DOING BUSINESS IN AUSTRALIA - AACC – Houston...

DOING BUSINESS IN AUSTRALIA

Doing Business in Australia – AACC Meeting

EXECUTIVE SUMMARY

• Begin with the end in mind

• What structure do I use ?

• Income tax status

• On going tax obligations

Doing Business in Australia – Industry Briefing Session

BEGIN WITH THE END IN MIND

Doing Business in Australia – Auckland Delegation Meeting

• Do you have an entry plan

• What is the purpose of doing business in Australia:

• Are we here to develop a business;

• Is Australia just a service centre

• Does the plan include an end game i.e. is the final goal:

• Local sale of business assets or company.

• IPO ?

• Will you just wind-down, deregister or liquidate.

• Costs incurred during exit are unlikely to be tax effective.

• You will need to leave some cash behind.

• Obligation to maintain records for up to 7 years.

WHAT STRUCTURE DO WE USE?Company Branch

Limitation of liability Australian entity Foreign entity

Local presence Local resident director and public officer

Local agent and public officerAgent is personally liable for penalties!

Office Registered office and business office

Registered office which must be open

Shareholding At least one shareholder n/a

Financial reporting Must lodge accounts if large Must lodge foreign accounts if large Publicly available

Registration with ASIC & ATO

Must register local subsidiary Must register foreign company

Company officers Local directors subject to Australian corporations law –may seek indemnity

Foreign directors subject to Australian corporations law

Doing business in Australia – Auckland Delegation Meeting Australia – Industry Briefing Session


Local funding/Banking Possible Difficult

Customer perception Many customers expect a local subsidiary

Can be impediment to obtaining work

Administrative ease of use Easier Sometimes difficult

Ability to exit Deregister or liquidate Withdraw presence


CAN I USE BOTH?

INCOME TAX STATUSCompany Branch

Taxed on Profits of Australian operations

Profits of Australian operations

Tax rate 30% 30%

Profit repatriation 5% (but 0% if franked) 0%

Loss carry forward Yes Yes

Royalties ≤ 5 % ≤ 5 %

Interest 10% 10%

Thin capitalisation Yes Yes

Taxation on sale Maybe not (only if Coy ownsreal property)

Yes

Transfer pricing Yes Yes

R&D Yes No


ONGOING TAX OBLIGATIONSTax Tax Base Borne by Rate Filing Payment/

Withheld

Income tax return Profit Taxpayer 30% Annual Quarterly or Annual

Salary/Wages and Medicare Levy withholding

Cash received Employee Up to 46.5% Annual Weekly to quarterly by payer

Fringe benefits Value of benefit Employer 47% Annual Quarterly or Annual

Non Resident WHT InterestDividendRoyalties to non-residents

Payee Interest - 10% .Div rate 5 –15% Royalty ≤ 5%

Superannuation Salary Employee 9.5% and increasing

n/a Quarterly or Monthly



Withheld

Workers Compensation

Total employee compensation

Employer Industry & Employer Rating

Annual Report

Annual

Customs duty & concessions

Value of imported goods

Importer 5% Upon import

Upon import

GST – B2B Value of goods andservices

Purchaser importer

10% Monthly, Quarterlyor Annual

Monthly,Quarterly or Annual

Payroll tax Salaries and benefits provided to employees

Employer State-basedthreshold

4.75% Monthly Monthly

Stamp Duty Value of dutiable goods

Acquirer Approx 5% With transaction

With transaction


EXECUTIVE SUMMARY

End of Executive Summary

Any questions ?


DOING BUSINESS IN AUSTRALIADetailed presentation slides


BUSINESS STRUCTURES

• Business in Australia can be conducted through a wide range of entities.

• The choice of entity type has significant tax and regulatory implications. It can also effect any future restructure or exit opportunities.

• Consider home taxation rules to ensure efficient structuring.

• The following main entity types exist in Australia:

- Company- Branch of an overseas entity- Joint Venture



Limitation of liability Australian entity Foreign entity

Local presence Local resident director and public officer

Local agent and public officerAgent is personally liable for penalties!

