Setting Up a Subsidiary in Australia | An Expert Guide

Australia's robust economy, strategic location, and skilled workforce make it a prime destination for foreign companies seeking to expand globally. With diverse industries, strong economic ties to the Asia-Pacific region, and favourable trade agreements, Australia offers ample opportunities for investment and growth. 

The country's stable political climate, well-developed infrastructure, and innovative culture also contribute to a low-risk environment for conducting business, making it an attractive location for establishing a subsidiary.

What is a Subsidiary Company in Australia?

In Australia, a subsidiary company is a company that is controlled by another company, known as the parent company. This control is usually achieved through majority ownership of the subsidiary's shares.

Setting up a subsidiary in Australia requires one of the following: 

• Another company (the parent company) must own more than 50% of the subsidiary's shares.
• The parent company must have the power to appoint or remove a majority of the subsidiary's directors.
• The parent company must be able to cast more than 50% of the votes at the subsidiary's general meetings.

Note that despite being majorly owned or controlled, a subsidiary is a separate legal entity from its parent or holding company. 

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Parent Company vs Holding Company

A parent company means it’s involved in the subsidiary company’s operations. However, if the sole purpose is to hold shares, then it’s called the holding company. 

It’s possible for the parent or holding company to own 100% of the subsidiary’s shares. In this case, the subsidiary is referred to as a wholly-owned subsidiary. 

Indirectly Held Subsidiaries

In Australia, a company can be an indirectly held subsidiary. This occurs when the direct parent company of the subsidiary is itself a subsidiary of an ultimate holding company. 

Ultimate Holding Company > Subsidiary Company  > Subsidiary Company of the Subsidiary Company

This creates a chain of ownership, where the ultimate holding company controls the subsidiary through an intermediate parent company.

Legislations on Setting Up a Subsidiary in Australia

The primary legislation governing the establishment and operation of subsidiary companies in Australia is the Corporations Act 2001. This comprehensive act outlines the rules and regulations for companies, including registration, governance, reporting, and winding up.

On top of the Corporations Act 2001, it’s also necessary to comply with the taxation laws, foreign investment laws if you are from overseas, and finally the employment laws if you decide to hire staff. 

Learn more about Australia’s Employment Laws here. 

The Benefits: Why Choose to Set Up a Subsidiary in Australia?

Setting up a subsidiary company in Australia is a common way to expand the business, particularly for foreign entities because it offers many advantages. 

A subsidiary can be used to create a separate brand identity for specific products or services, targeting different market segments without affecting the parent company's brand. 

Its benefits include:

Limited Liability

A subsidiary operates as a separate legal entity from its parent company. This means the parent company's liability is limited to the amount it has invested in the subsidiary. If the subsidiary incurs debts or legal issues, the parent company's assets are generally protected.

Tax Benefits

An Australian subsidiary company is regarded as a tax resident and, as such, is subject to tax on its global income (from all sources) and capital gains. The standard corporate tax rate for subsidiaries is 30%, but a reduced rate of 25% applies to companies that meet specific criteria. To qualify for the 25% tax rate, a company must have:

• An aggregated turnover of less than AUD 50 million, and
• Less than 80% of its assessable income derived from base rate entity passive income.

Base rate entity passive income includes royalties and rent, interest income, net capital gain, gains of qualifying securities, and corporate distributions and franked credits on those distributions.

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Asset Protection and Risk Management 

Holding assets in a separate subsidiary can offer a layer of protection in case of legal disputes or financial difficulties. This can be particularly relevant for companies with high-risk operations.

Likewise, by diversifying operations into different subsidiaries, a company can spread its risk. If one subsidiary faces challenges, the impact on the overall company can be minimised.

Local Expertise

Hiring local employees in a subsidiary can provide valuable insights into the local market, culture, and business practices. This can lead to better decision-making and increased competitiveness.

Strategic Partnerships

A subsidiary can be used to form strategic partnerships with local businesses. This can provide access to new technologies, distribution channels, or customer bases.

Branch vs Subsidiary: What Should You Choose?

If the parent company operates in another country and decides to expand to Australia, they may open a branch office or set up a subsidiary company. 

A branch is an extension of a foreign company, operating under the company's name and legal structure. It is not a separate legal entity and the company is fully liable for its debts and obligations. 

Here’s how they compare with each other. 

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Setting Up a Subsidiary Company in Australia: A Step-By-Step Guide

Setting up a subsidiary company in Australia follows similar steps in setting up any type of company with a few differences. 

