Foreign subsidiaries in Australia have numerous compliance requirements they must comply with under the Australian law to avoid any penalties and to be able to establish the subsidiary in Australia successfully. You will learn in detail about the set-up requirements, ongoing business compliance obligations and accounting and tax compliance requirements for foreign subsidiaries in Australia.
The subsidiary company set up requirements
Appointing directors and shareholders
A subsidiary company must have at least one director who originally resides in Australia and cannot have more than 50 non-employee shareholders if you incorporate your subsidiary as a proprietary company. There are no restrictions on the percentage of foreign ownership, but there must be at least one resident director.
All directors must have applied for an Australian Director Identification Number (DIN) prior to their appointment.
Minimum share capital
There are no minimum share capital requirements to incorporate a subsidiary in Australia, and a company can be registered with just AUD 1.00.
A subsidiary must have a registered office in Australia to which official documents, communications or notices will be sent. A post office box cannot be used as the company’s registered office.
Appointing a public officer
The public officer is the company’s representative and contact point to the Australian Taxation Office (ATO). Under section 252 of the Income Tax Assessment Act 1936, all companies must appoint one public officer to ensure that the company complies with the ATO. The public officer must be an Australian resident and must give written consent to act as the company’s public officer.
Australian company number
An Australian Company Number (ACN) is issued once the subsidiary is registered with the Australian Securities and Investments Commission (ASIC). The ACN 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
ASIC must be notified when changes occur to:
- 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 of the change. If not, a late fee will be imposed. Late fees are updated annually – the current fees are:
- AUD 83 for up to one month late
- AUD 344 for over one month late
Annual company statement
ASIC issues to each company an annual statement and an annual review invoice, 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 and ensure the invoice is paid by the due date.
A solvency resolution is also required to be passed within two months of the annual review date. To pass the solvency resolution, the company directors must believe that the company will be able to pay its debts when they are due.
If the directors pass a negative solvency resolution, meaning that the company directors think that they cannot pay their debt back when due, the company must notify ASIC.
The company must keep 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 keep financial records for at least five years, including income statements, payment summaries, and receipts. Receipts should show the amount of expense, the date the fee was paid, the date of the document, the supplier’s name, and the nature of goods or services. The records must be in writing, either on paper or electronic form.
Subsidiaries in Australia are commonly incorporated as proprietary companies, and 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 two out of the three criteria are met:
- The consolidated revenue for the company’s financial year and any entities it controls is AUD 50 million or more.
- The value of the consolidated gross assets at the end of the company’s financial year 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.
Small proprietary companies controlled by foreign companies must prepare audited financial reports, lodge them with the ASIC and send it 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 which is 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) insofar as Parts 2M.2 and 2M.3 are applicable pursuant to subsection 292(2)(b) of the Act, provided that 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 100 employees
- The company has less than AUD 50 million in revenue
- The company has less than AUD 25 million in gross assets
The company in these definitions includes the group of companies to which the company belongs. In this case, the definition of a group includes all holding companies and sister companies of the company that are registered in Australia, as well as any subsidiaries located anywhere in the world.
To establish and operate a subsidiary in Australia, you must meet the compliance obligations listed above. By fulfilling them, you should be able to manage your operations seamlessly and prevent any unexpected penalties.
Talk to our experts if you need help with setting up or managing your subsidiary in Australia. At Acclime Australia, we can help ensure that your company is fully compliant with all legal, financial and governance requirements.