Hall & Wilcox's 2022 guide to doing business in Australia looks at the key questions facing foreign companies looking to conduct business in Australia or enter the Australian market, including choosing the right business entity for you, director requirements, employment laws and visas, intellectual property rights, foreign investment, and much more.
Treasury has released updated FIRB Guidance Notes which aim to provide greater clarity to investors about their obligations under Australia’s foreign investment framework.
This publication outlines some of the more important considerations to take into account when setting up a business in Australia.
1 Doing business in Australia hallandwilcox.com.au 2 3 Contents About Hall & Wilcox 4 Types of business entities 5 Steps and timing to establish a Pty Limited company 7 Requirements for directors 8 Opening local premises 9 Employing Australian employees 10 Using the services of overseas employees 10 Intellectual property rights 10 Governance, regulation and ongoing maintenance 11 Foreign investment, thin capitalisation, residency and material visa restrictions 16 4 About Hall & Wilcox Our hallmarks Stay true Be remarkable Respect respect Evolve always Better together We are a firm of 950+ 100+ Years of proud history People Partners 105 Price certainty At Hall & Wilcox we believe in innovation in pricing. We work with our clients to price our services to deliver value and certainty. We provide the highest quality legal work in the most cost effective way and will continue to ensure this is always achieved. Contact us Hall & Wilcox advises on all topics mentioned in this guide. Please contact us so we can assist you further with any specific queries. Oliver Jankowsky Partner and Head of International T +61 3 9603 3585 [email protected] Hall & Wilcox is a leading mid-market business law firm with offices across Australia. Our deep industry knowledge, technical excellence and commercial focus and commitment to ensuring timely and efficient outcomes are attributes highly valued by our clients. We’re renowned for our Smarter Law approach. Smarter Law means we look beyond the status quo to think differently and find solutions that are better, faster and cheaper. We are a full service law firm with expertise across all areas of corporate and commercial law. From mergers and acquisitions to intellectual property law, our multidisciplinary teams work closely and collaboratively to provide a seamless service across a whole project or portfolio. This document is intended to provide general information in summary form on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters. We have offices in Melbourne, Sydney, Newcastle, Perth, Canberra, Brisbane, Darwin and Adelaide International expertise We have long-term experience advising companies looking to conduct business in Australia and have a large network of trusted advisors who we closely collaborate with. 5 Types of business entities contribution. Directors of the company must comply with all obligations under the Corporations Act 2001 (Cth), including the verification of their identity to obtain a director identification number. There are several types of companies under Australian law: • Proprietary private company limited by shares (Pty Limited) A proprietary private company is limited to 50 non-employee shareholders. There must be at least one director who has their ordinary residence in Australia. There is no legal requirement for a secretary. Typically, not all constituent documents must be lodged with the Australian Securities and Investment Commission (ASIC). • Public company A public company does not have an upper limit on the number of shareholders. Capital can be raised from the public by offering shares and other securities. However, there are more reporting and disclosure requirements than with a proprietary company. There must also be at least three directors of which at least two must ordinarily reside in Australia, as well as one secretary. The level of reporting requirements depends on whether the company is either not a disclosing entity or a company limited by guarantee. Discretionary or unit trust A trust is a form of businesses structure frequently used in Australia. A trust is an arrangement where a trustee holds an investment, or the legal title to property, on behalf of named beneficiaries. Trusts are distinct in that they are not separate legal entities and therefore cannot enter into agreements and must nominate trustees that act for them. A trustee is usually a private person or a corporate trustee whose sole purpose is to act as trustee for the trust. The trustee has duties to the beneficiaries, dictated by the trust deed, legislation, and the general law. There are two main forms of trusts: unit trusts and discretionary trusts. The latter is typically used for family tax and planning 1. Types of entities available through which to conduct business The following entities are recognised as business structures to conduct business under Australian law: Sole trader A sole trader is the simplest form available as a business structure where an individual trades under their own name or under a registered business name. It is easy to set up as there are few legal and tax formalities required. The business name is easily registered for a minimal fee. A sole trader does not