DOING BUSINESS IN AUSTRALIA Presented by Sean Urquhart Tax Partner at Nexia Australia T: 61 2 9251 4600 E: surquhart@nexiacourt.com.au
DISCLAIMER The material contained in this publication is in the nature of general comment only and neither purports, nor is intended, to be advice on any particular matter. Readers should not act or rely upon any matter or information contained in or implied by this publication without taking appropriate professional advice, which relates specifically to their particular circumstances. The publishers and authors expressly disclaim all and any person, whether a client of the Nexia Court & Co group or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication. The information is current as of September 2012.
DOING BUSINESS IN AUSTRALIA Specific issues for non-residents / challenges & risks Business structures Audit & reporting requirements Government incentives Property ownership
DOING BUSINESS 2012 Australian Statistics
DOING BUSINESS 2012 Average Annual Wage
DOING BUSINESS 2012 Average Annual Wage
DOING BUSINESS 2012 Government
DOING BUSINESS 2012 Starting a Business Singapore Rank: 4
DOING BUSINESS 2012 Construction Permits Singapore Rank: 3
DOING BUSINESS 2012 Registering Property Singapore Rank: 14
DOING BUSINESS 2012 Getting Credit Singapore Rank: 8
DOING BUSINESS 2012 Protecting Investors Singapore Rank: 2
DOING BUSINESS 2012 Paying Taxes Singapore Rank: 4
DOING BUSINESS 2012 Trading Across Borders Singapore Rank: 1
STEPS TO BE TAKEN Step 1 Selecting a business structure Step 2 Establish the structure Step 3 Consider what other registrations or applications may be required Step 4 Consider employer obligations where engaging staff Step 5 Gain an understanding of your ongoing reporting and payment obligations
Step 1: Selecting a Business Structure Sole Trader taxed at Marginal Tax Rates (Highest Marginal Rate for individuals currently 46.5% [including Medicare Levy of 1.5%]) Partnership taxed at partners Marginal Tax Rate Company Corporate Tax Rate 30% Trust tax mostly paid by beneficiaries at their Marginal Tax Rates except in some circumstances where the trustee will be taxed, usually at the highest marginal rate of 45%
Step 1: Selecting a Business Structure (continued) The most common concerns when setting up a business are: Ease and cost of set-up Ongoing compliance requirements and the associated costs Asset Protection Tax Planning Repatriation of business profits to the home country Succession planning The weighting you give each of these (which is usually dependant on the type of industry you are in, your future plans for both the business and personally, and your personal risk file) will determine which structure is best for your business.
Step 2: Establish the Structure Sole Trader Apply for an Australian Business Number (ABN) these are issued by the Australian Taxation Office (ATO) Apply for a Tax File Number (TFN) also issued by the ATO Partnership Apply for an ABN The partnership will require its own TFN It is advisable that you have a partnership agreement drawn up, particularly if you are dealing with arm s length parties
Step 2: Establish the Structure (continued) Company a) Incorporate an Australian Company or acquire an existing shelf company: The company will be registered with the Australian Securities and Investments Commission (ASIC) and issued with an Australian Company Number (ACN) The most common type of company is a company limited by shares, which may be either a proprietary company or a public company Must have a Registered Office within Australia Proprietary companies must have at least one Director that resides in Australia
Step 2: Establish the Structure (continued) Company b) Australian branch of foreign companies: Must register with ASIC Registration involves lodging an application form and associated documentation, and paying a filing fee Once registered, the company will be issued with an Australian Registered Body Number (ARBN) Once the company has been registered with ASIC, it can then apply for an ABN and TFN
Step 2: Establish the Structure (continued) Trusts Settle the trust and have the Trust Deed written up Issues to consider: Discretionary or Fixed Trust (Unit Trust) Select a Trustee a corporate trustee may provide opportunity for greater asset protection Identify potential beneficiaries or classes of beneficiaries Once the trust has been established it can apply for an ABN and a TFN