Step 1: Choose a Structure  

The first step is to decide on the type of subsidiary you want to set up. In Australia, it can be a public or private (proprietary) 

Public: Commonly known as publicly traded companies, these allow the general public to invest in them through an initial public offering (IPO). These companies are listed on the Australian Securities Exchange (ASX), which provides them the opportunity to raise funds by offering or inviting the public to purchase or subscribe for securities through the ASX. 

Private (Proprietary): These are private companies and are classified as either "proprietary companies (Pty Ltd)," where shareholders' liability is limited to the value of their shares, or "proprietary companies (unlimited) with a share capital (Pty)," where shareholders have unlimited liability.

In Australia, most choose to establish a private limited company. 

Step 2: Choose a Company Name

Setting up a subsidiary company in Australia  requires that you choose a name for your business. The government has strict rules on what characters can be used and what terms are prohibited. 

To help you, the government has established an online tool to check for the availability of the business name. If you decide on a business name but require more time before registration, you’re also allowed to reserve it first. 

Important

It’s imperative that you check if the name is trademarked. If it is, then the company can take legal action even if it’s already registered or reserved. 

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Step 3: Choose Between Replaceable Rules or Constitution

Your company's internal management can be governed by either the Replaceable Rules or a Customised Constitution. 

The Replaceable Rules are standard rules outlined in the Corporations Act. They cover basic aspects of internal management like director appointments and shareholder meetings. However, if you want greater flexibility and to tailor the rules to your company's specific needs, you can choose to create a customised constitution.

Step 4: Appoint Officeholders 

Setting up a subsidiary company in Australia requires the appointment of officeholders. Here’s what’s necessary as per the law: 

Proprietary Companies (Private):

• Minimum: At least one director residing in Australia.
• Crowd-sourced funded: If applicable, at least two directors, with a majority residing in Australia.
• Secretary: Not mandatory, but if appointed, must reside in Australia.

Public Companies:

• Minimum: Three directors (excluding alternate directors), with at least two residing in Australia.
• Secretary: At least one secretary residing in Australia.

Important

• Failure to have the minimum number of officeholders is a breach of the Corporations Act 2001, potentially resulting in penalties or prosecution.
• New officeholders should be appointed as soon as possible to avoid penalties.
• Company directors can temporarily appoint alternate directors to act on their behalf, with specific powers.

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Step 5: Take Care of the Registrations

Setting up a subsidiary company in Australia involves several registrations. The good news is, generally, you can register for many things at once. 

• Company Registration: File and register the Australian Securities and Investments Commission (ASIC). You need to use the appropriate form for this registration. For more information on the forms and fees, you can read this official guide. 
• Tax and Business Numbers: Acquire a Tax File Number (TFN) and an Australian Business Number (ABN). For more information on the online application of TFN for business, you may proceed to this guide. 
• Tax Obligations: Register through Pay As You Go (PAYG) withholding duty and Goods and Service Tax (GST) if your revenue exceeds $75,000.

Learn more about tax obligations and PAYG in our articles for Employee Benefits and Compensation in Australia, as well as Setting Up a Payroll in Australia. 

Important

Australian Business Number (ABN), Company Name, and Tax Registrations can be accomplished online at the same time. Go to the Business Registration Service and select all the applicable registrations to proceed. 

Besides these, you also need to register for: 

• Operational Essentials: Set up an Australian bank account for payroll purposes and establish a physical site, as government regulations can vary within Australia.
• Workplace Insurance: Register for insurance with the State Insurance Regulatory Authority (SIRA) to safeguard against workplace accidents.
• Licences and Permits: Finally, your subsidiary may require additional permits and licences, like industry-specific licences, local council permits, and environmental permits. Search for the licences and permits for your company here. 

To learn more about registrations, our guide, Company Registration in Australia may be helpful. 

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What To Do After Setting Up a Subsidiary in Australia?

Your Australian Company Number (ACN) must be displayed on all public documents, ASIC filings, and company materials. The registered business name must also be visible at all public business locations.

All subsidiaries must maintain specific registers and financial records for a specified period. Importantly, any changes to officeholders, business location, or share allotment must be promptly communicated to the Australian Securities and Investments Commission (ASIC).

Key Takeaways

Setting up a subsidiary in Australia offers numerous benefits, including limited liability, potential tax advantages, asset protection, and access to local expertise. The process involves choosing a structure, name, and governing rules, appointing officeholders, and completing various registrations. 

While complex, the rewards of establishing a subsidiary in Australia can be significant for businesses looking to expand their global footprint. Understanding the legal requirements and following the step-by-step guide can help ensure a smooth and successful setup process.

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