including subsidiary registration, corporate governance, accounting and tax compliance.
From appointing directors and establishing a registered office to navigating complex ASIC and ATO requirements, Acclime ensures that your subsidiary is set up efficiently and remains fully compliant, allowing you to focus on your business objectives confidently.
Disclaimer
This information is of a general nature and is not intended to address the circumstances of any particular individual or entity. We would recommend addressing your specific circumstances as relates to these items with a suitable qualified expert.