Business Structure Entity Matrix What business structure best suits you? Sole Trader Partnership Company Unit Trust Discretionary Trust Established By Not Applicable Partnership Agreement Constitution Trust Deed Trust Deed Terminates on change of Must vest within certain Must vest within Perpetual Existence Terminates on death Yes partners period certain period Yes, if corporate Limited Liability No No Yes Yes, if corporate trustee trustee Controlled by Individuals Partners Directors/Shareholders Trustee/Unitholders Trustee/Appointer Flexibility for new Yes, but consider value Yes, but consider value Subject to Trust No No Equity Holders shifting rules shifting rules Deed Does Principal have Fixed Interest Asset Protection Allowed Yes Yes Yes Yes No No No Yes Yes Yes Method of Distribution to Equity Holders Wholly to sole trader Distribution in proportion to partnership share (and partners salary if allowed in Partnership Agreement) Dividends according to shareholding Trust distribution in accordance with unit holding Trust distribution in accordance with trustee resolution Streaming of Income No No No Yes Yes Distribution of Losses Individual can use Partners can use Transfer of Losses No No Non Commercial Losses Rules Remain in company, and must meet tests to recoup, Carry Back Yes, if part of consolidated group Remain in trust, and must meet tests to recoup No Remain in trust, and must meet tests to recoup Apply Apply Not Applicable Not Applicable Not Applicable No
Summary of Australian Tax Rates Tax Rate Losses Company 30% (flat rate) Quarantined within company Can offset within consolidated group Carry back Partnership Profit distributable to relevant Distributed to Partners Partners (tax rate of the partner) Trust Profit distributed to relevant Beneficiaries (tax rate of the beneficiary & trustee taxed in limited circumstances) Quarantined within Trust Individual Marginal rates (top marginal rate 46.5%) Can be offset against other sources of income
Step 3: Consider what other Registrations or Applications may be required Business Name Registration Required if business is set up as a sole trader, partnership or trust If doing business in more than one state, you will need to register in each state Substituted Accounting Period ATO Registration of Intellectual Property IP Australia
Step 3: Consider what other Registrations or Applications may be required (continued) Goods and Services Tax (GST) Australia s consumption tax Charged on most goods and services consumed in Australia and applied at a rate of 10% Required to register and charge GST if carrying on an enterprise and making supplies of goods and services connected with Australia and your business turnover is greater than $75,000 If business turnover is less than $75,000, you may still elect to register
Step 4: Consider Employer Obligations where engaging Staff Pay As You Go Withholding (PAYGW) Tax withheld from employees wages. Reported and paid to the ATO monthly or quarterly Payroll Tax A state based tax paid by employers. Based on employees wages and salaries that exceed specified tax-free thresholds Registration with state government authorities is required where this applies Each state has different thresholds and rates (NSW $689,000 5.45%)
Step 4: Consider Employer Obligations where engaging Staff (continued) Fringe Benefits Tax Tax paid by the employer on non-cash benefits provided to employees (e.g. motor vehicle) Registration with the ATO required where taxable benefits are provided Superannuation Compulsory minimum contributions to be paid for employees at 9% of their earnings base into a superannuation fund of the employee s choice
Step 5: Gain an understanding of your ongoing Reporting and Payment obligations Activity Statements Lodged with the ATO either monthly or quarterly Used to report and pay GST, PAYGW, FBT Instalments and PAYG Instalments Income Tax Returns Standard tax years run from 1 July to 30 June Entities can apply to use a different income year Due date for lodgement and payment of tax varies Fringe Benefits Tax Returns FBT year runs from 1 April to 31 March Lodgement of annual FBT Return due in late April following year end
Step 5: Gain an understanding of your ongoing Reporting and Payment obligations (continued) Corporate Regulation (ASIC) Australian Resident Companies Notification of certain changes (various forms and filing fees apply) Payment of Annual Filing Fee (AUD $230 for private companies) and lodgement of Annual Company Statement Large proprietary companies with foreign control: a) Must prepare and lodge a Financial Report and a Directors Report for each financial year b) Financial Reports must be audited unless ASIC grants relief c) Lodgement is due 4 months after the end of the financial year
Step 5: Gain an understanding of your ongoing Reporting and Payment obligations (continued) Corporate Regulation (ASIC) Large = i. > $25m revenue ii. Gross Assets of $12.5m iii. 50 employees (two of the three) Note: small proprietary companies which are controlled by a foreign company may be relieved from financial reporting requirements provided they are not part of a large group. A large group has the same definition as a large proprietary company.
