ABSTRACT

Doing in Australia has been prepared for the DOING BUSINESS use of exploring the opportunities of establishing a presence in Australia.

Given the ever-changing business landscape this document has been prepared as a guide and we

IN AUSTRALIA recommend professional advice should be sought.

Table of Contents

Table of Contents ...... 0 Introduction ...... 2 Business structures ...... 5 Tax Implications of Structures ...... 7 Sole Trader/ ...... 7 ...... 7 ...... 8 Trust ...... 8 Accounting, Reporting and Audit requirements ...... 1 0 Accounting ...... 10 Reporting and audit ...... 10 Company Tax and other Tax law ...... 11 Income Tax ...... 11 Capital Gains Tax ...... 11 Fringe Benefits Tax ...... 11 Goods and Services Tax...... 12 Withholding Tax ...... 12 Thin Capitalisation ...... 12 Transfer Pricing – OECD Model ...... 12 Other Taxes ...... 12 Employment law ...... 13 Employment Conditions ...... 13 Occupational Health and Safety System ...... 13 Superannuation ...... 13

inaa doing business in australia article_r350164

Introduction

In an uncertain world, Australia is a safe, secure and desirable place in which to do business. It has an established legal system, robust economy, stable political environment and the availability of a highly educated, multicultural and multilingual workforce. Geographically located within the Asia -Pacific region and with time zones spanning the close of business in the United States to the opening in Europe, it’s a prime location for doing business globally.

Ranked 5th in the world for its economic freedom, Australia’s efficient business environment makes it one of the easiest places in the world to do business, ranking 14th out of 190 economies. It takes around 2.5 days and a minimum of three procedures to start a business. The country also ranks particularly well for enforcing (3rd globally) and obtaining credit (6th).

Australia is the world’s 13th largest economy and has an AAA rating from three global agencies, has experienced 27 years of consecutive annual economic growth and is the only developed economy in the world to achieve this distinction.

Australia has a diverse economy with sectors ranging from export of minerals and raw materials to financial services, infrastructure, information and communication technology and biotechnology.

*images sourced from Austrade.gov.au

inaa doing business in australia article_r350164

inaa doing business in australia article_r350164

inaa doing business in australia article_r350164

Business structures

The selection of the right business structure is essential in establishing a solid foundation as each structure has its own regulatory and tax considerations which affect the business and its owners. There are a range of business structure options for conducting business in Australia and these are outlined below.

Business Key Features Regulations Structure

Sole Trader • Not a separate legal entity – the owner and the business are one

• Simplest business structure therefore minimal start- up costs

• Owner is personally liable for all business debts

Companies Proprietary • Regulated by the Australian Securities • At least 1 shareholder but no more than 50 non- and Investment employee shareholders Commission (ASIC) • Must have at least 1 director who is ordinarily under the resident in Australia Act

• Can have, but not required, a Company Secretary • In some cases, disclosure to investors • Must have a Public Officer for tax purposes may be required for • Must have a registered office in Australia capital raising purposes • Managed by its directors

• Shareholders’ rights in relation to the company are governed by the constitution. A shareholders’ agreement would govern the relationship between the shareholders

• Cannot engage in any activity that would require the lodgement of a prospectus (except for an offer of shares to existing shareholders or employees)

• Provides for its shareholders, so that upon winding up of the company a member’s exposure is limited to the paid and unpaid amount on their shares.

inaa doing business in australia article_r350164

Business Key Features Regulations Structure

Public companies

• Are used for large public ventures

• Must have at least 1 shareholder

• Must have at least 3 directors (2 of whom are ordinarily residents in Australia)

• Must have at least 1 company secretary who is ordinarily a resident in Australia

• Must have a public officer for tax purposes

• Must have a registered office in Australia

• Managed by its directors

• Shareholders’ rights in relation to the company are governed by the constitution. A shareholders’ agreement would govern the relationship between the shareholders

• May, but need not, be listed on the Australian Stock Exchange (ASX)

• Subject to securities and other applicable laws, may issue a prospectus for the offer of shares, debentures or other securities

Joint • A joint venture creates a common enterprise for • Regulation can Ventures parties to assist each other with a common goal or depend on the type of project joint venture vehicle (e.g. a trust or • Investors’ rights are governed by a joint venture company) agreement, a unitholders’ agreement (where the joint venture vehicle is a trust) or a shareholders’ agreement (where the joint venture vehicle is a company)

• Can be used in conjunction with trust or company structures

• Enables co-operation with other market participants – e.g. ability to access other market participants’ resources

Partnerships • Not a separate legal entity – the partners are jointly • Partnership Acts of and severally liable for the debts of the business the States and Territories • Subject to certain exceptions, there cannot be more than 20 partners • Partnership deed

inaa doing business in australia article_r350164

Business Key Features Regulations Structure

• Shared control and management of the business by • Common law the partners

• A partnership deed would govern and regulate the relationship between partners

Trust • A trustee owns the assets of the business and • carries on the business for the benefit of the beneficiaries of the trust

• The trustee may be an individual or a

• A formal trust deed is required to set up a trust – this document outlines how the trust is to be governed

Registering • A foreign company can carry on a business in • Regulated by ASIC a foreign Australia if it completes the forms, appoints a local under the company agent and lodges and pays the prescribed fees. Corporations Act (Branch) • A registered office needs to be established in Australia

• A local agent must be appointed, maybe an individual or organisation.

