Investing in Asia Pacific 2015: Australia Australia China Hong Kong India Indonesia Japan Korea Malaysia Singapore Taiwan Thailand Vietnam Audit Tax Advisory
All lasting business is built on friendship. Alfred A. Montapert
TABLE OF CONTENTS 5 7 8 9 12 13 14 Introduction About Crowe Horwath International Establishing the business entity Tax information IPO quick facts Human resource requirements Withdrawal procedures
Investing in Asia Pacific with Crowe Horwath International
INTRODUCTION Welcome to the Crowe Horwath International Investing in Asia Pacific 2015: Australia guidebook. This guide forms a part of the Investing in Asia Pacific 2015 series and provides a quick reference for those interested in investing in Australia. While it is not exhaustive, this guide aims to answer some of the key questions that may arise. When specific issues arise in practice, it will often be necessary to consider the relevant laws and regulations and to obtain appropriate professional advice. The guidebook will cover five main topics as follows: Establishing the business entity Tax information IPO quick facts Human resource requirements Withdrawal procedures 5
Business is in itself a power. Garet Garrett
ABOUT CROWE HORWATH INTERNATIONAL The Crowe Horwath network consists of more than 200 independent accounting and advisory services firms and in over 120 countries around the world. Crowe Horwath International member firms are known for their local knowledge, expertise, and experience balanced by an international reputation for the highest quality in audit, tax, advisory and risk services. They are unified through a shared commitment for impeccable quality service, highly integrated service delivery processes and a common set of core values and management philosophies that guide their decisions daily. This unique combination of talent provides Crowe Horwath International the worldwide capabilities of a highly integrated network to deliver value to multinational clients doing business across borders. 7
AUSTRALIA Establishing the business entity Contact Roger Penman TAX PARTNER roger.penman@ crowehorwath.com.au +61 4 1399 4130 or +61 2 9619 1693 Sam Neale TAX PARTNER sam.neale@ crowehorwath.com.au +61 4 4758 9076 or +61 2 9619 1963 Crowe Horwath Level 15, 1 O'Connell St Sydney NSW 2000 1. Formation and costs Company Company can be set up within 24 hours with the Australian Securities and Investments Commission (ASIC) for around A$ 1,500. Taxation Registrations including Australian Business Number (ABN), Tax File Number (TFN), Goods and Services Tax (GST) and Fringe Benefits Tax (FBT) required. May take between 10 to 28 days. Cost between A$ 400 - A$ 750. Register with ASIC as a foreign company carrying out business in Australia. Taxation Registrations including ABN, TFN, GST and FBT required. Due to complex identity check processes, whole process can take one (1) to two (2) months. Cost between A$ 2,000 to A$ 3,000. Representative Office Assuming this is for set up of payroll only with no fixed branded office and no tax Permanent Establishment and no business carried on according to Corporations Act. Taxation Registration required to obtain ABN or Pay As You Go (PAYG) withholding number. Due to complex identity check processes, whole process can take 1 to 2 months. Cost between A$ 2,000 to A$ 3,000. 2. Investment incentives Company a. Research & Development incentives (AusIndustry, self assessed application). b. Film tax incentives (Australian Tax Office (ATO), Screen Australia). c. Export Market Development Grant (AusIndustry) and Export Finance and Insurance Corporation assistance. For all incentives need to pre-register and detailed information is needed for claim. a. Research & Development incentives (AusIndustry, self assessed application). b. Film tax incentives (ATO, Screen Australia). For all incentives need to pre-register and detailed information is needed for claim. 3. Foreign ownership restrictions Company No limit on % of foreign ownership. Same as for company. Representative Office Same as for company. 4. Work permits and visas Company Temporary work visas take around three (3) to four (4) months. In most cases, sponsorship by employer requires significant documentation and security requirements. Further information can be obtained from our recommended migration agent or lawyer. Same as for company. Representative Office Same as for company. 8
5. Accounting standards and audit requirements Company Accounting standards used in Australia are IFRS-compliant. Lodgement of audited financial statements is required for wholly foreign owned subsidiaries and companies considered large. Company is considered large if two (2) of the following tests are satisfied: a. >A$ 25 million turnover b. >A$ 12.5 million assets c. >50 employees Crowe Horwath International Investing in Asia Pacific 2015 AUSTRALIA Some limited exemptions may be available from audit and lodgement of financial statements. Accounting standards used in Australia are IFRS-compliant. Lodgement of audited consolidated foreign financial statements (or local Financial statements) is required where branch is registered with ASIC as a foreign company. Representative Office Not registered with corporate authority as not carrying on a business per Corporations law. 6. Residential directors/ promoters requirements Company At least one (1) resident director required. At least one (1) local agent required. 7. Foreign ownership over tangible assets Company Foreign Investment Review Board (FIRB) reviews asset acquisitions above minimum acquisition costs and in certain industries including mining and real property. Approval from the board may be required before acquisition can be effected. FIRB reviews asset acquisitions above minimum acquisition cost and in certain industries including mining and real property. Approval from the board may be required before acquisition can be effected. 