Step 5: Gain an understanding of your ongoing Reporting and Payment obligations (continued) Registered Foreign Companies (Branch) Lodge financial information annually (Balance Sheet, P&L, Cashflow Statement) Audited information to be lodged if: a) Company holds an AFSL b) Audit required in place of origin Lodge ASIC Forms if any change to company details e.g. address, office hours, agent etc
Overview of the regulatory framework Australian Securities Exchange (ASX) Operates a market for securities issued by listed entities Sets standards for the behaviour of listed entities, known as listing rules Australian Securities and Investments Commission (ASIC) Independent Commonwealth Government body ASIC is the corporate, markets and financial services regulator Corporations Act 2001 Plays an integral part within the accounting framework in Australia Australian Accounting Standards Board (AASB) Development of Australian Accounting Standards Compliance with Australian Accounting Standards ensures compliance with IFRSs
Which entities have to keep financial records? Corporations Act 2001 Entities (Section 286) All companies Registered schemes (for example, managed investment schemes) Disclosing entities (raised capital or debt from the public at large) Non Corporations Act 2001 Entities As required by relevant legislation
Which entities have to prepare Financial Reports and Directors Reports? Corporations Act 2001 Entities (Section 292) o All disclosing entities o All public companies o All large proprietary companies o All registered schemes o Certain small proprietary companies o Certain small companies limited by guarantee Large vs. small proprietary companies? Non Corporations Act 2001 Entities o As required by relevant legislation
Government Incentives Research & Development The new R&D concession will provide: a 45 percent refundable tax credit (equivalent to a 150 percent concession) to firms with a turnover of less than A$20 million per annum; and a 40 percent tax credit (equivalent to a 133 percent concession) to firms with a turnover of A$20 million or more per annum.
Government Incentives Research & Development The R&D tax incentive started on 1 July 2011. It provides eligible R&D entities with a tax offset broadly for: expenditure on eligible R&D activities the decline in value of depreciating assets used for eligible R&D activities. AusIndustry manages the registration of R&D activities and checks that they comply with the law. The Tax Office determines the eligibility of the expenditure claimed in the tax return.
Government Incentives Eligible Entities: An eligible entity is: an Australian resident company a foreign company that: o is a resident of a country with which Australia has a double tax agreement, and o carries on R&D activities through a permanent establishment in Australia, and o a public trading trust with a corporate trustee.
Government Incentives R & D Eligible activities Eligible R&D activities must be either: 'core R&D activities', or 'supporting R&D activities.
Government Incentives - Grants Key priority sectors include: Environment Renewable energy Clean technology Innovation Regional Growth Water.
Government Incentives - Grants Export Development Grant: The scheme provides reimbursement of approximately 50% of the eligible expenditure incurred to a maximum of $150,000 per annum. Applicants must be Australian resident entities with a total annual turnover of less than A$50 million and must have spent at least $20,000 in overseas marketing. Unlike other Government grants EMDG is a non-competitive program which means if you are eligible and make an application you will receive a grant. Note: Branch Offices of companies not incorporated in Australia are not eligible to apply.
Government Incentives - Grants Export Development Grant: Overseas representation Marketing consultants Overseas marketing visits Communications Free samples Patents, trademarks, registrations Trade fairs, seminars, in-store promotion Promotional literature and advertising Overseas buyers visits to Australia
PROPERTY OWNERSHIP Rural Land Land used wholly and exclusively in carrying on a business of primary production, need approval where total assets exceed $244m Business Acquisitions Foreign persons should notify Government before acquiring an interest of 15 percent or more in an Australian business that is valued above $244 million.
PROPERTY OWNERSHIP Vacant Land Residential Need to apply to buy land for commercial development regardless of the value of land. Developed Non-Residential Commercial Property Need to apply to buy developed commercial property if valued at more than $53 million (or $5m if heritage listed)
PROPERTY OWNERSHIP Foreign Investment Rules Temporary Residents approval: A Temporary Resident is allowed: Only one Established Dwelling and used as a residence (generally required to sell when you leave Australia) New Dwelling normally approved without conditions (don t have to sell when you leave Australia) Vacant Land provided construction begins within 24 months
PROPERTY OWNERSHIP All other foreign residents (don t ordinary reside in Australia): Cannot buy established dwellings as investment properties or as homes. However, Companies that are foreign persons need to apply to buy established dwellings to house their Australian based staff. Must remain vacant for six months or more. sell if to New Dwellings, must apply, generally allowed. Vacant Land must apply and build within 24 months.
PROPERTY OWNERSHIP Commitment Under the Singapore/Australia Free Trade Agreement (SAFTA) Australia s commitment under Annex 4-III(IV) of SAFTA: 1. Australia shall establish a dedicated help desk to assist Singaporean investors with direct investment applications. 2. Australia shall review these applications from Singaporean investors expeditiously in accordance with its laws, regulations and policies. 3. Unless an application to acquire an existing Australian business or establish a new business is denied, such application is deemed to be approved at the end of the statutory review period, or where notice of a statutory extension is given to the investor, at the end of the statutory period of extension.
Doing Business in Australia Questions?