Tax Implications of Structures Sole Trader/ Sole Proprietorship

The business income is treated as the individual’s income. This means that, after claiming a deduction for all allowable expenses, you include all your business income with any other income and report it on your individual tax return.

As a sole trader, you pay the same tax as individual taxpayers, at personal income tax rates. Individuals who are Australian residents don't pay tax on the first $18,200 they earn.

Partnership

A partnership is not a separate legal entity and doesn't pay income tax on the income it earns. Instead, you and each of your partners pay tax on the share of net partnership income you each receive.

While the partnership doesn't pay tax, it does have to lodge an annual partnership tax return to show all income earned by the partnership and deductions claimed for expenses incurred in carrying on the partnership business. The tax return also shows each partner's share of the net partnership income.

inaa doing business in australia article_r350164

Company

If you run your business as a company, the money the business earns belongs to the company.

Under the self-assessment system, companies must lodge an annual company tax return, which shows the company's income, deductions and income tax it is liable to pay.

Companies also usually pay PAYG instalments (pay-as-you-go instalments) which are credited against the total annual income tax it is liable to pay.

A company pays income tax on its assessable income (profits) at the company tax rate, which is currently generally 30%. The company may be eligible for some tax concessions reducing that rate to 27.5%

The amount of tax it is liable to pay is reduced by any PAYG instalments paid during the year. There is no tax-free threshold for companies.

Trust

Whether or not a trust is liable to pay tax depends on what type of trust it is, the wording of its trust deed and whether any of the income the trust earns is distributed to its beneficiaries.

Where the whole of the net trust income is distributed to Australian resident beneficiaries, including adult individuals, the trust is not liable to pay tax. The trust may be able to access some tax concessions.

Where all or part of the net trust income is distributed to either non-residents or minors, the trustee is assessed on that share on behalf of the beneficiary. In this case, the beneficiaries must declare that share of net trust income on their individual income tax returns and claim a credit for tax paid on their behalf by the trustee.

Where the trust accumulates net trust income the trustee is assessed on that accumulated income at the highest individual marginal tax rate, currently 47%.

inaa doing business in australia article_r350164

If a trust is carrying on a business, each year all income the trust earns and deductions it claims for expenses it incurs in carrying on that business must be shown on a trust tax return. The tax return also shows the amount of income distributed to each beneficiary.

Business Income taxed Lodges a Income taxed Income taxed Structure at the separate at individual at corporate Business Tax Return rates rate Structure level

Sole Trader No No Yes No

Company Yes Yes No Yes

Joint No Yes Yes (2) Yes (5) Venture

Partnership No Yes Yes (3) Yes (6)

Trust Yes (1) Yes Yes (4) No

Branch Yes Yes No Yes

1) A Trust will only have income taxed at the Trust level if it doesn’t distribute all its income to beneficiaries.

2) A Joint Venture may have its business income ultimately taxed at individual tax rates if one of the joint venture members is a trust that distributes to an individual

3) A income may be taxed at individual tax rates if the partners are individuals.

4) Trust Income may be taxed at individual rates if a distribution is made to an individual or the trust doesn’t distribute all or some of its income (taxed at top marginal individual rates)

5) A partnerships income may be taxed at corporate tax rates if the partners are companies.

inaa doing business in australia article_r350164

Accounting, Reporting and Audit requirements Accounting

Australia has adopted the IFRS accounting standards and audit standards are compatible with International standards.

Our balance date is generally 30th June however, a foreign owned entity can apply for a substituted accounting period to align with its foreign parent’s balance date. This can be done for both accounting and tax compliance.

The Corporations Act requires companies and entities carrying on a business to maintain various records and registers of their accounting and administrative transactions. The Corporations Act also requires that certain documents be filed with Australian Securities Investments Commission (ASIC) so that an updated record of the company’s affairs is available.

Reporting and audit

All companies must keep appropriate accounting records. The need for auditing those records is generally determined by whether the company is a large or small company.

A proprietary company is either a large proprietary company or a small proprietary company, and large proprietary companies are generally required to be audited.

A large proprietary company is one that satisfies at least two of the following tests:

 the consolidated revenue for the financial year of the company and any entities it controls is $25 million or more ;

 the value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $12.5 million or more; and

 the company and any entities it controls have 50 or more employees at the end of the financial year.

Small companies are not required to be audited provided all the shareholders agree to that.

