Australia continues to be an attractive destination for foreign businesses looking to expand or invest capital. Australia has a proven resilient economy, well developed infrastructure, a sophisticated business environment and is excellently located as a gateway to China and South East Asia.

Foreign businesses should be aware that there are several different ways to enter the Australian market, each with advantages and disadvantages which must be carefully considered due to the legal and also regulatory, accounting and taxation consequences. Crucially, it is important for a foreign business to plan ahead to determine what sort of business it expects and wants to be operating in Australia over a period of time, to ensure that correct decisions are taken from the outset.

Below are a selection of ways foreign businesses can enter the Australian market.


(1) Incorporate an Australian subsidiary company

There are several well-established structures for conducting business in Australia. These include operating as a sole trader, in a partnership, in a joint venture, via a trust (which is a legal relationship whereby property is held for the benefit of a third party) and by registering a company. There are approximately 2.5 million companies registered in Australia. For the purposes of this article we focus primarily on proprietary companies limited by shares (“Pty Ltd”). These are a form of private company commonly used to start new ventures and which confer on shareholders the benefits of limited liability. 

A foreign business can register a new Pty Ltd company and issue shares on incorporation to the foreign entity. On incorporation, the Pty Ltd company becomes a distinct legal entity and the subsidiary of the foreign entity. There is no requirement for a local shareholder and there are few formalities on incorporation other than ensuring that the proposed name is available, appointing at least one director who resides in Australia and having a registered office in Australia.

The Pty Ltd company will in substance be no different from any other Australian Pty Ltd company, and other Australian businesses will feel comfortable interacting with such an entity. The process of establishing a Pty Ltd company is inexpensive, simple and fast, usually taking around one business day.

Note that a Pty Ltd company is limited to a maximum of 50 non-employee shareholders, and cannot raise funds by offering their shares to the public (although some limited private fundraising can occur). Pty Ltd companies that are controlled by foreign companies also need to comply with financial reporting and auditing requirements, unless an exemption or relief applies. Notably, regulatory relief exists for foreign controlled small proprietary companies that are not part of a large group.


(2) Acquire an existing Australian company or business

This can take several forms. A foreign business may choose to acquire the shares or the assets of an Australian business and an acquisition may be a full acquisition or a partial investment. 

In all cases, Australia’s foreign investment framework needs to be considered. This framework is administered by the Foreign Investment Review Board (FIRB) and relevantly requires foreign persons to obtain approval before acquiring a substantial interest (at least 20%) in an Australian entity valued above AU$252 million (AU$1,094 million for foreign persons from Australia’s Free Trade Agreement partners Chile, China, Japan, Korea, New Zealand and the United States, except in respect of sensitive sectors including media, telecommunications, transport and defence). Approval must also be obtained for acquisitions by foreign persons of direct interests (generally, at least 10%) in an agribusiness where the investment is more than AU$55 million (AU$1,094 million for foreign persons from Chile, New Zealand and the United States), regardless of the value of the agribusiness. Threshold figures are indexed annually. Other ownership restrictions apply to specific industries including media, banking, airlines, airports and shipping, and where the proposed investor is a foreign government. 

There are also special rules for takeovers of public companies and companies listed on the Australian Securities Exchange, and in respect of schemes of arrangement (which are akin to friendly mergers requiring shareholder and court approvals). Clearances from competition regulators may also be required.


(3)
Register as a foreign company with ASIC

This is an obligation as much as it is an option. Foreign companies wishing to carry on business in Australia must register with ASIC pursuant to the Corporations Act 2001 (Cth) (Corporations Act). This option allows a foreign company to operate within Australia subject to meeting certain requirements and ongoing obligations.

Whether a foreign company is carrying on business in Australia is not a ‘bright line’ test and requires consideration of all the circumstances. The Corporations Act provides some guidance in this regard. For example, having a place of business in Australia is enough to constitute carrying on business. However, merely being party to proceedings or holding internal meetings, among other things, is not in itself sufficient to constitute carrying on business in Australia.

Registration involves checking that the foreign company’s name is available in Australia (it cannot be the same as an existing company or business name) and making an application to ASIC including submitting supporting constituent documents, translated into English where necessary. The company must appoint a local agent (who can be an Australian resident individual or an Australian company, and is responsible for company obligations and authorised to accept notices), and must lodge a memorandum of the powers of any local directors.

Once registered, ASIC will issue the foreign company with an ARBN (Australian Registered Body Number) and the company must then comply with obligations regarding display of company name, ARBN and maintenance of an Australian registered office.

Further, unless relief applies, at least once every calendar year the registered foreign company will be required to lodge financial statements with ASIC. Notably, regulatory relief exists for foreign companies that are equivalent to small proprietary companies, that are not required to prepare financial statements in their place of origin, and that are not part of a large group.


(4) Operate remotely

A foreign business may decide it wishes to operate entirely ‘remotely’ in Australia, for example by merely importing goods or selling services into Australia and/or maintaining an online presence.

While this would appear a simple option, there are a number of potential considerations. For example, to obtain a “.com.au” domain name, or other business registrations, the provision of an Australian Business Number (ABN) may be required. An ABN is an 11 digit number which identifies a business to Australian government agencies and other persons, such as contract counterparties. It can also facilitate a business to obtain other required registrations such as tax file number (TFN), Goods and Services Tax (GST) and business names.

However, not every business is eligible for an ABN. Foreign businesses must either meet the relevant tests for carrying on or starting an enterprise in Australia for ABN purposes, or be making supplies connected with Australia’s indirect tax zone.

The foreign business should also keep in mind the requirement to pay any import duties, and to register with ASIC should the company’s activities result in carrying on business in Australia (as outlined in item (3) above).

Recently, the Australian Government has also taken steps to impose GST on imported services (such as architectural and legal services) and imported digital products (such as streaming services), and separately on low value imported goods less than AU$1,000 (scheduled from 1 July 2018).


(5)
Enter into a joint venture

For completeness, a foreign business may also enter into a joint venture with an Australian venture partner in respect of a project or venture in Australia. A joint venture is governed by common law and the law of contract, may be either incorporated (where the joint venture is a separate legal entity) or unincorporated, and depending on the structure chosen may also involve some of the issues above.


Other considerations and conclusion

A prudent foreign business must consider how and where it intends to be operationally and commercially in the next year and into the foreseeable future. How a company intends to do business will inform and direct the process of entering the Australian market. When a business develops, it needs to be in a position to address structural changes as they arise.

Knowing the consequences of early establishment steps will inform the most appropriate entry decision. There is also a particularly fine line between ‘minimum entry’ into Australia, and a point where significant legal, accounting and taxation obligations arise. As well as legal advice, specific accounting and taxation advice should be obtained to help guide the various account preparation and lodgment obligations, and taxation registration, collection and payment obligations.

Upon entering the Australian market, a whole range of new business decisions will often arise such as the leasing of commercial property, employment of staff and protection of intellectual property. Often, it can be time and cost effective to consider these as part of structuring market entry.

Author: Esteban Gomez

Contacts:

Brisbane

Esteban Gomez, Partner
T: +61 7 3135 0671
Eesteban.gomez@holdingredlich.com

Sydney

Darren Pereira, Partner 
T: +61 2 8083 0487 
E: darren.pereira@holdingredlich.com

Melbourne

William Khong, Partner
T: +61 3 9321 9883
Ewilliam.khong@holdingredlich.com

Disclaimer

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources. 

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