With trade between Australia and Latin America on the rise thanks to a series of bilateral trade agreements, there has never been a better time for entrepreneurs in Latin America to consider a business hub in Australia. Not only is Australia one of the most prosperous nations on the planet with a GDP of US$1.3 trillion and a GDP per capita of US$55,925.93, but the country is one of the world’s most connected nations, boasting free trade agreements with the Americas, Asia, the Gulf, and Europe, offering entrepreneurs opportunities for large-scale success..
However, in order to comply with the Australian government and maximize your potential in the country, you must first understand business compliance, and everything relating to tax and the law. Below, we’ve put together a crucial guide to Australian business compliance.
Tax and accounting in Australia
If you choose to start an Australian business, conduct and manage a business in the country, or conduct business in the country and have an Australian shareholder, then your company is considered to be resident in Australia. This presents a unique set of tax circumstances. Resident businesses are taxed on their worldwide income – that’s everything from the money they make in Australia, through to money made when trading or exporting overseas.
Non-resident companies, on the other hand, are taxed on the income they make in Australia. So, as an entrepreneur looking to set up a business on a shoestring budget, consider opening a branch office or relying on a professional employer organization to do business in the country, as you’ll be able to cut costs and avoid overpaying on tax.
For businesses with an annual turnover of less than AU$50 million, corporate tax is 27.5%, and returns must be filed annually before February 28th, or January 15th if your organization turns over more than AU$10 million per year. Relying on an experienced accountant is key.
Goods and Services Tax (GST) in the country is measured at 10%, and companies with a GST turnover must register with their local authority. Returns should be submitted quarterly, but businesses turning over more than AU$20 million should file their returns every month.
Capital Gains Tax currently stands at 30% for residents, reduced to 27.5% for non-residents.
As an entrepreneur considering opening a business in Australia, you should also take into account the payroll tax associated with hiring employees. All businesses are responsible for paying contributions to the Social Security and Unemployment Insurance Fund, which stands at 9.5% of their employees’ salaries. A 46% tax is also levied on fringe benefits (for example, a company car, private healthcare) given to employees, making it expensive to offer extras.
On top of that, employers are expected to withhold payroll tax, a figure that is decided by local authorities. On average, the tax rate is 5.5%.
Personal Income Tax
Whether you’re entering into Australia as a one-man band, or you’re planning to hire a team of experts, you must also consider your Personal Income Tax. Resident tax rates for the 2018–19 year are as follows:
- Monies earned up to $18,200 are not taxed
- Between $18,201-37,000: 19c of tax is levied to each $1 over $18,200
- Between $37,001-90,000: tax is $3,572 and 32.5c for each $1 over $37,000
- $90,001-180,000: $20,797 plus 37c for each $1 over $90,000
- $180,001 and over: $54,097 plus 45c for each $1 over $180,000.
In addition, residents are expected to pay a Medicare levy, currently 2% of taxable income in the country. This levy helps the government to provide residents with access to health care.
Foreign residents in Australia have their own taxation system, and so before entering into the country, it may be wise to calculate the benefits of holding a permanent Australian residency.
- Monies earned up to $90,000 is taxed at 32.5c for each $1
- Salaries and other income earned above $90,000 is taxed at 37c up to $180,000
- For those earning more than $180,000, a tax of 45c for each $1 is levied on money over $180,000, in addition to the lower tax brackets (a base tax of $62,550).
Additional tax information
It’s important to note that the Australian Government releases annual reports, including company names, business numbers, and income and tax figures. This level of transparency is unique to Australia and holds businesses accountable, meaning that entrepreneurs should be prepared for the ups and downs in their businesses, and ready to face shareholders.
Unlike some countries, companies in Australia can carry their losses into the following years, although capital losses can only be used to offset against capital gains.
The country has double taxation treaties with 50 countries including the United States, the United Kingdom, and Canada, allowing businesses to reduce their withholding taxes abroad.
Legal compliance in Australia
Businesses registered in Australia must have at least one director of Australian origin under Australian law, although resident directors may be employed on a third-party basis to overcome this if you’re an overseas investor. On top of this, businesses must report necessary information about their shareholders, executives, directors and their financial position in their Annual Return. All shareholders and directors must be listed on the Australian Business Register (ABR) in a bid to increase commercial transparency in the country.
Due to transparency efforts, there’s nowhere to hide when you do business in Australia, and you must take this into consideration before incorporating. If you’re operating in a sensitive industry and require confidentiality, seek legal advice on the ramifications of these legal compliances on your operations.
Licenses and laws
When doing business in Australia as a foreign investor, you must follow Australia’s Foreign Investment Policy and FATA at all times. It’s your responsibility to read through, understand and follow these policies. Therefore, it makes sense to hire a lawyer or solicitor to guide you through the process of incorporating and doing business in Australia to ensure compliance.
On top of that, it’s important to remember that licenses and registrations can vary greatly from industry to industry and from state to state, so speak to local governments before incorporating an Australian business. It may be that you need to file for a permit or license in Melbourne, but in Adelaide, you can operate without permits. Such cases may encourage you to reconsider your location when incorporating, helping you save money and overcome legal barriers that can add complexity to your business and increase your level of risk.
Stay compliant with Biz Latin Hub
Whether you’re a foreign investor ready to make the move into Australia or you’re already in the country and require legal assistance, working with an experienced back-office service provider makes sense. At Biz Latin Hub, we can aid in market entry, company incorporation, due diligence, recruitment, visa processing, accounting, taxation, law, and more.
Biz Latin Hub’s award for Business Excellence by the Australian-Latin America Business Council demonstrates the support we receive from Australian institutions to connect businesses and support startups in the region. To find out more about how we can transform the fortunes of your business, contact our Managing Director and Australia business expert Craig Dempsey on [email protected] today.