Understanding income tax for different international business entities in Australia
When expanding into Australia, one of the first decisions international businesses face is choosing the right legal structure. Each entity type carries different tax implications, reporting requirements, and compliance responsibilities. The three most common pathways are:
- Establishing a subsidiary company (Australian Proprietary Limited)
- Registering as an ASIC-registered foreign company (branch)
- Obtaining an Australian Business Number (ABN) as a foreign company without the Australian Securities and Investments Commission (ASIC) registration
Understanding how income tax applies to each option is essential to avoid compliance issues and optimise your operations in Australia. Each of these pathways is treated differently under Australian tax law, and the following sections outline how income tax applies in practice.
By Ro Elvinia
Australian proprietary limited (subsidiary company)
For many international businesses, setting up a subsidiary company in Australia provides a clear, structured way to enter the local market. Because the entity is incorporated in Australia, it is automatically treated as an Australian tax resident.
This means the subsidiary is subject to income tax on its worldwide income, not just profits generated in Australia. This includes revenue from local operations, as well as foreign-sourced business income, investments, and capital gains. The company must file an annual tax return with the Australian Taxation Office (ATO) and may also be required to register for additional obligations such as GST, PAYG withholding, and Fringe Benefits Tax, depending on its activities.
Importantly, even though the company is foreign-owned, Australian tax law applies fully. International tax rules such as transfer pricing and Country-by-Country reporting may also come into play where relevant.
The applicable corporate tax rate depends on the company’s turnover and the nature of its income:
- 25% for Base Rate Entities (aggregated turnover under $50 million, with no more than 80% passive income).
- 30% for all other companies.
ASIC-registered foreign company (branch)
Some international businesses prefer not to incorporate locally but instead register their foreign entity with ASIC (otherwise known as the branch method). This structure allows the company to legally operate in Australia while maintaining its foreign incorporation.
However, ASIC registration alone does not create a tax liability. Tax treatment depends on whether the company is considered an Australian tax resident or if it derives Australian-sourced income. A foreign company may be treated as a resident if its central management and control is exercised from Australia. If it is not a resident, the company will still be taxed on profits from local activities through a Permanent Establishment (PE), such as a branch, office, or dependent agent.
In addition, certain forms of passive income such as dividends, interest, or royalties derived from Australian sources may be subject to withholding tax. The impact of these obligations can be reduced by applying the relevant Double Tax Agreements (DTAs) between Australia and the company’s home jurisdiction, which help prevent double taxation and clarify the existence of a PE.
ABN-registered only foreign company
In some cases, foreign companies register for an ABN without becoming an ASIC-registered foreign company. Holding an ABN enables them to invoice, interact with the Australian tax system, and engage with local customers, but it does not by itself trigger income tax obligations.
The company will only be taxed in Australia if it is treated as a resident (i.e., central management and control is located in Australia) or if it derives income from Australian sources. This includes business income generated through a PE, such as a fixed place of business or dependent agent. Like ASIC-registered companies, foreign ABN holders may also face withholding tax on certain passive income streams such as royalties, interest, and dividends.
The application of DTAs is also important in this context. They help determine whether a PE exists and play a key role in preventing the same income from being taxed in both Australia and the company’s home jurisdiction.
How ABN Australia can help
At ABN Australia, we guide international businesses through every stage of establishing and operating in Australia, from choosing the right entity structure to managing tax compliance and ongoing reporting. Our expertise ensures you stay compliant, avoid unnecessary risks, and position your business for long-term growth in the Australian market.
Success in Australia starts with the right foundation. It requires a trusted partner who understands compliance, governance, and growth. ABN Australia provides the expertise, local knowledge, and tailored solutions you need to establish securely and scale with confidence. Contact us today to discuss your expansion plans into Australia.
Published: 03rd Sept 2025 | Last updated: 03rd Sept 2025
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