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Key Factors to Consider When Choosing Between a Subsidiary and a Branch Office in Australia

 

There are two main legal structures in which a foreign company may conduct business in Australia.

  • Establishing a branch office by registering the foreign company in Australia;

  • Or establishing a subsidiary.

The type of structure you decide to choose will affect a list of things such as the tax you will pay, liability and more.

What is a Subsidiary or Trading company?

A subsidiary is a proprietary limited company (PTY LTD) in which the parent company/holding company controls or majority owns another company.  If the foreign company is a small to moderate business, then a subsidiary is typically the best option to register an entity in Australia. Australian Subsidiaries are eligible to be treated as local tax residents, opening access to Australia’s attractive tax incentive scheme. 

 

With a subsidiary you will be able to conduct your Australian business as a separate legal entity, limit your liability to the subsidiary and enjoy asset protection by the subsidiary company.  The subsidiary company reports to the holding company.

What is a Parent or Holding Company?

A parent or holding company will control or own the subsidiary company.  It holds the property, purchases and holds shares.  It owns the assets that are used by the subsidiary company. 

Business activity

In terms of business activity, you can run a business completely different from the parent company.

Annual compliance

In terms of annual compliance, All companies will receive an Annual Statement on the Annual Review date, (which in most cases is on the anniversary of the company’s date of incorporation).

The Annual Statement Package includes:-

 

  • A statement of your company’s current details including your company’s corporate key.

  • An invoice for your company annual review fee.

  • Company directors must pass and store a solvency resolution within two months of the Annual review date, unless you have lodged a financial report with ASIC in the past 12 months.

Key facts about a Subsidiary Private Company

To run a private subsidiary in Australia, you need to comply with the following:

  • 1 or more resident directors: At the time of incorporation, you need at least one local resident director. This is someone who is an Australian citizen, a Permanent Resident and is over 18 years old.

  • Director ID – All new directors are required to obtain a Director ID which is a unique identification number which will help prevent the use of false or fraudulent director identities. You will only apply once and keep forever.  It is an offence and there are penalties if you do not meet the Director ID obligations under the Corporations Act 2001.

  • Paid-up capital: The minimum paid-up/share capital for a company to register an Australian company is AUD$0.01. Any time after the company has been incorporated, the share capital can be increased.

  • A registered address in Australia: The address that is provided for the company must be located in Australia. In addition, it must be a physical address (residential or commercial). A P.O. Box will not be accepted.

  • A business address in Australia:  The address that is provided for the company must be where the business is operating from.

  • Auditor: within 3 months of incorporation, every company must appoint an auditor, unless the company has been exempted from audit (which is the case for most startup companies).  In this case the company must then file a solvency resolution in the event of its exemption from Audit. 

  • Foreign Owned Australian companies Financial Reporting: Form 384 – Resolution by directors of Small Proprietary company controlled by a Foreign company which is not part of a ‘large group’ –  This form is used for notification of the resolution made by directors, in accordance with aSIC Corporations (Foreign Controlled Company Reports) Instrument 2017/204, in relation to relief from the requirements to prepare and lodge accounts and to have the accounts for small proprietary companies controlled by a foreign company.

Documents required

The following documents are required for the incorporation of a subsidiary:

 

  • Parent company’s certificate of incorporation 

  • A copy from the Registrar of Companies that shows the current registered address and directors of the parent company

  • A resolution that authorises an individual to sign necessary documents on behalf of the parent company

  • Passport particulars and residential address details of individuals who will act as the directors of the subsidiary company

  • A signed Consent to Act As Director (by each director)

  • Registered address details of the subsidiary company

  • Constitution for the Australian subsidiary company

Need help setting up from overseas?  Book a free consultation

What is a Branch office?

In Australia, a branch office is part of a larger company.  All branch companies are the same company, they are just registered in multiple locations and provide services to a larger number of people.  They carry out the same operations as the head branch office.

 

Why register as a branch office? 

It is to generate revenue and operation in Australia for the foreign parent company. A branch office is seen as a non-resident company, hence why it will not be eligible for tax incentives and exemptions in Australia.

As it is not a separate legal entity,  the parent company is liable for all the debts and liabilities of the branch office.

Business activity 

Your business activities have to be aligned with your parent company, meaning it cannot be different. It can also generate commercial revenue aligned to the parent company however, a portion of the profits is subjected to the local corporate tax.

Annual compliance – Tax

 

A branch office is required to submit the audited accounts of Parent Company and audited financial statements of its branch office.