8. Country quirks Complexity in tax registration due to requirements to certify/verify ID documents for all directors. Tax information 1. Tax rates on corporate income The Government has proposed reducing the corporate tax rate by 1.5 per cent from 1 July 2015. However, for a company with taxable income in excess of $5 million, a paid parental leave levy at a rate of 1.5 per cent will be imposed. 2. Other taxes Good and Services Tax (GST) 10% - but the supply of basic food, medical and health services, education, childcare, the export of goods and religious and charitable activities is GST free. Value Added Tax (VAT) GST is a form of VAT. PAYG PAYG tax must be withheld from wages and salaries paid to employees and remitted to the Australian Taxation Office (ATO) at rates published by the Commissioner of Taxation. FBT FBT is imposed on benefits provided to employees in respect of employment. For the FBT year ending 31 March 2015, the FBT rate will be 47%. For the FBT years ending 31 March 2016 and 2017 the top FBT rate will increase to 49%. The FBT rate will then return to 47% for the year ending 31 March 2018. Stamp Duty Stamp duty is imposed by each Australian state and territory based on the nature and location of the dutiable property. The definition of dutiable property varies between the states but can include 9
Crowe Horwath International Investing in Asia Pacific 2015 AUSTRALIA both tangible assets (i.e. plant and equipment, inventory, land and unlisted securities) and intangible assets (i.e. goodwill and other intellectual property). Where duty is imposed, the rate is determined based on the value of the dutiable property which can be as high as 7.25%. Land Tax Land tax is imposed annually on land holdings at differing rates and thresholds by the eight states and territories. Rates vary between 0% and 3.7%. 3. income While there is no profits remittance tax, Australian branch income is taxed on the same basis and at the same company tax rate as Australian resident company income. Under the business profits article of most of Australia s double tax treaties, the branch profits of an overseas enterprise will be taxable in Australia if the branch carries on a business in Australia through a permanent establishment and only to the extent that profits are attributable to the permanent establishment. 4. Income determination Generally, businesses are assessed on an accruals basis. A taxpayer may adopt the lowest of the cost, market value or replacement value in valuing trading stock (regardless of the value adopted for accounting purposes). Capital assets acquired after 19 September 1985 are subject to capital gains tax. However it is not a separate tax as gains are taxed at the individual or company rate. Individuals may be eligible for a 50% discount as are trusts provided the gain is distributed to individuals. The tax on capital gains applies to worldwide assets held by resident individuals. Non-residents may not be taxed on certain capital gains (see item 11 below). Australia operates under an imputation system in respect of dividends paid by corporations. Shareholders who receive a dividend from a company are entitled to an offset for the tax paid by that company. In the case of individuals, this can either reduce the total tax paid by the individual or result in a cash refund for any excess. A company credits its imputation/franking account when it pays corporate tax or receives a franked dividend. Similarly it debits its franking account when it franks a dividend or receives an imputed/franked dividend. Tax is paid on worldwide income derived by Australian residents. Under Australia s controlled foreign company regime, foreign entities controlled by Australian residents pay tax in Australia on an accruals basis. This regime generally applies only to certain passive income. 5. Deductions Taxpayers are allowed deductions against income for expenses connected with the production of assessable income (normal business expenses), however expenses of a capital or private nature may not be deducted. Interest is generally deductible to the extent that the sum borrowed is used for the production of assessable income. The deductibility of interest may also be restricted under Australia's transfer pricing and thin capitalisation regime, where interest costs exceed a de-minimus threshold of $250,000 (increasing to $2 million for income years commencing on or after 1 July 2014) and where certain debt to equity ratios are exceeded. The current safe harbour limit of 75:25 debt to equity will reduce to 60:40 under changes to take effect for income years commencing on or after 1 July 2014. For purchases of plant, machinery and equipment, the cost may be deducted over the effective life of the item. Accelerated depreciation is provided for some small businesses (generally turnover less than A$ 2 million) and some farming and mining expenditure. Tax losses may be offset against all income from current accounting period or carried forward indefinitely for utilisation against future assessable income. Companies that change more than 50% of their underlying ownership may however lose these carried forward losses unless they can demonstrate that they are continuing to carry on the same business that incurred the loss. 6. Group taxation policies Under the tax consolidation rules, wholly owned Australian resident group companies can elect to be treated as a single entity for Australian tax purposes. The head company acts as a single representative of the group and is able to lodge company tax returns on behalf of the entire group. Once a group is consolidated, all intra-group transactions, such as payments of dividends and asset transfers are ignored for tax purposes. Subject to some conditions, losses of subsidiaries may be transferred to the head company. 10 7. Tax incentives The Australian tax system provides tax incentives in the form of tax deductions related to capital invested in domestic manufacturing and scientific research operations. Assistance includes reduced rates of payroll tax, low cost industrial land, low interest loans and government guarantees. In addition, grants and rebates are available for export market development.
