Familiarity is a bonus when doing business in Australia

By Helen Cowley, tax partner at Cassons.

We may be at opposite ends of the world but, when it comes to culture and trading, there are many similarities between Australia and the UK, which make it an attractive place to do business.

A UK company may establish a presence in Australia through a subsidiary company, but it will need at least one Australian director. Most commonly used are proprietary companies limited by shares, which are akin to UK private companies.

Before setting up, it’s key to understand the relatively complex Australian tax system and how it interacts with the UK, including matters such as which jurisdiction has taxing rights and the treatment of profits repatriated to the UK.

A subsidiary company incorporated in Australia will be Australian tax resident and will therefore be liable to income tax on its worldwide profits and gains.

Care should be taken to avoid complications with ‘dual residence’ and double taxation if the highest level of decisions about the subsidiary are actually made from the UK.

Any profits generated by an Australian resident company will be taxed at 30 per cent or 27.5 per cent for companies with turnover of less than $10m.

The tax paid is generally treated as a credit to shareholders and therefore withholding tax should not apply to fully franked dividends.

In certain circumstances, dividends can be liable to withholding tax which will be at a rate of five per cent for a UK parent company. The tax rules are complicated and it is therefore imperative that professional advice be sought from both countries prior to establishing a presence and adopting a dividend policy.