Office Registered office and business office

Registered office which must be open

Shareholding At least one shareholder n/a

Financial reporting Must lodge accounts if large Must lodge CN accounts if large Publicly available

Registration with ASIC & ATO

Must register local subsidiary Must register foreign company

Company officers Local directors subject to Australian corporations law –may seek indemnity

Foreign directors subject to Australian corporations law

Doing business in Australia – Auckland Delegation Meeting Australia – Industry Briefing Session


Local funding/Banking Possible Difficult

Customer perception Many customers expect a local subsidiary

Can be impediment to obtaining work

Administrative ease of use Easier Sometimes difficult

Ability to exit Deregister or liquidate Withdraw presence


CAN I USE BOTH?

BUSINESS STRUCTURES

• A company is defined as a body corporate or any other unincorporated association or body of persons.

• A company can be registered as either a proprietary or a public company.

• A proprietary company can not have more than 50 non-employee shareholders.

• A proprietary company must have at least one director but is not required to have a company secretary.

• A public company must have at least three directors and at least one company secretary. At least two directors and one secretary must be Australian residents.

• Public companies may be listed on the ASX and are able to raise capital from the public (subject to ASX listing rules).


Company

BUSINESS STRUCTURES

• Proprietary companies cannot raise capital from the public, but are subject to less onerous reporting requirements.

• Generally, foreign investors usually conduct their business in Australia via a proprietary company structure. This structure has the benefit of isolating the tax consequences of the business operation from the foreign parent entity whilst allowing the parent to maintain control over the business operations.

• A company’s financial statements are required to be audited by a registered auditor, except where the company is a “small proprietary company”. An application to ASIC is required.

• A company must be registered with the Australian Securities and Investments Commission (ASIC). This generally requires choosing a company name and obtaining an Australian Company Number (ACN).

• A company is also required to register with the Australia Taxation Office (ATO) and apply for an Australian Tax File Number (TFN) and an Australian Business Number (ABN).


Company

BUSINESS STRUCTURES

• Corporate Income tax is levied at 30% on both income and capital gains.

• Losses can be carried forward indefinitely subject to Continuity of Ownership test or, failing that, the same Business Test. Special rules apply to consolidated groups. Capital losses may only offset capital gains.

• Losses can also be carried back for up to 2 years subject to a number of threshold tests.

• Petroleum Resource Rent Tax (PRRT) and Minerals Resource Rent Tax (MRRT)

• There are various concessions and incentives for businesses in Australia including:- Research and Development concessions;- Incentives for venture capitalist entitles; and- several concessions available only to small business taxpayers (i.e. aggregated

turnover of less than $2 million).


Taxation of Companies

BUSINESS STRUCTURE

• All companies are required to prepare annual accounts and lodge a company tax return.

• 2 or more wholly-owned Australian resident companies can ‘consolidate’ and be treated as a single entity for tax purposes. One company is nominated as the head company and lodges a single, consolidated company tax return on behalf of the group.

• The income tax year normally starts on 1 July, but can be substituted with another period to align with head office reporting requirements.


Taxation of Companies

BUSINESS STRUCTURES

• Branches (or permanent establishments) are treated as Australian residents for tax purposes. These are also required to register with ASIC and are taxed at the same rates applicable to companies.

• Branches of foreign companies are required to lodge separate annual reports financial reports with ASIC. However, where the foreign parent registers as a foreign company in Australia, the parent will be responsible for lodging financial reports in respect of the branch.

• Generally, the establishment of a branch in Australia does not result in any material cost disadvantage to that of a subsidiary. However, it may be more commercially desirable to establish a subsidiary if obtaining local finance.

• ARBN Registration is required to report to ASIC.

• An Australian Business Number (ABN) and Tax File Number (TFN) must be obtained.