need a separate Tax File Number (TFN) or business bank account, unlike a public or private company. An individual operating as a sole trader has full control over all assets and business decisions and can hire employees as required. Business losses can be written off to other personal income. However, a sole trader is personally responsible for the entire business including any debts incurred. Because of this unlimited liability, the sole trader’s personal assets can be seized to recover a debt. Hence, this structure is only suitable for micro to very small businesses. Partnership A partnership has some similarities with the sole trader structure but involves multiple individuals (or companies) who share control of the business. The structure is very flexible, without any obligation to publicly disclose reports or accounts. However, similarly to a sole trader, a partnership is not a separate legal entity, and the partners are personally liable for the debts of the business. This structure is often chosen by professional services organisations and sometimes by family owned enterprises. A formal partnership agreement or deed is commonly in place to govern the relationship. Partnerships are rarely used for trading companies. Company A company is a separate legal entity that has the same rights as a natural person, its own bank account, holds assets, and incurs its own debt. The liability of the owners (shareholders) of the company is generally limited to their capital purposes. Under this form, the trustee has a choice in regard of the distribution of the income and capital of the trust to any of the beneficiaries named in the trust deed. Under the unit trusts, generally used as a vehicle for public investment schemes, the trustee issues units, each of which grants upon the unit holder a proportionate interest in the overall assets and undertaking of the trusts. Incorporated or unincorporated joint venture A joint venture is like a partnership in that it is formed by a group of individuals or companies seeking to combine their resources to conduct an enterprise. However, unlike a partnership, the liabilities and debts incurred typically stay with the parties separately. The relationship between the parties is governed by a detailed joint venture agreement. Careful structuring of this agreement is necessary to ensure that the joint venture is not treated as a partnership for tax purposes. A joint venture usually has a definitive end and does not provide for an ongoing relationship between the parties. A joint venture may be incorporated or unincorporated. Managed investment schemes A managed investment scheme, also known as a managed fund or collective investment, is a structure which allows groups of individuals to pool capital for a common enterprise. The scheme is managed and operated by a ‘responsible entity’ which is subject to Australian financial services licensing requirements. Investors do not have day-to-day control over the actions of the scheme. Australian branch Foreign companies established in nonAustralian jurisdictions wishing to directly carry on business in Australia may establish a branch office, usually as an alternative to incorporating a proprietary limited company. A branch office is set up by registering the foreign company with ASIC and is not a separate legal entity. The foreign entity is therefore subject to Australian reporting and disclosure requirements. 6 2. Matters to be considered when choosing a particular business entity type For many foreign companies, a key decision is whether the business will be run through the relevant offshore entity or whether to set up an Australian entity. In making this decision, one should consider the implications of taxation, employment law, contractual and operational requirements. There is no definite rule as to which entity to use, as there are various modes of market entry and structures that can minimise risk and maximise value. The solution very much depends on the specific circumstances and objectives. Operating through a non-Australian company If a decision has been made to expand an overseas business into Australia without creating a local entity and by using a foreign company as a vehicle, the foreign company must be registered with ASIC. This process can take up to 12 weeks (or longer in certain circumstances). The foreign company must appoint a local agent for the service of notices and maintain a registered office in Australia. As the operating entity in Australia, the foreign company will be subject to Australian legislation and taxation laws and other related compliance standards. The foreign company is subject to the Australian legal framework. Operating an Australian business through a non-Australian company often involves complex considerations and it is strongly recommended that appropriate advice is obtained. Setting up an Australian entity Foreign companies often choose to set up a local subsidiary to conduct business in Australia. The most frequently used entity is a proprietary private company limited by shares (Pty Limited). 