When a foreign company considers setting up business in Australia, there are a range of options available. The two most common are setting up a subsidiary and setting up a branch. Instead of incorporating a separate Australian entity to manage operations, setting up a branch in Australia has many benefits.
Benefits of a Branch vs Subsidiary
In terms of tax benefits, a branch may not be taxable in depending on its status as being a “permanent establishment”, where as a subsidiary is taxed in Australia on its taxable income at a rate of 27.5 – 30%. A branch may also not have to pay withholding tax for profit repatriation, where a subsidiary is subject to withholding tax, typically taxed at 15%.
Tax implications for a branch include being subject to capital gains tax upon the sale of branch assets. However, subsidiaries are generally exempt from capital gains tax upon the disposal of shares.
Another benefit of a setting up a branch in Australia (over a subsidiary) is the ability to utilise losses made for tax purposes. For subsidiaries, a loss will be trapped in the subsidiary company, where a loss in a branch can be utilised in the home country.
Process for Setting up a Branch
In order to set up a branch in Australia, the company is required to be registered with the Australian Securities and Investment Commission (ASIC). There are 3 important steps to registering a foreign company with ASIC.
It is essential to ensure that the name chosen is available with ASIC. In order to reserve the desired name for the branch, the ASIC website provides a business name search. If the business name is already reserved by another entity, currently in use or is unacceptable, it will not be able to be used. Once a name has been determined as available and acceptable, it is important to file an ‘Application for Reservation of a Name’ form, to ensure other entities cannot use it whilst the branch is being set up. The cost of reserving a business name is $50 and is only valid for 2 months.
- The next step in registering a foreign company with ASIC, after reserving a business name, is completing the relevant application form and compiling accompanying documents. There are a variety of forms and documents to be organised when filing for registration. ASIC form 402 ‘Application for Registration as a Foreign Company’ is the primary form for registration. It includes the details of; the proposed branch, the foreign company, the local agent, and directors or equivalents. Accompanying documents required to be filed with the registration form include;
- A certificate of registration from the home jurisdiction’s governing body;
- A certified copy of the company’s constitution;
- An ASIC Form 418 (Memorandum of Appointment of Local Agent); and
- A memorandum stating the powers of certain directors (if directors are residents of Australia or members of a local board of directors)
Lodgement of Application
Following the completion of form 402 and accompanying documents, they must be lodged with ASIC. The cost of lodgement is $495 and payment must be included when lodging the form. ASIC will then process the application, which can take up to 28 days. Once it is approved, ASIC will issue an Australian Registered Body Number, known as an ARBN.
Post Registration Obligations
Subsequent to the ASIC registration, there are numerous post-registration obligations a company must comply with when operating a branch in Australia.
It is compulsory for all foreign companies to have a local agent. A local agent will be answerable for the doing of all acts, matters and things that the company is required to do in order to comply with the Corporations Act. Local agents may also be personally liable to any penalty imposed on the foreign company for any contraventions of the Corporations Act should a court or tribunal decide so. An agent is appointed to the company through ASIC Form 418, as an accompanying document to Form 402, which has no fee. Should a company wish to replace their initial agent, an ASIC Form 404 needs to accompany Form 418.
Display Company Name
A foreign company that is registered for business in Australia must display its name. The requirements for doing so which include the name being displayed in a conspicuous position, in legible characters, outside every place of business in Australia that is open and accessible to the public. The place of origin, the words ‘registered office’ and the word Limited or notice that its liability of members is limited, if that’s the case, should also be displayed.
Correct Use of ARBN
A foreign company’s use of its ARBN is governed by strict guidelines. Essentially, it must be displayed in legible characters in any company correspondence, along with the words ‘Australian Registered Body Number’ or ‘ARBN’.
Financial Statement Lodgement
There is a requirement by ASIC that registered foreign companies must lodge financial statements annually. These financial statements include a variety of documents. Documents required by ASIC include; a balance sheet, a profit and loss statement and cash flow statement. If the company is required, by law, to prepare any other documents by its home jurisdiction these will also need to be included in the financial statement lodgement. ASIC Form 405 ‘Statement to Verify Financial Statements of a Foreign Company’ may also need to be lodged to ASIC, or in the case of exemption a Form 406 ‘Annual Return of a Foreign Company’. Financial statements must be lodged in original, hardcopy format and the fee for lodgement is $1,107.
Notifying ASIC of Other Changes
- It is also necessary for any registered foreign company with a branch is Australia to notify ASIC of changes to the company through ASIC Forms. The changes that must be reported include;
- Appointing local agent – Form 403, 404 and 418
- Change of name, constitution or powers of local director – Form 409
- Change of registered office address or opening hours – Form 489
- Change in directors details, including appointments – Form 490
- Change to location of register or discontinuation of register – Form 408
- Ceasing business or winding up – Form 407
- After a foreign company has set up a branch in Australia, they are required to follow business regulations and legislation in order to continue to operate in Australia. These include the following criteria;
- Must have Australian resident local agent
- Must have Australian resident public officer
- Must lodge annual returns with ASIC
- Company is subject to Australian income tax on income sourced in Australia at a rate of 30% if a ‘permanent establishment’ and earning income in Australia
- May have to comply with audit of financial reports if requested by ASIC
Recap of Relevant ASIC Forms for Setting up a Branch in Australi
- Form 410 – Application for Reservation of a Name
- Form 402 – Application for Registration as a Foreign Company
- Form 418 – Memorandum of Appointment of Local Agent
- Form 403 – Verification of Copy of a Document Authorising on Behalf of a Foreign Company
- Form 404 – Notification of Change t Agent of a Foreign Company
- Form 406 – Annual Return of a Foreign Company
- Form 405 – Statement to Verify Financial Statements of a Foreign Company
- Form 409 – Change of name, constitution or powers of local director
- Form 489 – Change of registered office address or opening hours
- Form 490 – Changein directors details, including appointments
- Form 408 – Changeto location of register or discontinuation of register
- Form 407 – Ceasing business or winding up
Should you require assistance with setting up an Australian branch, please reach out to Fullstack today.