with J.A. Fillmore & Co
Our guide to doing business in Australia aims to provide you with an overview of the Australian legal system and business environment as it applies to foreign investment, importing and exporting. Our firm has decades of experience in assisting individuals and companies from all over the world, in a wide range of industries, to do business in Australia.
Australia’s economy is performing well by comparison to most of the developed world. The Australian dollar is strong, Australia has a well-capitalized and well-regulated banking system, low corruption, a respected legal system and a skilled, well-educated workforce.
Australia has low barriers to international trade and foreign investment compared to most major economies. It currently has free trade agreements with a large number of countries , with more under negotiation, and few tariffs.
Please note that while Australia has a very stable legal system, the law is always subject to change. This is a general guide only and should not be taken as legal advice.
If you are looking to invest in Australia, export goods to Australia or otherwise undertake transactions in Australia or with Australian companies, please contact us to obtain full, in-depth advice suited to your needs.
The Australian legal system follows the “common law” system of the United Kingdom and other Commonwealth countries. While mediation and arbitration are used extensively to resolve business disputes, matters which are heard in court are decided in an adversarial style similar to the UK or USA and not in the “civil law” style of France and other European countries.
Like the USA, Australia has both state law and Federal (nation-wide) law to deal with. Most laws affecting foreign investment are Federal laws, including trade restrictions and duties, taxation, employment laws, trade practices laws, intellectual property and corporate regulation. For foreign investors, state laws are most likely to be encountered in relation to building approvals and stamp duty on property acquisitions.
Australian laws are very strong in the area of protecting property (including intellectual property) and the enforcement of agreements, but are also very strong in protecting the rights of employees and consumers. We will discuss this further in this document.
All land and most rights of ownership connected with land are registered in government databases which can be searched by the public. Accordingly, land rights and land ownership are generally very clear in Australia and the legal and political systems historically favor protecting land owners and property rights. This is one of the reasons why investment in Australian property is historically very popular.
Setting Up An Australian Business
The common structures used for business and investment in Australia are:
- An Australian company/corporation (which can be a private company, public company or a public company listed on the stock exchange).
- A foreign company/corporation registered in Australia.
- A joint venture (incorporated or unincorporated).
- A partnership.
- Sole proprietorship/individual investor.
It can also be appropriate for some or all business assets to be held in one or more “trusts” for which a company, joint venture or individual is the trustee. This is often advantageous to minimize taxation on distribution of profits and also for asset-protection.
We are happy to discuss with you the most appropriate structure or structures for your business and transactions in Australia and the laws and obligations connected with those structures.
Taxation of income earned in Australia is a complex area and we urge you to obtain advice from us and from our associated financial professionals if you will be earning any income in or in connection with Australia. It is not only important to structure your Australian transactions/s to avoid paying unnecessary tax, but to avoid being taxed on the same income both in Australia and overseas. We can introduce you to appropriate financial and accounting experts in addition to providing you with tax advice from a legal standpoint.
In brief, the taxes you are most likely to encounter in Australia are:
- Income tax (Federal), based on income (in the case of individuals) and profits (in the case of companies). There are a broad range of allowable deductions. The current company tax rate is fixed at 27.5% for companies turning over less than $25million, while income tax for individuals is based on a sliding scale.
- Goods and Services Tax (Federal): a fixed 10% sales tax on most goods and services sold.
- Capital Gains Tax (Federal), based on increases in value of capital assets (such as land). There are many possible deductions allowed.
- Stamp Duty (state). Depending on the state, this may or may not apply to acquisitions of land, business assets and/or shares.
- Payroll Tax and Employee Benefits (Federal and state): See our section on employing staff in Australia.
- Tariffs and customs excise (Federal): Applies to certain goods only.
- Withholding tax: Australians doing business with you may be obliged to withhold tax from amounts they pay to you in certain circumstances unless you are doing business through a structure registered in Australia. This primarily applies to dividends, interest payments and royalties but not to regular business income.
Foreign Investment Review Board
Only a very limited proportion of transactions involving overseas companies need to be approved by the Foreign Investment Review Board (FIRB). Nonetheless, it is important to be aware of what transactions do need to be approved and the extra time you must allow for in your transaction if FIRB approval is needed.
FIRB approval is needed for the following acquisitions:
- Substantial interests in an Australian business or company valued above A$252 million.
- Substantial interests in foreign companies with Australian subsidiaries or assets worth above A$252 million.
Substantial interests, for this purpose, generally means a 15% interest. Some exceptions apply, particularly if multiple foreign investors are buying into the same company or business.