7 Steps and timing to establish a Pty Limited company individual director and interfaces with other government agencies and databases to allow regulators to map the relationships between individuals and entities, and individuals and other people. If a director does not have a DIN already, the director must apply for their DIN themselves. As such, no one can apply on their behalf. This application is made through a government office called the Australian Business Registry Services. If the director is appointed after 5 April 2022, the DIN must be obtained before appointment. As the application process for directors residing outside of Australia can be lengthy and cumbersome, it is recommend you start this process early (at least six weeks prior to appointment but ideally even earlier). Company secretaries The company may appoint a secretary. If a Pty Limited company does not appoint a secretary, each director of the company is liable for a breach of the responsibilities of a secretary. If appointed, at least one secretary must have their ordinary residence in Australia. Public officer Each company must also appoint a public officer who is responsible for complying with tax obligations and dealing with Australian tax authorities. It is common for an individual to act as both public officer and secretary. Further registrations Further steps are required for the company to become fully operational. This includes tax registrations and if the company is to employ staff, the set up of a payroll, as well as workers compensation registration and superannuation set up. As the Pty Limited company is by far the most common vehicle used by foreign companies expanding into Australia we limited our explanation for market entry to this structure. Incorporating an Australian Pty Limited company can be done relatively quickly and without great expenditure, involving minimal government fees and corresponding professional fees. With all relevant data ready and with each director having obtained a director identification number, a new Pty Limited company can be incorporated within a few days. Company name and Australian Company Number (ACN) Before deciding on the name for a new company, it should be confirmed that the proposed company name does not infringe any intellectual property rights of third parties. A company name can be reserved before incorporation takes place. Following incorporation, each company will be allocated with a unique nine-digit ACN. Directors should ensure that the company’s name and ACN appears on all relevant public documents. Low minimum share capital requirement In Australia, there is no minimum share capital requirement for Pty Limited companies. It is acceptable and not unusual to incorporate a Pty Limited company with a share capital of A$100. Company directors and Director Identification Number (DIN) The company must appoint at least one director who ordinarily resides in Australia. Directors of Australian companies must be natural persons and at least 18 years old. If there is at least once director with ordinary residence in Australia, the company may appoint one or several foreign directors. It is mandatory for each director of an Australian company to go through an identity verification process by applying for a DIN. A DIN is unique to each In Australia, there is no minimum share capital requirement for Pty Limited companies. 8 A breach is likely to occur where a director uses information acquired during their position for their own benefit rather than for the benefit of the company. Duty to avoid a conflict of interest and to disclose material personal interests All directors must disclose all personal interests that the directors have in relation to the affairs of the company. All directors must, as soon as they become aware of a conflict of interest, notify the board of such conflict. Directors of proprietary companies, however, need not give notice as to a conflict, provided the other directors are fully aware of the nature and extent of the relevant director’s conflicting interests. The procedure for dealing with conflicts of interest depends on the circumstances and usually requires specialist advice. In some instances, it may be appropriate for a director to disclose a conflict and refrain from voting on the issue. In other instances, the director’s resignation may be required. Duty not to abuse a corporate opportunity Like the duty to disclose material personal interests, a director has a duty to not take advantage of a corporate opportunity for personal gain and at the expense of the company. Only where such an opportunity is properly considered and rejected by the company can a director pursue the opportunity personally, pending the necessary disclosure requirements. Duty of care and diligence A director is required to discharge its duties with the same degree of care and diligence that a reasonable person in a similar position would exercise. Factors such as the size of the company and experience, position and responsibilities of the director are considered in establishing this objective standard of care. A director may not be liable for breach of the duty to exercise care and diligence if the director: • made the decision in good faith for a proper purpose; • rationally believed the decision was in the best interests of the company after having made all reasonable inquiries necessary to inform themselves about the subject matter of the decision; and • made the decision while having had no personal interest in the matter. Duty not to engage in insolvent trading Each director has a duty to prevent the company from