Qualifying research and development expenditure attracts a 45% refundable R&D tax offset for companies with a turnover of less than A$ 20m and a non-refundable 40% R&D tax offset for other companies. The R&D tax offset is now available for companies that undertake R&D activities on behalf of a related foreign company. Also, up to 50% Australian core activities may be undertaken overseas if certain conditions are met and approval is obtained from the Australian government through AusIndustry. Crowe Horwath International Investing in Asia Pacific 2015 AUSTRALIA Investments in the Australian film industry may also qualify for concessional Australian tax treatment. 8. Withholding tax Unfranked Dividends Franked Dividends Bank interest Other interest Royalties Technical fee profits remittance tax (see above) Paid to non-treaty country 30% 0% 10% 10% 30% 0% 0% Paid to treaty country 0-30% 0% 10% 10% 5-30% 0% 0% 9. Transfer Pricing Broadly, Australia s transfer pricing laws exist to prevent companies with international dealings shifting taxable profits offshore through the pricing of goods or services they buy or sell from overseas associates. Whilst there have been transfer pricing rules for Australian companies for many years, Australia has now brought in new rules which will require taxpayers to take further action to ensure that their transfer pricing is both justified and documented. The new rules apply for income years which commenced on or after 1 July 2013. The changes could have a significant impact on a multinational group s accounts, with new compliance responsibilities placed on public officers and the importance of now having documentation in place before lodging a tax return. It is strongly recommended therefore that taxpayers review and document their transfer pricing position now before their financial year end. Under the new rules, in order to avoid exposure to penalties later on, taxpayers must have current (contemporaneous) documentation in place at the time of lodging their tax return. 10. Tax administration The federal income tax system is administered by the Australian Taxation Office, which is headed by the Commissioner of Taxation. The states and territories have their own Offices of State Revenue which administer the various state taxes. The federal tax system operates under a system of self assessment. Under this system, income tax return forms which are required to be lodged with the Commissioner provide only limited information. However, taxpayers are required to retain records in relation to transactions relevant to the calculation of their taxable income. The Commissioner of Taxation carries out tax audits on a random basis, which can cover all transactions over a number of years. Administration of the various state taxes involves liable entities being required to register (e.g. Payroll tax and Land tax) or payment of the relevant duty when a particular document is stamped. 11. Taxable incomes for non-residential companies and individuals Non-residents are exempt from Australian tax on foreign source income. Non-residents are liable to Australian tax on all items of income and some capital gains which have a source in Australia. However, a special concessionary regime applies in determining a non-resident s liability to Capital Gains Tax (CGT). In relation to ordinary income, non-residents generally pay tax at a higher rate than their resident counterparts and are excluded from claiming personal tax offsets. Non-resident companies are taxed at the same rates of tax as resident companies but are treated differently on important aspects such as dividend imputation and tax consolidation. For resident individuals, taxpayers qualifying as temporary residents are also treated in a concessional way. 11
Crowe Horwath International Investing in Asia Pacific 2015 AUSTRALIA IPO quick facts 1. Bourses in the country a. Australian Securities Exchange (ASX). b. National Stock Exchange (based in Newcastle). 2. Admission requirements Australia Securities Exchange ASX a. Company size i. Aggregated net profit from continuing operations of at least A$ 1 million over the past three (3) years and at least A$ 400,000 over the past 12 months. ii. Net tangible assets of at least A$ 3 million or a market capitalisation of at least A$ 10 million. iii. Less than half of the total tangible assets must be cash or in a form readily convertible to cash, or if greater, the entity must have commitments consistent with its business objectives to spend at least half; and iv. Sufficient working capital (generally at least A$ 1.5 million). b. Public shareholding requirement i. Minimum 400 investors at A$ 2,000, or ii. Minimum 350 investors at A$ 2,000 and at least 25% held by unrelated parties, or iii. Minimum 300 investors at A$ 2,000 and at least 50% held by unrelated parties. c. Qualitative requirements No specific qualitative factors, but consideration must be made as to whether the investment community will view the company as attractive and give appropriate support. Newcastle Stock Exchange NSX a. Company size Minimum market capitalisation of A$ 500,000. b. Public shareholding requirement Minimum 50 shareholders of which 25% in non directors hands. 