More relaxed limits apply to investors from the USA and other countries. Some separate laws also restrict investment in sectors like banking, airlines, shipping and telecommunications.
If you believe it is at all possible that your transaction will need to be reviewed by the FIRB, we are happy to advise you further on whether this is the case and, if so, to help you prepare a suitable application for FIRB approval and on suitable conditions to include in your transaction documents to allow for your need to acquire that approval.
Buying Shares and other financial investments
Due to the strength of the Australian economy, many overseas investors have turned to the Australian share-market as a stable investment. Before investing in Australian shares, it is important to be aware of four things:
- The shareholding may become public knowledge. Companies must inform ASIC of the top 20 shareholders of a proprietary company (and these are put on a publicly searchable register) and anyone who acquires at least 5% of a market-listed company must notify the Australian Stock Exchange (ASX). This includes cases where multiple persons or entities associated with you hold 5% of the company’s shares combined.
- If acquiring at least 20% of the voting power in a listed company or managed investment scheme, or an unlisted company with over 50 shareholders, you will be obliged to make a takeover bid for the company. Some exceptions apply.
- An acquisition which may substantially lessen competition in the Australian market may be reviewed or prevented by the Australian Competition and Consumer Commission.
- When buying shares in unlisted companies , there is maybe stamp duty payable on the acquisition of those shares.
Any person or company in Australia holding themselves out as offering financial products or providing financial services must have an Australian Financial Services Licence (AFSL). You should ensure that any person or company in Australia making financial product offers to you or offering financial services to you has an AFSL. If you intend to provide financial services or offer shares or a managed investment scheme in Australia yourself, you will need to obtain an AFSL or partner with someone who has one.
Anti-money laundering regulations
Many transactions must be reported to the government under the Anti-Money Laundering And Counter-Terrorism Financing Act 2006, including:
- Transactions involving more than $10,000 in cash; and
- Funds transfers into and out of Australia.
If your business or investments involve regular large cash transactions, or a business which conducts funds transfers in the course of business, you will need to take this into account.
Because of these laws, you will also need to verify your identity when opening an account with any Australian financial institution.
Australian has comprehensive consumer-protection laws. This includes bans on misleading and deceptive conduct in the course of trade, false and misleading advertising, pyramid schemes and certain other forms of marketing and advertising. They also include guaranteed minimum warranties on all consumer products sold.
Australia is a signatory to the major global intellectual property treaties, and as a result the Australian registration systems for trademarks, patents, industrial designs, plant breeder’s rights and circuit designs are broadly similar to others around the world. It is relatively easy for the owners of registered intellectual property in other countries to expand their registrations to Australia, and vice versa, provided the proper time limits are observed.
Australian courts take intellectual property infringement seriously, seeing it as no less valuable than any other form of property, and there can be significant penalties for persons and companies who commit such infringements.
Employment in Australia
If you wish to employ staff in Australia and you are not familiar with the requirements of Australian employment law, it is necessary to take detailed advice.
There are a number of sources of laws and regulations which may govern the minimum pay and working conditions you may offer to your employees, depending on the industry, role and salary of the employees. Some of these laws and regulations will change depending on the State of Australia you are operating in, particularly payroll tax (a State tax based on the amount you pay to your employees). In many circumstances it will be suitable to use “independent contractors” rather than employees if possible- workers who have more independence and autonomy than an employee but to whom you will have less obligations.
All employees are at a minimum covered by the Federal Fair Work Act’s “National Employment Standards”, which deal with the following issues:
(a) maximum weekly hours;
(b) requests for flexible working arrangements;
(c) parental leave and related entitlements;
(d) annual leave;
(e) personal/carer’s leave and compassionate leave;
(f) community service leave;
(g) long service leave;
(h) public holidays;
(i) notice of termination and redundancy pay;
(j) Fair Work Information Statement.
Also, all employers must make superannuation payments (analogous to a retirement fund payment or a 401K payment in the USA) on behalf of their employees. These payments are currently equal to 9.5% of the employee’s salary. This makes it very important, when offering a salary to an Australian employee, to be clear whether you are offering a total “package” including the superannuation, or whether you are offering a salary figure to which superannuation will be added.
Finally, please be aware that Australia has very thorough occupational health & safety (OH&S) laws, manufacturing standards and environmental protection laws. If you are setting up a workplace in Australia, it is necessary to take detailed advice to ensure you comply with all the requirements of these laws. Australian authorities are generally very strict with regards to ensuring that all of these laws are complied with, and will impose penalties for failing to comply.
In the event that you wish to do business in Australia, J.A. Fillmore & Co can assist you. Please contact:
Mr John Fillmore, Principal