trading while insolvent and to prevent the company from trading in a way that will make it insolvent. When a company debt is incurred, if a director is aware that or has reasonable grounds to suspect that the company is or may become unable to pay its debts as and when they fall due, the director will be in breach of this duty. The director may become personally liable for the debt and be ordered to pay compensation to the company or its creditors. A director will be deemed to have been aware of the company’s insolvency if a reasonable person in the position of the director would have been so aware. Other than being ill or otherwise incapacitated, a director will only have a defence if they can demonstrate that there were reasonable grounds on which to expect the company was, and would remain, solvent. Duty to keep proper accounts and records Each director is required to ensure the company prepares a financial report and a directors’ report each financial year in accordance with the relevant reporting requirements. While small proprietary companies may be exempt from lodging all the information required of larger companies, each director must inform themselves of accounting and recording obligations. Specialist accounting advice is usually necessary and recommended. Requirements for directors The legal obligations summarised below represent a non-exhaustive list of legal requirements which directors of an Australian company must comply with. As directors can become personally liable for decisions made in their capacity as a director of a company, it is critical that directors understand and adhere to all obligations imposed on them. Appointment as a director To be appointed as a director, the director must sign a notice consenting in writing to be appointed and act as a director of the company. The director must also provide the company with certain personal information about themselves and have a DIN. If no special circumstances apply, a director may resign from their directorship at any time by giving written notice to the company. Fiduciary duties owed to a company On appointment, the director owes various fiduciary duties to their company which, if breached, may lead to personal liability of the director including civil and criminal penalties and liability for damages. Duty to act honestly The director must act in good faith, in the best interests of the company and for a proper purpose. This broad duty demands more than general honesty. A director must exercise independent judgment considering relevant facts, materials and other views when assessing the best interests of the company. A breach of this duty that involves fraud, dishonesty and even recklessness may attract criminal penalties. Duty not to improperly use inside information or position A director must not make improper use of their position or information acquired during that position, to gain an advantage for himself or any other person or to cause detriment to the company. In considering whether there has been improper use of their position, it is of no consequence whether the director intended the impropriety to have a certain outcome. 9 Opening local premises A company may wish to enter into either a lease for premises from which to conduct the business or may choose to acquire real estate as business premises. Entering into a lease After having identified potential lease premises, the landlord’s solicitor will normally prepare a lease. Legal advice should be obtained in respect of the lease. Any advice obtained should identify whether any State Retail Leases Acts will apply to the lease. Acquiring Australian real estate If you choose to acquire real estate that will be used as business premises, you will need to consider whether foreign investment restrictions may apply. In Australia the acquisition of real estate by foreign companies (or Australian companies with a substantial foreign shareholder) may need the approval of the Foreign Investment Review Board (FIRB). Whether such approval is required depends on a variety of factors, including: • the value of the transaction; • the nature of the investment; • the investor’s country of origin; and • the type of land. We recommend obtaining professional advice should you consider the acquisition of Australian real estate. Environmental liabilities When acquiring real estate, particularly commercial (non-office) and industrial real estate, it is important to investigate the prior use and potential contamination of the property. Most contracts of sale of real estate will attempt to pass any environmental liability on to the new owner and require the purchaser to indemnify the seller against any current or future environmental liability. Again, we recommend obtaining professional advice if you are considering the acquisition of Australian real estate. 