Doing business in Australia
- How quickly can I set up a business?
- What is the minimum investment needed?
- How can I raise finance?
- What are the legal requirements for setting up my business?
- What structure should I consider?
- What advice can you give me in regards to payroll and taxation requirements?
- Is there anything else that I should know?
How quickly can I set up a business?
A new company can be incorporated in minutes, but practical aspects of the set up take longer, for example:
• Tax registrations for foreign owned entities require certified copies of proof of identity documents which often rely on the postal system.
• Bank accounts can be difficult to open until a company director is able to visit a branch in Australia to satisfy their identification procedures.
For these reasons, generally, you should expect about a four-week lead time to set up an Australian business.
What is the minimum investment needed?
There is no legal minimum investment – a new company can be incorporated with as little as $1 of share capital – so the investment will depend on the funding requirements of the proposed business.
The Australian taxation system does, however, include a thin capitalisation regime that limits deductibility of interest expenses where the entity’s debt-to-equity ratio exceeds certain limits. The thin capitalisation rules do not apply unless debt deductions (i.e., interest and borrowing costs) exceed $2 million per year, so are really only relevant to large businesses.
How can I raise finance?
Private companies are not permitted to raise funds from the public, so are restricted to obtaining funds from its shareholders, or borrowing from financial institutions.
Public companies may be used for larger ventures where funds will be raised from the public.
What are the legal requirements for setting up my business?
The four main types of business structure in Australia are:
• Sole trader
What structure should I consider?
International investors entering the Australian market generally choose between establishing a new Australian company or establishing an Australian branch of a foreign company.
Establishing an Australian private company
Australian companies are distinct legal entities. They must be registered with the Australian Securities and Investments Commission (ASIC). An Australian private company must have at least one director who ordinarily resides in Australia, and that director usually acts as Public Officer for taxation purposes.
A private company provides shareholders with limited liability protection.
An Australian company that is owned by a foreign corporate entity has a prima facie statutory audit obligation, however most small and medium entities can apply for audit exemption.
Registering a branch of a foreign company
Foreign companies operating a branch in Australia must also register with ASIC. The company must appoint a local agent who is authorised to accept service of notices on behalf of the foreign company. The local agent can be either an individual or a company but must be a resident of Australia. An Australian resident must act as Public Officer for taxation purposes for the branch.
Because a branch is not a separate legal entity, it provides no limited liability protection.
Unless exempt, a registered foreign company must lodge financial statements with ASIC at least once per calendar year. Where exempt, an Annual Return is filed each year instead. In either case, a filing fee of $1,339 per year applies.
What advice can you give me in regards to payroll and taxation requirements?
The income tax year ends on 30 June but Substituted Accounting Periods are granted upon application by taxpayers to align with the fiscal year of a foreign owner.
The corporate tax rate in Australia is 30%, but a lower rate of 25% applies to entities with annual group turnover of less than $50 million.
The corporate tax rate applies to Australian companies and to Australian branches of foreign companies.
A 10% Goods and Services Tax is imposed on the supply of most goods and services. It is a value added tax and is refunded to all parties in the chain of production other than the final consumer.
GST is reported to the Australian Taxation Office on a monthly or quarterly basis.
Each of the Australian states and territories levy payroll tax on assessable wages. There is a threshold below which payroll tax is not payable. In NSW, for example, payroll tax of 5.45% applies to wages above $1.2 million per year.
The states also levy land tax on property ownership, as well as stamp duty on the transfer of some assets.
Payroll and HR Matters
Fringe Benefits Tax (FBT)
FBT is levied on most noncash benefits that an employer provides in respect of employment. It is levied on the employer, not the employee, and is imposed whether the benefit is provided directly to an employee or to an associate of the employee.
FBT is imposed at 47%, equal to the top marginal individual income tax rate.
Some benefits are exempt (eg employee relocation expenses), and others receive some concessional treatment (eg cars), which can present opportunities for tax effective salary packaging.
Most employers will consider the total cost of an employment package, including the FBT cost, when negotiating a salary package.
Full time employees in Australia work 38 hours per week and are entitled to 20 days annual leave per year. This is pro-rated for permanent part time employees, while casual employees are not entitled to annual leave. Unused annual leave is carried forward until it is either used or paid out on termination.
Full time and permanent part time employees are also entitled to 10 days personal/carers leave (ie sick leave) per year, and 2 days compassionate leave per occasion.
After 10 years of full-time service with one employer, an employee will generally be entitled to long service leave. The entitlement varies slightly from state to state, but in NSW an employee is entitled to 2 months long service leave after 10 years, and one month for each 5 years thereafter.
The Superannuation Guarantee scheme is designed to allow employees to accrue retirement benefits. Under the scheme, an employer is required to make superannuation contributions for most employees. The rate that is required to be contributed is currently 10.5% of gross wages, but this is proposed to increase annually until 1 July 2025, when it will reach 12%.
Workers Compensation Insurance
Workers compensation insurance is compulsory in all states. Premiums are calculated by applying a rate commensurate with the level of risk of the work to the employer’s total wages, superannuation and fringe benefits tax expenses for the year.
Employee Share Schemes
The Australian tax system includes some tax concessions for employee share and option schemes. These provisions are most attractive to “start-ups”, which are broadly defined as Australian resident unlisted companies where all members of the group have been incorporated for less than 10 years, and with annual turnover of not more than $50 million.
Is there anything else that I should know?
Australia is amongst the wealthiest countries in the world. With an educated and skilled workforce, it presents a great opportunity for expansion. Australia welcomes and encourages foreign investment, and while the government has the power to block proposals that are contrary to the national interest, the screening process is transparent and liberal.
Australia offers a multilingual, highly educated and skilled workforce, benefitting from a comprehensive education and training system.
The country is split into 3 separate time zones. In most states, daylight savings operates for half the year, from the first Sunday in October to the first Sunday in April. During these months, time in Sydney is GMT + 11, so when it’s 9am in Sydney, it is 6pm and 11pm the previous day in New York and London respectively. For the rest of the year, Sydney time is GMT + 10. These time differences are sometimes attractive to businesses that are seeking a 24/7 global presence.
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