Branch vs Subsidiary | Wilson & Assoc Chartered Accountants

Branch vs Subsidiary: Setting up your Business in Australia

1. Registration Process:

•   Branch: Registering a foreign branch involves filing an application with ASIC and providing certified documents from the home jurisdiction.

•   Subsidiary: Registering a subsidiary involves incorporating a new entity in Australia, which requires compliance with the Australian Corporations Act and submission of relevant documents.

2. Legal Structure:

•   Branch: A branch is not a separate legal entity from the parent company, and the parent company is fully responsible for its actions.

•   Subsidiary: A subsidiary is a separate legal entity from the parent company, providing limited liability to the parent company for the subsidiary’s actions.

3. Taxation:

•   Branch: A branch is taxed as part of the parent company and is subject to Australian taxes on income sourced from Australia at 30% normally or 25% if the company qualifies as a small business entity, having income under AUD 50 million.

•   Subsidiary: A subsidiary is taxed separately from the parent company, with its own tax obligations in Australia. It will be taxed at 25% if it qualifies as an SBE or 30% otherwise.

4. Officeholders:

•   Branch: A branch must have a local agent in Australia.

•   Subsidiary: A subsidiary is represented by its own board of directors. It must have one resident director.

5. Financial Reporting:

•   Both a branch and a subsidiary are required to lodge annual financial statements with ASIC.

6. Ownership and Control:

•   Branch: The parent company retains direct control over the branch and assume full legal liability for its operations. This has practical logistic implications when management must present themselves for commercial or legal purposes.

•   Subsidiary: The parent company has full control of the subsidiary and manages the local operations through the local board of directors and management. Legal representation and obligations rest with the local directors and management.

7. Name Availability:

•   Branch: The branch must use the parent company’s name.

•   Subsidiary: The subsidiary naming is independent from that of the parent company.

8. Business Recognition:

•   Branch: A branch may be perceived as a less tangible extension of a foreign business and thus may be seen as an outsider by the local market.

•   Subsidiary: A subsidiary may be perceived as a self-sufficient business and therefore may command more commercial confidence, while taking full advantage of the parent companies branding and reputation (e.g. Samsung Electronics Australia Pty Ltd).

9. Corporate Governance:

•   Branch: Governed by the parent company’s corporate governance structure.

•   Subsidiary: Governed by its own board of directors in accordance with the mandates of the parent company, through a corporate governance structure that is in compliance with Australian Corporations law.

10. Exit Strategy:

•   Branch: Ceases operations by notifying ASIC within seven days.

•   Subsidiary: Can be dissolved according to Australian regulations for company dissolution.

In summary, a foreign branch is an extension of the parent company, while a foreign subsidiary is a separate legal entity. The choice between the two depends on factors such as legal liability, taxation, and control preferences.

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Disclcaimer: The information provided within this article is general information only.  None of the comments in these notes are intended to be advice, whether legal, financial product or professional. You should obtain specific advice regarding your particular circumstances from a tax or legal professional.

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