10 Using the services of overseas employees Intellectual property rights If a company decides to use the services of employees who are not Australian citizens or permanent residents, the company must ensure that it complies with relevant migration laws and procedures. This is particularly so for companies that sponsor non-Australian citizens and permanent residents to work in Australia as they will need to meet stringent audit requirements. It is a criminal offence under the Migration Act 1958 to knowingly or recklessly allow someone to work if that person is unlawful or does not have permission to work in the capacity for which they are engaged. Severe penalties (including imprisonment of up to two years) apply to individuals and companies who are convicted of these offences. It is recommended that employers obtain appropriate migration law advice if they intend to employ overseas employees. Intellectual property rights are regulated in Australia by Commonwealth legislation (Australia-wide legislations). For example, companies should be aware of the Trade Marks Act 1995 (Cth), which provides for the registration of trade marks and sets out what rights derive from registration. Companies will be liable if they infringe a registered trade mark. Other legislation to keep in mind are the Patents Act 1990 (Cth) and the Copyright Act 1968 (Cth). Companies should also ensure that they do not benefit from other companies’ or individuals’ reputation, to avoid being the subject of a common law passing off action. When employing Australian employees, companies must be aware of the following issues: Applicable law Australian industrial relations law is frequently changing and is a highly politicised area of law. It is important that companies familiarise themselves with current legislation and obtain appropriate professional advice. The Australian workplace relations system was completely reformed in 2009 and a new safety net of employee entitlements took effect from 1 January 2010. The new safety net is provided for in the National Employment Standards under the Fair Work Act 2009 (Cth) together with any applicable modern awards. Companies employing employees must also comply with a wide range of other legislation including superannuation and tax legislation and various other State and Territory laws. Engagement of employees Although not a legal requirement, it is prudent to engage new employees pursuant to an appropriate agreement. This may be an individual employment contract and/or a properly negotiated enterprise or greenfield agreement. To minimise exposure to liability, individual employment contracts should include standard conditions of employment, termination of employment provisions, employer protection clauses and provisions dealing with breaks, responsibilities and various leave entitlements. In the absence of a written employment contract, conditions and entitlements may be determined according to the provisions of relevant legislation, awards, common law and principles of reasonableness. Employing Australian employees In particular, failing to agree in writing with an employee to a period of notice of termination may impose an obligation on the employer to provide reasonable notice that may be significantly longer, therefore, more costly to an employer than statutory minimum periods. Occupational health and safety laws Each Australian State and Territory has Occupational Health and Safety (OHS) legislation which imposes certain obligations on companies employing staff. It is typically required that all companies who employ staff ensure the health, safety and welfare at work of their employees, contractors and other persons. Breaches of the relevant OHS Act attract large fines. Liabilities Failure to comply with the relevant statutory and award obligations and entitlements will expose employers to liability and may attract significant penalties. The termination of an employee may in certain circumstances provide grounds on which the employee can seek remedies against the employer. Employers should ensure employees are terminated for lawful and valid reasons and in accordance with principles of fairness, equality and the applicable legislation. Fair and reasonable disciplinary procedures should also be adopted. Workplace policies Employers should ensure that they have workplace policies in place including those dealing with antidiscrimination, bullying, sexual harassment, equal opportunity, internet and email use, and grievance procedures, and that those policies are made available to employees. In respect of the recent pandemic, companies also may wish to adopt a vaccination policy. 11 Governance, regulation and ongoing maintenance 1. Regulation and ongoing maintenance, reporting requirements Australia has numerous corporate governance regulations and guidelines, generally provided for in the Corporations Act 2001 (Cth) and its supplementary rules. Tax registration and reporting obligations Every company must obtain a TFN from the Australian Taxation Office (ATO) and ensure the company complies with the reporting obligations to various regulatory bodies, including the ATO, ASIC and various other agencies. This includes preparing and lodging financial reports with ASIC. In some circumstances relief from financial reporting may apply. A company must report changes to its company details to ASIC. As an operating business, a company will also have to apply for an Australian Business Number (ABN). It is generally necessary to hold an ABN to register for the Australian Goods and Services Tax (GST). Australian taxation is based on a selfassessment model, where taxpayers are responsible for lodging their own tax returns. Individuals and companies are required to lodge an annual income tax return, while companies and other entities may have further requirements for the purposes of GST