3. Typical issuance size Australia Securities Exchange ASX: Minimum generally of A$ 100,000 but average is significantly higher. Newcastle Stock Exchange NSX: No real guide. 4. Moratorium imposed Depends on the type of listing and shareholder spread but can be up to two (2) years. 5. Securities quoted allowed in foreign currency No. 6. Requirements for the appointment of a resident/local director and board composition All companies must have a Director and Secretary that reside in Australia. A listed company must have at least three (3) company directors with at least two (2) residing in Australia. Best practice and corporate governance look for boards to have a certain number of independent non-executive directors. 7. Restrictions for foreigners Certain takeover transactions may require Foreign Investment Review Board approval. 8. Methods of offer and restrictions Contact Sydney office for details. 9. Timeline Generally three (3) months. 10. Approving authorities Australian Securities & Investment Commission (ASIC) and relevant stock exchange. 11. Estimated cost involved This varies across different size companies. It includes: a. Listing fees b. Brokers & Underwriting fees c. Legal fees d. Accounting fees 12 12. Restriction on secondary listing or dual listing Available in limited circumstances.
13. Language required for: a. Prospectus: English b. Annual reports: English c. Audit report: English Crowe Horwath International Investing in Asia Pacific 2015 AUSTRALIA 14. Audit opinion required for a. IPO An Investigating Accountant s Report is required for inclusion in the prospectus. b. After IPO A full audit under Australian Audit Standards (which are fully compliant with ISAs) is required for each Annual Report. In addition, a review of the interim financial statements is required after 6 months of each financial year and continuous disclosure rules also apply. 15. Requirements of accounting auditors to be appointed Only Australian Registered Company Auditors may sign audit reports. Human resource requirements 1. Special labour standards to take heed of From 1 January 2010, employers and employees in the national workplace system are covered by the National Employment Standards (NES). Under the NES, employees have certain minimum conditions. Together with pay rates in modern awards and minimum wage orders, the NES makes up the safety net that cannot be altered to the disadvantage of the employee. The NES include minimum entitlements to leave, public holidays, notice of termination and redundancy pay. In addition to the NES, generally an employee s terms and conditions of employment can come from a modern award, agreement, pre-modern award and state or federal laws. 2. Social welfare: insurance, pension, etc Australia has a non-contributory welfare system; benefits are flat rate rather than earnings related. We also apply a much tighter means test than many other countries. In Australia the age pension is only available to those on low incomes. Some companies have a system whereby employees are eligible to become a member of a National Income Protection Plan. This Income Protection Insurance is designed to pay employees a regular monthly income should they be unable to work due to illness or injury. Superannuation is a retirement (including pensions) program in Australia. It has a compulsory element whereby employers are required by law to pay an additional amount based on a proportion of an employee s salaries and wages (currently 9.5%) into a complying superannuation fund. 3. Requirements for retirement benefits The retirement age has been proposed to be increased to 67 years of age. This will be a gradual increase from 1 July 2017. 4. Legal annual leave and public holidays Australian Employees are entitled to either 20 or 25 days annual leave for each year of service, dependent upon their job position. Unless otherwise provided by the Fair Work Act, the Employee's entitlement to annual leave accrues progressively during each year of service on a pro-rata basis and accumulates from year to year. Subject to the Fair Work Act, the Employer and the Employee may from time to time (as from 1 January 2010) agree in writing that the Employee may take an additional period of annual leave, in exchange for foregoing an equivalent amount of pay. Subject to the Fair Work Act, the Employer and Employee may from time to time (as from 1 January 2010), agree in writing that the Employee may cash out an amount of accrued annual leave, provided that the Employee shall retain at least four (4) weeks accrued annual leave after cashing in any annual leave. In such circumstances the Employee will be paid the full amount that would have been payable had the Employee taken that amount of accrued annual leave foregone. The Employer may, where it is reasonable to do so, direct the Employee to take a period of annual leave. 5. Brief information on labour unions The Australian Council of Trade Unions (ACTU) was established in 1927 with the purpose of lifting the living standards and quality of working life of all working people in Australia. Their strategy was to build union organisation of the workforce on a national basis. They still are in operation today and deal with issues around wage increases through the award system and campaigns in the field, safer workplaces, equality for women, working hours, entitlements to paid holidays and employment conditions, as well as superannuation. 13