Branches

INCOME TAX STATUSCompany Branch

Taxed on Profits of Australian operations

Profits of Australian operations

Tax rate 30% 30%

Profit repatriation 5% (but 0% if franked) 0%

Loss carry forward Yes Yes

Royalties ≤ 5 % ≤ 5 %

Interest 10% 10%

Thin capitalisation Yes Yes

Taxation on sale Maybe not Yes

Transfer pricing Yes Yes

R&D Yes No



Withheld

Workers Compensation

Total employee compensation

Employer Industry & Employer Rating

Annual Report

Annual

Customs duty & concessions

Value of imported goods

Importer 5% Upon import

Upon import

GST – B2B Value of goods andservices

Purchaser importer

10% Monthly, Quarterlyor Annual

Monthly,Quarterly or Annual

Payroll tax Salaries and benefits provided to employees

Employer State-basedthreshold

4.75% Monthly Monthly

Stamp Duty Value of dutiable goods

Acquirer Approx 5% With transaction

With transaction


BUSINESS STRUCTURES

• A joint venture is not defined for Australian income tax purposes, and can be structured as a company, partnership, or simple contractual relationship.

• Unincorporated joint ventures are not taxable entities and do not lodge a ‘joint’ tax return. Each party lodges their own separate tax return and are assessed accordingly.

• Frequently used in Natural Resources where parties are contributing different aspects to a project or mine.

• Farm-in arrangements properly structured are tax neutral.


Joint Ventures

BUSINESS STRUCTURES

Partnership Joint Venture Trust

Taxed To Partners To venturers, unless set up as a company

To trustee unless declaration of income to beneficiary

Lodgement By Partnership, and income included in partners’ returns

By venturers only unless a partnership for tax

By Trustee, and income included in beneficiaries returns if declared


Other Structures

HOW DO I FUND MY OPERATIONS?Equity Debt

Flexibility Medium High

Taxation of profits Australia Offshore

Withholding tax Unlikely 10%

Funding limitation No 60% of assets (where >$2 M interest)

Ability to raise locally Limited Limited

Tax arbitrage Yes Yes

FX exposure Yes Yes

Transfer Pricing No Yes


FOREIGN INVESTMENT AND OTHER TAXES

• Non-residents are only subject to Australia capital gains tax in respect of taxable Australian property (i.e. real property held directly by the foreign resident or interposed entities which the parent entity has a 10% or greater interest and where more than 50% of the value of the interposed entity’s assets is attributable to real property).

• A resident who is in control of this income is obliged to retain sufficient funds to pay the tax provided the ATO has issued an assessment notice.

• Changes announced in the recent Federal Budget mean a 10% non-final Withholding Tax will apply to the disposal of taxable Australian property by non-residents.

• CGT discount available only for gains accruing before 8 May 2012 where the non-resident has obtained a market valuation.


CGT

EMPLOYEE IMPLICATIONS

• Most temporary visa holders will qualify.

• Subject to tax on Australian sourced income and employment income while in Australia.

• Foreign gains are ignored – only gains on Aust. property are taxed.

• Not required to withhold from payments to foreign residents.

• Superannuation to o/s fund not subject to FBT.


Temporary Residents

EMPLOYEE IMPLICATIONS

• Can access superannuation when permanently depart subject to WHT.

• May access relocation benefits but not Living Away From Home Allowances (LAFHA).

• Consider Tax Equalisation policy.

• Tax Return Lodgement requirement and check any tax exemption in the Double Tax Agreement.


Temporary Residents

EMPLOYEE SHARE AND OPTION SCHEMES

• There are special rules that apply if a taxpayer acquires shares or options for a discount in a company under an employee share scheme. The taxation on the discount received will generally be assessed up-front i.e. in the tax year in which the employee is granted the shares and/or options.

• However, assessment may be deferred where there is a ‘real risk of forfeiture’ under the terms of the Employee Share Option Plan.

• The Employer has reporting requirements at the end of the year.


Overview

EXIT STRATEGY?


• Begin with the end in mind

• Wind-down, Deregister or Liquidate.

• Local sale of business assets or company.

• IPO to sell out of shareholding.

• Understand your statutory obligations – especially in respect of environmental issues.

• Costs incurred during exit are unlikely to be tax effective.

• You will need to leave some cash behind.

• Obligation to maintain records for up to 7 years.

DOING BUSINESS IN AUSTRALIA - AACC – Houston...

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