Business may be conducted in Australia by either trading with or in Australia.
Trading with Australia
Australian tariffs and some quota restrictions apply to goods imported from overseas. If, however, a local manufacturer is licensed to produce the goods in Australia, the issue of tariffs and quotas will only apply to any imported components.
Agency and distribution arrangements are not specifically regulated. The terms of any contract between agent and principal must therefore carefully address all aspects of the relationship.
The following additional legal issues will need consideration:
- protection of intellectual property rights
- the law of the contract, the relevant forum for enforcing the contract and the possible impact of the United Nations Convention on Contracts for the International Sale of Goods
- security for payment, including title retention
- dispute resolution and the relevant forum for settling disputes
- currency of payment and protection against exchange rate fluctuations
- potential product liability claims.
Trading in Australia
Foreign companies usually establish a business presence in Australia by:
- establishing or acquiring an Australian subsidiary company
- establishing a branch office.
The decision on whether to establish a subsidiary or branch will turn on commercial and not legal or taxation considerations.
Subsidiary Company
Corporations Law (Australia's code of company law, regulated by the Australian Securities Commission (ASC))
- separate legal entity
- registered with ASC and given a unique identifying number; an ACN (Australian Company Number)
- liabilities remain with subsidiary in the absence of guarantees and like arrangements or if the subsidiary trades while insolvent
- may be public or private (restrictions on number of shareholders and issuing shares)
Foreign Investment Review Board
- approval may be required before subsidiary is acquired or established
Taxation
- will be a resident for Australian tax purposes
- will be taxed on all income, wherever sourced
- presently taxed on all profits at the rate of 36%
Debt: equity
- if funded by both equity and debt owed to parent, the ratio of debt to equity cannot exceed 2:1 to qualify for tax deductions for interest paid to parent
Ongoing administrative responsibilities
- must lodge annual returns and reports with ASC
- no need to lodge accounts if relieved from doing so under Corporations Law
Branch Office
Corporations Law (Australia's code of company law, regulated by the Australian Securities Commission (ASC))
- not a separate legal entity
- foreign company is registered with ASC and given a unique identifying number; an ARBN (Australian Registered Business Number)
- liabilities are those of foreign company
Foreign Investment Review Board
- approval may be required before assets or land are acquired
Taxation
- taxed as if it were a separate entity in Australia
- will be taxed on all Australian sourced income
- presently taxed on all Australian derived profits at the rate of 36%
- may be affected by double taxation agreement
Debt: equity
- if funded by debt from related entity a prescribed debt to equity ratio must be maintained to qualify for tax deductions for interest paid to related entity
Ongoing administrative responsibilities
- foreign company must lodge accounts, unless application for relief granted
- if granted, annual returns, in the prescribed form, must be lodged
Exchange controls
- restrictions and reporting requirements apply to dealings between branch and head office
Law Reform
The Company Law Review Bill, which will amend the Corporations Law, is currently before the Federal Parliament. When enacted it will have the following effects on Australian subsidiaries:
- registration of new companies will be substantially simplified
- significant accounting and audit relief will be granted to small private companies.
As a result the costs of establishing and administering Australian subsidiaries will be significantly reduced.
For further information please contact Click Contact Link at:
Minter Ellison 44 Martin Place Sydney NSW 2000 AUSTRALIA Main Telephone Number: (+61 2) 9210 4444 Main Fax Number: (+61 2) 9235 2711 E-mail Address: Click Contact Link
Visit our website at Click Contact Link
The information contained in this article has been prepared by the Minter Ellison Legal Group. Professional advice should be sought before applying the information to particular circumstances.