Crowe Horwath International Investing in Asia Pacific 2015 AUSTRALIA Withdrawal procedures 1. Company: legal procedures required for liquidation For a solvent company the directors can place the company into members voluntary liquidation, whereby the Shareholders appoint a liquidator who takes control of the company, discharges its liabilities and distributes any surplus to the Shareholders. Alternatively, any company with assets of less than A$ 1,000 and no liabilities may be deregistered with ASIC. This process is simple, but provides less protection for the Shareholders. Where company is insolvent then the directors must appoint a liquidator as soon as they are aware the company is trading whilst insolvent or they can be personally liable for debts. This process is more complex and requires specialist practitioners to undertake this work. 2. Company: tax requirements When a Company withdraws from Australia there are several taxation requirements that must addressed: To notify the ATO of the Company s withdrawal from Australia a final income tax return must be lodged. The final income tax return is for the period ending on the date in which the Company ceased trading in Australia. In this return the ATO is notified that the Company has ceased trading and that no further income tax returns are necessary. If the Company is registered for GST and/or PAYG Withholding it will be required to cancel these registrations on the date it ceases trading. A final Business Activity Statement is then required to be lodged to this date, following which the GST and PAYG Withholding registrations will be cancelled. The ABN of the Company can also be cancelled at this time. The Company must notify any relevant State Taxation Authorities of its withdrawal so as to cancel any Payroll Tax Registrations. 3. : legal procedures required for closing branch When a Company withdraws from Australia there are several taxation requirements that must addressed: A Foreign Company carrying on business in Australia must register the branch with the Australian Securities & Investments Commission ( ASIC ). Upon cessation of business in Australia the must notify ASIC within seven (7) days by lodging Form 407: Notification of cessation, winding up or dissolution of a foreign company or registered Australian body. This will cancel the Australian Registered Body Number ( ARBN ). In addition to the above statutory requirements, other commercial considerations for the cessation of a include (where applicable): Termination of lease and rental agreements Payout of employee entitlements Closure of banking facilities 4. : tax requirements A is generally required to fulfill the same taxation obligations as a Company; accordingly the withdrawal process for tax purposes is similar to that of a Company. The must: Notify the ATO of its withdrawal from Australia and lodge a final income tax return to the date of cessation. Prepare and lodge a final Business Activity Statement to the date of cessation, following which the GST and PAYG Withholding registrations will be cancelled. The Australian Business Number ( ABN ) of the is also required to be cancelled. Notify the relevant State Authorities that the has ceased trading so as to cancel any payroll tax registrations. 5. Representative office: legal procedures required for closing office A Foreign Company with a representative office in Australia must register with the Australian Securities & Investments Commission ( ASIC ). Upon cessation of the representative office in Australia it must notify ASIC within seven (7) days by lodging Form 407: Notification of cessation, winding up or dissolution of a foreign company or registered Australian body. This will cancel the Australian Registered Body Number ( ARBN ). 14 6. Representative office: any tax requirements A representative office generally does not have any tax obligations in Australia. Accordingly, the closure of the office will have no tax implications or requirements. It is important however to ensure that the representative office is not treated as a branch for Australian tax purposes.
www.crowehorwath.net Crowe Horwath International is a leading international network of separate and independent accounting and consulting firms that may be licensed to use Crowe Horwath or Horwath in connection with the provision of accounting, auditing, tax, consulting or other professional services to their clients. Crowe Horwath International itself is a nonpracticing entity and does not provide professional services in its own right. Neither Crowe Horwath International nor any member is liable or responsible for the professional services performed by any other member.