and Pay As You Go (PAYG). PAYG is a system of paying instalments during the income year towards a company’s expected tax liability. Under the withholding tax rules, the payer must withhold an amount from payments made and then pay that amount to the ATO, usually in regular instalments throughout the year, depending on the size of the entity. When operating a business in an overseas location, as well as in Australia, taxation should be considered including GST implications on the relevant transactions, payment of withholding tax, the application of relevant double taxation agreements and transfer pricing rules. The income tax rate is 30% for all companies except small businesses. The tax rate for small businesses has been cut to 25% from the 2021-22 financial year. This reduced rate is applicable to small businesses with an aggregated turnover of under A$50 million and which are companies, corporate unit trusts or public trading trusts. Capital Gains Tax (CGT) is imposed on gains realised from the sale of assets with special rules applicable to the valuation of capital gains. For taxation purposes, the assets subject to CGT are very broad and include both tangible and intangible assets. If you are an Australian resident for tax purposes, CGT will apply to assets located anywhere in the world (not only those located in Australia). Dividends paid by companies to their shareholders are included in the shareholders’ assessable income and are subject to a dividend imputation system. The purpose of this system is to pass on a credit to shareholders for the tax that the company has paid on the profits from which dividends are paid. This system therefore ensures that dividends are ultimately taxed at each shareholder’s applicable income tax rate and are not subject to double taxation. Access to credits, however, only applies to Australian resident shareholders. A tax consolidation regime also applies for 100% owned group companies, allowing them to consolidate as a single entity for income tax purposes and ignore transactions within the group for the purposes of income tax. Please note that the income tax year in Australia is from 1 July to 30 June and not the calendar year. • GST GST is a consumption tax (like the Value Added Tax or ‘VAT’ in other countries) imposed on the sale of most real property, goods and services. The GST may apply to supplies located in Australia as well as those supplies which may be outside Australia. A company must report changes to its company details to ASIC. 12 It is levied at 10%. Some supplies such as certain types of food, exports, education, and health are excluded from GST. All consumers are required to pay GST when making a purchase. Businesses or individuals carrying on an enterprise that have an annual turnover of more than a specified amount are required to register for GST purposes. GST is reported through a Business Activity Statement (BAS) and is lodged on either a monthly, quarterly, or annual basis. There is a simplified GST registration regime that may be available for nonresident entities. These businesses may either be liable to the ATO or entitled to a refund each period depending on the balance of the amount of GST collected through sales compared to any tax credits received from GST paid on goods and services purchased during carrying on their enterprise. Certain special reverse charge rules apply in certain circumstances with entities located overseas that are making supplies to Australian businesses. • Fringe Benefits Tax (FBT) FBT is imposed on the value of non-cash benefits provided by employers to employees. Generally, benefits must be connected to the employee’s employment to be taxable, although certain fringe benefits are either specifically subject to FBT or expressly excluded under Australian law. The FBT year runs from 1 April to 31 March. FBT is levied on the provider of the benefit at a flat rate of 47% for the year ending 31 March 2022 and may be deductible against the employer’s taxable income. • Medicare Levy and Medicare Levy Surcharge Medicare is Australia’s public health insurance scheme. It operates by receiving contributions through the Medicare Levy and the Medicare Levy Surcharge, which are taxes imposed on Australian residents’ taxable incomes. 13 Customs duty is payable on the entry of the goods into Australia. The applicable duty rules will depend on how the classification of the goods by the relevant Australian authority and may be altered by tariff concession orders or free trade agreements. Australian customs duty rules are complex, and importers should seek advice on a case by case basis. • Excise duty Excise duty is imposed on alcohol, tobacco, fuel, and petroleum products that are produced or manufactured in Australia. If these products are imported into Australia rather than produced or manufactured in Australia, customs duty applies to their importation at a rate comparable to the excise rate (see above). Excise duty is paid by either the manufacturer or distributer at a flat rate. The applicable excise rates may increase twice a year to reflect inflationary changes. In addition, a licence is generally required to undertake activities in relation to excisable goods. Obligations under the Competition and Consumer Act Companies must ensure compliance with the Competition and Consumer Act 2010 (Cth) (CCA) or