Australia's transparent regulatory landscape, strong institutions and good governance make it a secure, stable and prosperous destination in which to do business.
In our GBCI 2024 report, Australia ranked 58th for the complexity of its business environment, making it one of the least complex jurisdictions in Asia. Starting a business in Australia is straightforward and fast, with various incentives and support available for specific sectors, but there are also a few operational challenges to consider.
1. Business incentives
Overall, Australia's pro-business outlook, highly educated and talented workforce, passion for innovation, competitive tax rates, generous government incentives and proximity to Asia's economies, make it a preferred destination for businesses looking to expand into the Asia Pacific region.
For businesses engaged in eligible R&D, an attractive tax incentive is available which entitles the entity to a tax offset on its R&D expenditure equal to the entity's company tax rate plus a premium of up to 18.5%. Further details can be found here.
For investors setting up their business through a trust or a partnership, incentives are also available for investments in early-stage innovation companies via an investor tax offset. There are also incentives for a limited partner of an early-stage venture capital limited partnership (ESVCLP) in the form of ESVCLP tax offset for the investment as well as tax offset of up to 10% on contributions made to the ESVCLP.
In the 2024-25 budget, the federal government announced its plan to deliver tax breaks and grants to businesses investing in priority industries including renewable hydrogen, green metals, low carbon liquid fuels, refining and processing of critical minerals and manufacturing of clean energy technologies, such as batteries and solar panels. This initiative, titled "Future Made in Australia", will provide for Production Tax Incentives, which are essentially tax credits calculated on the basis of volume of production of the targeted goods and materials.
Despite the benefits, doing business in Australia is not without its challenges and there is a degree of complexity involved in setting up an entity and ensuring its ongoing corporate compliance requirements are managed efficiently.
2. Tax environment
Australian tax overview – Business taxation in Australia is administered by the Australian Taxation Office (ATO) at the federal level and by the various state revenue authorities at the state level. Key federal taxes include income tax on business profits, Goods and Services Tax (GST) on the sale of goods and services and Fringe Benefits Tax (FBT) on non-cash benefits provided to employees. State taxes include Payroll Tax, which is a tax payable by businesses on the wages and salaries paid to employees, Land Tax and various duties on a range of transactions.
Company income tax rate in Australia is generally 30% but small or medium business companies are subject to a concessional tax rate of 25%. Withholding taxes generally apply to unfranked dividends, interest and royalties paid to non-residents in accordance with the relevant double tax agreement. There are also withholding taxes payable on distributions to foreign beneficiaries of trusts, with the rules and rates depending on the jurisdiction, the type of income and the entity type of the recipient.
Transfer pricing – Businesses with international related party dealings are required to ensure that all such dealings are compliant with the arm's length principle under the transfer pricing rules. It is expected that benchmarking analysis will be conducted to support the arm's length nature of such pricing. In the absence of such an analysis, ATO contends that the taxpayer does not have a reasonably arguable position to support its pricing and is exposed to significantly higher penalties for non-compliance.
3. Reporting obligations
Common Reporting Standard (CRS) – Australia is a signatory to the Multilateral Competent Authority Agreement (MCAA). The MCAA facilitates the implementation of the CRS multilaterally and has so far been signed by more than 80 jurisdictions. The MCAA provides a framework for the bilateral exchange of information with other signatories. CRS obligations are imposed on AFIs through the operation of Subdivision 396-C of Schedule 1 to the Taxation Administration Act 1953.
Foreign Account Tax Compliance Act (FATCA) – FATCA imposes certain due diligence and reporting obligations on Australian financial institutions (AFIs) to report US citizen or US tax-resident account holders to the US Internal Revenue Service (IRS). Failure to comply with FATCA's requirements exposes such financial institutions to a 30% US withholding tax on payments to them from US sources. FATCA applies to a broad range of AFIs, including banks, some building societies, some credit unions, specified life insurance companies, private equity funds, managed funds, exchange traded funds and some brokers. Certain AFIs, such as superannuation funds, are exempted. Non-exempt AFIs need to register with the IRS and report to the Australian Tax Office each year about certain financial accounts held with them by either: (i) US citizens; (ii) US tax residents; (iii) specified US entities established in the US or controlled by US persons.
International Financial Reporting Standards (IFRS) – Australian accounting standards are set by the Australian Accounting Standards Board and are broadly comparable to the IFRS. Australian accounting standards are required for all entities that meet the definition of a reporting entity. The definition of a 'reporting entity' is an entity where it is reasonable to expect that there are users dependent on a general purpose financial report to gain an understanding of the financial position and performance of the entity, and to make decisions based on this financial information and other information contained in the financial report. These users could be shareholders, members, employees, creditors, lenders or potential investors. A reporting entity can be a single entity or a group comprising a parent and all of its subsidiaries.