There may be some exemptions from audit for start-up companies or small companies that become large, subject to specific financial management reporting controls and covenants, however timing of that application is crucial if seeking on-going audit exemption.

Most large and foreign controlled companies will also need to lodge annual reports with ASIC.

inaa doing business in australia article_r350164

Company Tax and other Tax law

The Australian taxation implications of doing business in Australia will largely depend on the business structure and the scale of operations. Each level of government in Australia imposes its own taxes. The Federal government imposes the most significant taxes for business being income tax, Fringe Benefits Tax (FBT) and Goods and Services Tax (GST), custom duties and excise duties.

Income Tax

Companies

Income tax for companies is determined based on whether the company meets the requirements to be defined as a Small Business Entity. A Small Business Entity is defined as a business that has less than $50 million aggregate turnover in the 2019 financial year. An income tax rate of 27.5% will apply to small business in the 2019 financial year and 30% for all other businesses. Legislative changes surrounding the company tax rate are in progress.

Tax benefits for business include accelerated depreciation of assets used in a business and Research and Development tax concessions. Companies turning over less than $20 million - a 13.5% tax bonus on eligible expenditure – and cash back; for those turning over $20million or more – a non-refundable 8.5% tax bonus.

Individuals

A stepped scale for individuals – nil up to $18,200, and then ranging up 47% for those earning over $180,000. Non-residents rates commence at 32.5% on income up to $87,000 and then follow the scale applicable to residents.

Australia also has franking of dividends – a tax credit for company tax paid attached to dividends.

Capital Gains Tax

Capital Gains Tax (CGT) applies on any capital gain made through the disposal of assets. It is paid as part of income tax. Australian resident companies pay tax on capital gains at the company tax rate. Individuals pay tax on capital gains at individual tax rates. Resident individuals are generally entitled to an exemption of 50% of any gain if the asset has been owned for 12 months or more.

Foreign entities will generally be subject to CGT on property assets acquired in Australia and are required to keep records upon acquiring assets that may be subject to CGT in the future.

Small businesses may also be eligible for CGT concessions under certain circumstances.

Fringe Benefits Tax

Fringe benefits tax is applied to benefits provided to employees in lieu of, or additionally, to wages and salary. Benefits can include entertainment and motor vehicles. Fringe Benefits tax is paid by the company at the top individual tax rate including the Medicare levy, currently 47%.

inaa doing business in australia article_r350164

Goods and Services Tax

The Goods and Services Tax (GST) is a national, broad-based consumption tax on most goods and services sold or consumed in Australia. Exports are generally GST free. Goods and Services Tax (GST) is similar in nature to Value Added Tax (VAT) and is set at 10%.

GST is paid by the end consumer of the goods or service. Businesses that earn over $75,000 are required to register for GST and therefore complete annual, quarterly or monthly Business Activity Statements to report to the government the GST they paid and collected and therefore the amount receivable/payable.

Withholding Tax

Australia has withholding taxes on payments for royalties, interest and dividends to most non- residents, subject to Tax Treaty variations, however fully franked dividends to most countries are not subject to withholding.

Thin Capitalisation

Thin capitalisation tests apply to inwards and outwards investments, potentially limiting interest tax deductions on over-geared entities.

Transfer Pricing – OECD Model

Transfer pricing requirements generally follow the OECD model and Australia has signed on to the Country by Country reporting for significant global entities.

Other Taxes

State Governments have some specific taxes, but the most significant ones are generally limited to property transactions (duty), property ownership (land tax) and employment (payroll tax). The rates vary from State to State but these imposts are generally not so great as to sway a decision on doing business in Australia.

inaa doing business in australia article_r350164

Employment law

Australia offers a skilled, multicultural and multilingual workforce. When considering employing people in Australia businesses and organisations must comply with a range of legislative requirements.

Employment Conditions

All employees in Australia are entitled, by law, to the terms and conditions defined by the National Employment Standards. These standards cover entitlements such as weekly working hours, requests for flexible working arrangements, leave and related entitlements, and termination and redundancy payments.

Occupational Health and Safety System

Employers in Australia are required to maintain a safe workplace and meet Australian occupational health and safety requirements. These requirements also ensure employers are appropriately represented in the case of a workplace incident.

In addition to Australian Government legislation, state and territory laws govern occupational health and safety. A workplace authority in each state or territory provides advice on business’ obligations and the relevant policy.

Superannuation

Superannuation is a form of pension fund, where money is set aside over the employee’s lifetime to provide for their retirement. Under Australian law, most employees are entitled to have superannuation payments made on their behalf by their employer. These payments are in addition to salaries and wages. Currently the contribution rate is 9.5% of the employee’s salary or wages and benefits provided, and this rate will increase after 2021 progressively to 12% by 1 July 2025.

The Superannuation Guarantee law requires that all eligible employees receive a minimum superannuation payment per quarter, payable by their employer into the individual’s nominated superannuation account in a complying superannuation fund.

inaa doing business in australia article_r350164