be subject to penalties. The main provisions relevant to all companies operating in Australia are summarised below. • Anti-competitive agreements – contracts, arrangements or understandings which have the purpose or likely effect of substantially lessening competition are prohibited in Australia, unenforceable and may result in substantial penalties. Other considerations when trading between Australia and other countries • Transfer pricing Australian transfer pricing rules must be considered where goods or services are bought or sold between Australia and other countries. The transfer pricing rules have particular relevance to transactions between related parties in a corporate group for the supply of goods, services or finance that are not priced on terms which would be comparable to those that would be charged between parties transacting at arm’s length. If an international transaction does not occur at arm’s length or is not supported by an acceptable pricing methodology, then market prices may be substituted into the transaction for taxation purposes to ensure an appropriate level of tax is paid. For an intra-group cross-border transaction to be deemed to have occurred at arm’s length, the ATO requires that companies appropriately document the transaction as well as the pricing methodologies used for the purposes of the transaction. Other factors that may be considered by the ATO include, amongst other things, the commercial justifications for the transaction, any applicable review processes and whether any alternatives were considered. • Customs duty Customs duty is imposed on goods imported into Australia. The rate of customs duty is generally around 5% of the customs value of goods, although this is subject to change depending on the type of good imported. The customs value of a good is determined as a question of law, considering the type of good, its country of origin and the purpose of its import into Australia. The Medicare Levy is imposed at a flat rate of 2% of an individual’s taxable income, although exemptions may be given to low income earners and foreign residents. The Medicare Levy Surcharge is an additional flat rate of between 1-1.5% imposed on high income earners who do not have private hospital insurance. • Superannuation tax – the Superannuation Guarantee Charge In Australia, an employer must pay a minimum level of superannuation (known as the superannuation guarantee) to its employees to ensure that workers have money set aside for their retirement. The current superannuation guarantee rate is 10% of everyone’s employment earnings. With recent amendments coming into effect, the minimum rate will increase progressively over the next few years until it reaches 12% from 1 July 2025 onwards. If an employer fails to provide the minimum level of superannuation, they become liable to pay the Superannuation Guarantee Charge (SGC) which includes the amount of the shortfall in superannuation payments plus interest and administrative charges. However, in practice, most companies will contribute the minimum level of superannuation to avoid the SGC. There are statutory limits to how much employers or employees may contribute to superannuation funds. If contributions are made in excess of these limits, a penalty charge may apply. • Luxury car tax The luxury car tax rate is 33% and imposed on vendors and importers of luxury cars in Australia. There are guidelines classifying a luxury car and the circumstances in which the luxury car tax arises. The tax generally applies to cars valued over approximately either A$69,152 or A$79,659 (as of February 2022), depending on the fuel consumption of the vehicle. 14 15 Further specific prohibitions include: • Price fixing – where parties in competition with each other enter into a contract, arrangement or understanding, which has the purpose or effect of fixing a price for the provision of goods or services. • Exclusive dealing where a company (Supplier) supplies goods or services on the condition that the company that receives those goods or services (Receiver) will not acquire goods or services from a competitor of the Supplier, or that the Receiver must also acquire certain other goods or services directly or indirectly from the Supplier, and this arrangement has the purpose or likely effect of lessening competition in a market. • Third line forcing is a more specific form of exclusive dealing. An offence occurs when a Supplier supplies goods or services on the condition that the Receiver will acquire different goods or services from a third party. In Australia third line forcing is an automatic breach of the CCA and is punishable regardless of its effect on competition in a market. • Resale price maintenance occurs when a company dictates to its resellers the minimum prices for the resale of its goods or services. Although a retail price can be recommended, companies will in breach if they threaten not to supply goods, if those goods are not sold at the retail price requested or, otherwise, exert pressure on retailers to sell at a specified price. • Consumer protection – by law, companies are prohibited from engaging in misleading or deceptive conduct during trade or commerce. This prohibition has a broad interpretation and includes activities such as advertising, oral representations, as well as representations in