Country-by-Country (CbC) Reporting – The CbC reporting regime in Australia requires certain Significant Global Entities (SGE), which are broadly entities within a global group with consolidated annual revenues in excess of A$1bn, to file three CbC statements: Australian Local File, Master File and CbC Report. All CbC reporting statements must be lodged within 12 months of the end of the relevant reporting period.
4. Anti-money laundering obligations
Anti-money laundering (AML) – the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) and the Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules) aim to prevent money laundering and the financing of terrorism by imposing a number of obligations on the financial sector, gambling sector, remittance (money transfer) services, bullion dealers, and other professionals or businesses that provide particular services. Under the AML/CTF Act, obligations for reporting entities include: (i) enrolling and/or registering the business with the Australian Transaction Reports and Analysis Centre (AUSTRAC); (ii) customer identification and verification of identity (refer to KYC below); (iii) record keeping; (iv) establishing and maintaining an AML/CTF programme; and (v) ongoing customer due diligence and reporting (suspicious matters, threshold transactions and international funds transfer instructions).
Know Your Client (KYC) – according to the AML/CTF Act, AML/CTF programmes established by reporting entities must provide for the collection of certain minimum KYC information. Under the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017, AUSTRAC can issue infringement notices for a greater range of offences, including for non-compliance with KYC reporting and record-keeping procedures.
5. Data control
Notifiable Data Breaches (NDB) – a business covered by the Privacy Act 1988 must notify any individuals affected by a data breach that is likely to result in serious harm. A data breach occurs when personal information that can be used to identify an individual is subjected to unauthorised access or disclosure or is lost. The NDB scheme requires entities to notify individuals and the Office of the Australian Information Commissioner (OAIC) about data breaches where the following criteria are met: (i) there is unauthorised access to, or disclosure of, personal information held by an entity, or information is lost in circumstances where unauthorised access or disclosure is likely to occur; (ii) this is likely to result in serious harm to any of the individuals to whom the information relates; (iii) the entity has been unable to prevent the likely risk of serious harm with remedial action.
6. Business regulation and company structure
Modernising Business Registers – as part of its Digital Business Plan, the Australian government recently commenced its implementation of the Modernising Business Registers programme to establish Australian Business Registry Services and streamline how business information is registered, viewed and maintained. The programme includes the recent introduction of a requirement for directors to verify their identity by applying for a director ID. The measures are aimed at reducing fraud and unlawful corporate activity, and failure to comply with the new regulations could attract civil and criminal penalties. This requirement applies to directors of a company, a registered Australian body or a registered foreign company under the Corporations Act 2001 and to directors of an Aboriginal and Torres Strait Islander corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006. Following confirmation of their identity, directors are assigned a unique identification number which will remain with them permanently. The requirement for a director ID has made the process of incorporating in Australia more complex and time-consuming, particularly in the case of foreign-based directors who are unlikely to have access to the online platform and will have to rely on the paper-based application.
Public register of beneficial ownership (UBO register) – while Australia does not yet have a UBO register, the Australian government has recently revealed plans to introduce one in line with international practices. The introduction of a UBO register is intended to increase transparency of beneficial ownership, and discourage the use of complex structures that avoid legal requirements and obscure tax liabilities.
Corporate collective investment vehicle (CCIV) – the CCIV is a new company structure introduced by the Australian government which took effect on 1 July 2022. The initiative aims to enhance Australia's funds management industry by introducing a more internationally recognisable investment structure for overseas investors.
7. Environmental, social and governance
Australia currently has no comprehensive framework covering environmental, social and governance (ESG) legislation. ESG obligations are fragmented under various legislation, regulation and practices across federal and state jurisdictions. How an entity is affected by a particular piece of ESG legislation will depend on the entity's size, industry and the state or territory in which it is registered or operates. The country, however, has significant potential in renewables, with policies that encourage the transition to a more sustainable and low-carbon environment. On 12 January 2024, the Australian Treasury released the Exposure Draft Treasury Laws Amendment Bill 2024: Climate-related financial disclosure (Exposure Draft legislation). It builds off previous consultations focused on the government's objective to improve the transparency and comparability of information available to investors regarding Australian entities' exposures to climate-related financial risks and opportunities as well as their plans and strategies in response to those exposures.
8. Modern slavery risk
Under the Modern Slavery Act 2018, Australian and foreign entities carrying on business in Australia with annual consolidated revenue of at least A$100m are required to prepare and submit annual modern slavery statements setting out their actions to assess and address modern slavery risks in their operations and supply chains.
To view the original article click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.