If your business is looking to journey across the Tasman, there are two common options: an Australian subsidiary or a branch office in Australia.
Australia has gained a lot from New Zealand: Pavlova. Lamingtons. And soon, your business.
If you're looking to expand your New Zealand business into Australia, there are two common options: establishing or acquiring an Australian subsidiary company or establishing a branch office in Australia. And if you're scratching your head over the difference between the two, then you're in the right place. This article will explore both options before you begin your journey across the Tasman.
1. IN A NUTSHELL: A SUBSIDIARY IS A SEPARATE LEGAL ENTITY. A BRANCH ISN'T
So first, let's look at a subsidiary.
Since a subsidiary is a separate legal entity, this means that it can sue or be sued in its own right. A subsidiary is controlled by and/or owned by a parent company. To qualify as a subsidiary, theparent company must:
(a) Hold more than 50% of the shares in the subsidiary, or
(b) be able to cast more than 50%of the maximum number of votes in a general meeting; or
(c) have control over the composition of the board.
A subsidiary's liability extends only to its own assets and not to that of the parent company.
Ok then, what's a branch?
On the other hand, an Australian branch is not a separate legal entity. It can be considered as an "appendage" of its parent company. It has the same operational mandate, and it also reports to and is directed solely by the parent company. And unlike subsidiaries, the parent company will be liable for the actions of its branch.
2. LODGEMENT OF ACCOUNTS
A subsidiary that is a "large" proprietary company needs to lodge its financial accounts with the Australian Securitiesand Investments Commission ("ASIC"). For small proprietary companies, exemptions may apply. But hold up, what makes a company large? Well, a subsidiary is a "large" company if it satisfies two or more of the following:
(a) Its revenue for the last financial year is A$50M or more;
(b) The total value of its gross assets plus any entity it controls at the end of financial year is A$25M or more; It (and any entity itcontrols) has over 100 employees at the end of the financial year.
(c) It (and any entity it controls) has over 100 employees at the end of the financial year.
The accounts only need to pertain to the subsidiary itself and not the parent company. They must include a balance sheet, profit and loss statement and cash flow statement.
On the flip side, a branch must lodge financial accounts for the entire company (as in, the parent company).
3. TAXATION ISSUES
How a company is taxed will depend on whether it's a tax resident in Australia. A company will be a tax resident if it's incorporated in Australia. If it's not incorporated in Australia, it can still be a tax resident if it carries on a business in Australia and has:
(a) Its central management orcontrol in Australia; or
(b) Its voting power controlled by shareholders who are residents in Australia.
Let's compare the pair inregards to tax...
A subsidiary company is incorporated in Australia and is, therefore, a tax-resident business. So, it may be subject to corporate income tax, goods and services tax, capital gains tax and payroll tax. Just to name a few.
For NZ parent companies setting up branches in Australia, it's unlikely they will be a tax resident. But given that the branch is a permanent establishment, it will have to pay Australian tax on income generated from the Australian branch. This is based on the Double Taxation Agreement between Australia and NZ (which is a whole other story we'd recommend you ask your tax advisor) about.
4. OPERATIONAL DIFFERENCES BETWEEN A SUBSIDIARY AND BRANCH
Operationally, the differences between a subsidiary and branch are as follows:
(a) Registration – A subsidiary is incorporated through ASIC upon which it will receive an Australian Business Number (ABN). A branch is registered as a Registered Foreign Body through ASIC, after which it will receive an Australian Registered Body Number (ARBN).
(b) Where and who they report to - A subsidiary operates independently and generally reports to no one (although this will depend on the internal rules of the group to which it is a part). A branch reports to its parent company.
(c) Resources - A branch usually heavily relies on the resources and systems existing in the parent company. Subsidiaries can do the same, but can also beself-sufficient.
(d) Branding - A branch shares the exact same branding asits parent company. A subsidiary can also do so, but typically, would have its own separate branding. Think Countdown, the subsidiary of Woolworths in NewZealand.
Other obligations for subsidiaries
A subsidiary must have:
(a) at least one Australian resident;
(b) a registered office; and
(c) a public officer.
Other obligations for branches
A branch must:
(a) have a registered office which ASIC will direct correspondence to;
(b) be open to the public on every business day from at least 10am to 12pm and 2pm to 4pm or otherwise agreed to by ASIC;
(c) have at least one Australian resident local agent who is responsible for any obligations of the company. The local agent is personally liable for any breaches and penalties;
(d) Appoint a public officer to the company. The public officer is responsible for all tax compliance requirements of the company; and
(e) Display its ARBN on all public documents and negotiable instruments published or signed in Australia.
So there you have it, the two most common ways to expand your business into Australia. Whether you prefer the independence of a subsidiary or the cohesiveness of a branch rests entirely with you. Ultimately, the best structure will depend on your objectives in terms of branding, risk minimisation, control and resource management.
Make sure you put some weight on this decision before you set sail across the Tasman.