respect to contractual matters. The consumer protection provisions of the CCA should always be considered when offering goods or services in Australia. • Product liability – companies that manufacture goods in Australia or import goods into Australia will be liable for defects to those goods. Defects include design, manufacturing, and instructional defects, which may or may not have an impact on safety. Whether a defect will be compensable depends on the circumstances and, whether loss or damage has been suffered. • Unconscionable dealing – companies must not act unconscionably in business transactions. Broadly speaking, conduct is unconscionable if the conduct is clearly unfair or unreasonable, or if the company knew, and took advantage of, the special disability of a contracting party. Other reporting duties Entities with a consolidated revenue of at least $100 million for the reporting period (as of February 2022) are required to report annually on the risks of modern slavery in their operations and supply chains, and the measures they are taking to address those risks (Modern Slavery Act 2018 (Cth)). Large emitters of greenhouse gasses have reporting obligations under the National Greenhouse and Energy Reporting Act 2007 (Cth). The current thresholds for facilities are 25 kt of greenhouse gas emission, or production or consumption of 100 TJ of energy; and for corporate groups 50 kt of greenhouse gasses, or production or consumption of 200 TJ of energy. Companies are well advised to monitor new legislation and developments in regard to emerging topics such as human rights and climate change as they may lead to new compliance standards or reporting duties. 2. Requirements for local shareholding Unlike other jurisdictions, there are no requirements for an Australian company to have a local shareholder. The company can be fully owned by a foreign company. 3. Minority shareholders’ rights and protection The issue of shareholders’ rights and protection in Australia is complex. Two of the most important considerations in this respect are listed below. Oppression of minority shareholders There are far-reaching remedies set out in section 233 of the Corporations Act 2001 (Cth) for oppression of minority shareholders. The concept is generally used in reference to conduct falling under section 232 of the Corporations Act 2001 (Cth). The practical implication is that oppression occurs where a minority shareholder is treated unfairly by majority shareholders who misuse their influence and control over the company. Oppression of minority shareholders can lead to different orders including an order that the company be wound up. Right to call a general meeting One or several shareholders with at least 5% of the votes may request to call a general meeting in accordance with section 249D of the Corporations Act 2001 (Cth). 16 Foreign investment, thin capitalisation, residency and material visa restrictions 1. Barriers to entry for an offshore party Certain foreign investments, for example certain real estate investments and significant businesses investments, must be approved by FIRB before they may proceed. Certain other investments (for example in defence or media companies) also require FIRB approval. Other than that, there are no significant barriers to entry for an offshore party. As mentioned above, a Pty Limited company needs to have at least one director who resides in Australia, but there are no local shareholding requirements. 2. Capitalisation obligations There are no minimum capital requirements for the incorporation of a Pty Limited company. Foreign entities investing in Australia are subject to thin capitalisation rules that govern the level of debt-to-equity a company must hold. This means that the amount of debt used to fund Australian operations must be limited. The thin capitalisation rules prevent an entity from claiming a deduction for expenses incurred relating to this debt (debt deduction), such as interest payments. However, inward investing entities are not affected by the thin capitalisation rules if their debt deductions, including those of any associated entities, are A$2 million or less for the income year. 3. Business or investment visa Significant restrictions apply to foreigners who want to obtain a work visa in Australia. There are many different visa classes which may apply such as the ETA Visa, the Class 188 Visa, the Class 400 Visa and the Class 482 Visa. At the time of writing of this guide (February 2022), the Class 482 Visa is the most frequently used long-term visa in Australia. Immigration and work permits are a political topic in Australia and the rules governing visas are expansive and change constantly. It is advised that any person wishing to enter Australia contacts a registered migration agent to obtain appropriate advice. 4. Restrictions on remitting funds out of the jurisdictions (withholdings, etc.) There are cash reporting obligations under the Financial Transaction Reports Act 1988 alongside the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. It is a requirement to report international currency transfers of A$10,000 or more for the purpose of detecting tax evasion and money laundering. Certain payments (dividends, interest) attract a withholding tax in Australia. Detailed tax advice should be sought on these topics. May 2022 HW1044