Economos Group Powerpoint (Kiwi Businesses Expanding into Australia)

Expanding into Australia:

A brief introduction and key issues

Paul Pham – Senior Manager, Economos Group

James Meli - Director of Tax, Economos Group

Who are Economos Group?

• Professional services firm (Chartered Accountants) based

in Sydney CBD;

• Established in 1978;

• Paul Pham (Head of Trans-Tasman and native Kiwi) and

James Meli (Director of Tax) focus on:

– inbound structuring;

– international tax;

– ongoing compliance and implementations;

– HR support for secondees (tax equalisation); and

– pre-arrival planning for inbound migrants.

• Credible, cheaper alternative to Big 4 and large mid-tiers;

• Personalised service, availability, honesty and integrity.

How does Australia tax?

• Residency and source;

• Individual residents/non-residents taxed at different rates;

• Companies:

– small business (<$10m turnover) - 27.5%;

– all others - 30%;

• Despite domestic tax law, DTA provides concessions re:

– NZ residents that do not have a permanent establishment (“PE”)

in Australia;

– NZ businesses seconding employees to Australia for up to 90

days; and

– NZ businesses sending employees to Australia for up to 180 days

(subject to separate criteria).

Snapshot of Australia’s GST system

• Registration threshold – AUD$75,000+

• GST applies to taxable supplies and taxable importations;

• GST excludes both GST-free and input taxed supplies;

• Difference between GST-free and input taxed:

– GST-free: suppliers do not pay GST but can claim credits;

– Input taxed: suppliers do not pay GST and cannot claim credits;

• Recent legislative changes aimed at:

– keeping certain foreign suppliers outside the Australian GST net

re: B2B supplier for no net gain to the Revenue (other supplies

still subject to GST, including under ‘reverse charge’ rules);

– Capturing the supply of certain offshore digital products (i.e.

‘Netflix tax’).

Deferred GST regime

• GST payable on taxable importations;

• Negative cash flow implications;

• Solution – deferred GST regime;

• Requirements:

– have an ABN and registered for GST;

– lodge and pay BAS on monthly basis (electronically);

– be up to date on your tax returns & payments;

– not be penalised/convicted within 3 years;

• GST not paid up-front (on importation) and simply netted

off at month-end.

Structuring drivers

• What type of business is it?

• Will it have a presence in Australia?

• If so, will it give rise to a PE in Australia?

• If it does not have a PE initially but may in the future, do

you structure for that eventuality from the outset?

• What are your structuring options?

• Which structures give rise to double taxation?

• Which structures facilitate access to foreign tax credits?

• Is taxation of dividend income from year to year or the tax

implications on exit more significant?

Structuring options

• Branch;

• Subsidiary (ordinary);

• Australian trust;

• NZ trust;

• NZ LTC;

• Australian LTC?;

• Partnership;

• Limited partnership;

• Sole trader;

• Joint venture.

Popular structuring option - subsidiary

• Australian subsidiary is most common structuring option;

• Not ideal from an effective tax rate perspective for NZ

founder/owner:

Australian profit $100

Australian corporate tax ($30)

Net Australian profit $ 70

Australian dividend (fully franked) $ 70

Australian dividend WHT $ 0

NZ income $ 70

NZ tax at 33% tax rate ($23)

Net cash $ 47

Effective tax rate 53%

Transfer pricing

• NZ companies entering cross-border transactions with

related entities – transfer pricing is a critical

consideration;

• Under traditional structures (i.e. parent/subsidiary model),

transfer pricing used, within commercial boundaries, to

alleviate effects of double taxation;

• Recent legislative changes gave rise to new

administrative measures which reduce documentation

requirements, but generally still require determination of

arm’s length rate.

Transfer pricing

• Simplified transfer pricing record keeping:

– Small taxpayers;

– Distributors;

– Intra-group services;

– Low-level inbound loans;

– Materiality;

– Management & administrative services;

– Technical services; and

– Low-level outbound loans.

Transfer pricing

• Small taxpayer concession:

– turnover for Australian economic group is <$AUD25m;

– no related-parties in specified countries;

– do not have specified service related-party dealings (either as

expenses or as income) greater than 15% of your turnover;

• Intra-group services concession:

– international related-party dealings of either $1m or less or > $1m

but cost of services you receive or provide cannot be more than

15% of total revenue of Australian economic group;

– mark-up on costs must be 7.5% or less for services received or

7.5% or more for services provided;

– no related-party dealings with entities in specified countries.

R&D tax incentive

• What is the R&D tax incentive?– R&D tax incentive is a:

• refundable, 45% cash refund on your eligible R&D spend(turnover <$20m); or

• non-refundable 40% cash refund on your eligible R&D spend(turnover >$20m);

• What is eligible R&D?– broadly, eligible R&D is the development of products or

processes that are technologically (as opposed to commercially)novel;

– split into both ‘core’ R&D activities (experimental activities aimedat generating new knowledge) and ‘supporting’ R&D activities;

• R&D entity must be an Australian company, but it doesnot have to own the IP being developed.

Related issues

• What are the on-costs of hiring Australian employees?PAYG, SG, Workers compensation, Payroll Tax, Leave,Leave Loading, Penalty Rates etc

• What happens if the founder(s) relocate to Australia?– will they become Australian tax residents?

– if so, will they qualify for the concessional temporary residentregime?

– either way, what is the impact (if any) on their NZ entities? NZcompanies? NZ trusts?

– pre-departure/pre-arrival planning is critical!

• Do you need Australian legal assistance? Economoswork with a panel of expert lawyers in diverse practiceareas including contracts, employment, property andleasing, IP and litigation.

Questions

Disclaimer – This presentation does not constitute specific advice and cannot be relied upon as such. It

contains general information subject to myriad qualifying criteria, exceptions and/or exemptions and owners,

employers and employees should only proceed based on specific advice tailored to their particular

circumstances based on the relevant law at the particular time.