Registration requirements for a branch office

When registering your foreign company with ASIC as a branch, the company can conduct business throughout Australia without needing to register in individual states and territories. 

Below are some administrative matters that need to be fulfilled as part of the incorporation process:

  • One option: to register directly as a foreign company with ASIC.  This option establishes a branch in Australia, as it does not require the establishment of a separate legal entity.

  • Second option: to register the company such as a proprietary limited (Pty Ltd) company which will transform your entity into a separate legal entity.

Option one – Registering as a Foreign company with ASIC. (see below)

  • Name: The name of the Australian branch has to correspond to the name of the foreign company.  However in some cases this name will not be available to register in Australia due to the existence of a business or company that is already registered in Australia, see the options below:

  • Change your company name in your home jurisdiction to a name that is available.

  • Apply for government consent to register an identical company name.

  • Make a minor change to the name of your company.

  • You must maintain a registered office and business address in Australia.

  • A registered foreign company must always have a local agent.  The local agent is responsible for any obligations the company must meet and maybe liable for any breaches or penalties.

  • Officers: A branch has to appoint at least 1 authorised representative who is a Australian citizen or Permanent Resident. 

  • Constitution and Activities: There is no separate constitution for the branch office. The branch’s activities are directed by foreign company’s constitution

Documents required

The following documents are required for the registration of a branch office:

 

  • Foreign company’s Certificate of Incorporation (copy)

  • Foreign company’s Constitution (copy)

  • Particulars of the directors of the foreign company

  • A memorandum of appointment and details of at least 1 person resident in Australia (who can act as the authorised representative)

  • A memorandum executed by/or behalf of the foreign company that states the powers of the local authorised representative

  • Registered address details in Australia

  • Latest audited financial statements of the parent company

 

Overview: Pros and cons between the two

 

Subsidiary

Branch 

Legal nature

  • Parent Company as the shareholder

  • Enjoys separate legal entity, able to own assets and be sued/sue in its own name

  • Enjoys Asset Protection owned by the Subsidiary Company

  • Not a separate legal entity, mere extension of the Parent Company

  • Liabilities and Assets are from Parent Company, no asset protection

Business activity 

Can be different from the Parent Company

Align with the activities of the Parent Company. It cannot be different from the Parent Company. It can generate commercial revenue aligned to the Parent Company however a portion of the profits is subjected to local corporate tax.

Annual compliance

May need to prepare a set of financial statements and to submit financial statements in when filing annual return with Australian Taxation Office.

Branch office is required to submit the audited accounts of Parent Company and audited financial statements of its branch office.

Tax incentives

A resident entity in Australia, can enjoy tax incentives such as the R&D tax offset, technology investment boost etc. 

Not eligible for tax incentives as it does not create a resident entity in Australia

Appointment of officers

at least 1 local resident Director & Company Secretary

at least 1 authorised representative

Company name

Can be different from the Parent Company

Must be the same as Branch Office

Registered office address

Mandatory

Mandatory

Foreign ownership

Yes – foreign ownership is allowed

Serve as an extension to the Parent Company

Opening a bank account

Yes

Yes

Paid up capital 

Minimum $ 0.01 (at 1 ordinary share)

May not be required

 

 

Documents required 

Appointed Officers (Individuals Only)

  • Certified True Copy of Individual Identification Document

  • Certified True Copy of Recent Address Proof

 

  • A certified copy of the Certificate of Incorporation of the foreign company

  • A certified copy of the Constitution of the foreign company

  • Particulars of the directors of the foreign company

  • A memorandum of appointment and details of at least 1 person resident in Australia who will act as the authorised representative for the Australian branch office

  • A memorandum executed by or on behalf of the foreign company stating the powers of the local authorised representative

  • Details of the registered office address in Australia

  • Latest audited financial statements of the parent company, if required to be prepared in parent country

**Any documents not in English must be translated in English before submission. The firm you have hired may require additional documents as necessary.

Next steps

This article summarises the key differences between a subsidiary and branch office in Australia. If you need more help on choosing a business structure that works for you or incorporating in Australia, contact us to learn more.

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Disclaimer: The information on this website is intended for general informational purposes only and may not be specifically relevant to everyone’s personal situation. It should not be considered financial advice or a substitute for professional tax or accounting advice. Each individual’s circumstances are unique, and laws can vary. For tailored advice, please consult a qualified professional. Contact Sleek for further information on how we can help you.

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