The “lucky country” is an attractive destination for international businesses seeking to expand their footprint. However, offshore entities targeting Australia should be aware of the regulatory and financial consequences of entering the market, and the possible ways to set up shop. This article looks at when a foreign entity is deemed to ‘carry on business’ in Australia, the primary consequences of doing so, and key considerations in effectively structuring operations down under.

Background

Australia is the 12^th largest economy in the world,[1] and is consistently ranked as a top 20 country for international trade and investment.[2] Despite a population of less than 27 million people, the average net worth of each individual ranks 5^th globally and 2^nd in the Asia Pacific region,[3] making it attractive for foreign entry by overseas players.

Historically, the island state has close cultural ties with the UK and Europe, and modern Australia is increasingly linked with the United States. However it is far from homogenous, being one of the most ethnically diverse nations in the world, with a history of immigration that has shaped its demographics, culture, and economy. Further, despite its overwhelmingly larger domestic market, China has long set its sights on Australian consumers, with its competitive advantage in cost-effectively producing a wide array of appealing products for Australian consumers.

Examples abound of market entry by foreigners.

• A football league may seek to sell branded merchandise of its home teams, affiliate themselves with Australian domestic leagues or fly in players for exhibition matches. The NFL has recently announced it will play some LA Rams home games at the MCG from 2026, and already has an Australian subsidiary in Brisbane.
• A media conglomerate may seek to syndicate programmes or entire channels through domestic networks, licence formats ripe for ‘Australianisation’ or holistically acquire local media platforms.
• A large technology company may set up a local subsidiary to target software development work for local businesses, and leverage their global bench of developers.

However, Australia has numerous regulations on business activities by foreign entities to ensure that its regulatory landscape, consumers and taxation revenues are protected. Foreign entrants with their eyes on the world’s 5^th richest consumers need to be aware of Australian laws to avoid being unwittingly exposed to compliance obligations, regulatory enforcement and financial costs.

Carrying on Business in Australia

Whether an entity is deemed to carry on business in Australia (in this article, COBIA) is determined primarily by a mix of Statutes, read together with common law judgments, regulatory instruments, and government rulings.

Without being exhaustive, the primary laws of relevance in connection with COBIA are:

• The Corporations Act 2001 (Cth) (Corps Act), which primarily seeks to ensure that foreign entities are subject to the same corporate disclosure and reporting obligations as resident companies.
• The income tax legislation, including the Income Tax Assessment Act 1936 & 1997 (Cth) (ITAA), and supporting instruments, regulations and instruments (together, Tax Legislation), which primarily seeks to ensure that entities earning revenue are appropriately taxed.
• The Privacy Act 1988 (Cth) (Privacy Act), which seeks to ensure that foreign entities controlling Australian personal information protect that information.
• The Competition and Consumer Act 2010 (Cth) (CCA), which, amongst other things, seeks to ensure that the sale of goods and services to Australian consumers occurs in a fair and transparent manner.

Each have differing tests of COBIA. However, where the test is triggered, obligations under that legislation will be enlivened. This can be administratively burdensome and costly, and potentially imperil the success of business plans.

However, as we discuss later, scope exists to potentially tailor a legal business model that optimises the position of the foreign business under Australian law, and facilitate a successful endeavour down under.

Below, we outline the key COBIA laws and obligations.

• As can be seen above, the COBIA tests are far from uniform. For example, under the Corps Act, owning property in Australia is expressly excluded as a relevant test. However for the purposes of the CCA, this is an indicator of COBIA.

In addition to the above, if a foreign entity:

• Provides financial services in Australia, it must obtain an Australian Financial Services License under s 911A of the Corps Act;

• Provides banking services in Australia, it must register with the Australian Prudential Regulation Authority under s 8 of the Banking Act 1959; and

• Employs people in Australia, it must comply with the Fair Work Act 2009.

Carrying on business models

When considering targeting Australian consumers, a complex array of business models are available, in different shapes and sizes. However the incorporation of a local subsidiary will lead to less shades of grey with respect to COBIA tests.

Incorporating a Local Subsidiary

If the foreign entity chooses to incorporate a local subsidiary in Australia, this is likely to quickly meet most relevant COIBA tests. In particular, this would mean that:

• It has a place of business in Australia for the purposes of the Corps Act, requiring it to register with ASIC, meet financial reporting requirements and otherwise complying with the Act;
• It has a permanent establishment in Australia for corporate taxation purposes;
• It will have an ‘Australian link’ where it collects, processes or stores the personal information of Australians and be subject to the Privacy Act; and
• It will meet the requisite tests under the CCA where it enters into consumer contracts, and must comply with its provisions.

Not Incorporating Local Subsidiary

Alternatively, a foreign entity may operate through their foreign entity. This might involve employees flying in and out to do business and contracts being signed offshore by the foreign entity.

In such cases, whether the entity is COBIA will typically be less clear-cut.

• It probably will not have a place of business in Australia for the purposes of the Corps Act, but may instead be regulated as a registered foreign entity under section 601CD;
• Whilst it may be COIBA for withholding tax purposes:
• Double taxation treaties may apply; and
• It is unlikely to have a permanent establishment in Australia;
• Whether it has an ‘Australian link’ for purposes of the Privacy Act and handling personal information of Australians will depend on various factors; and
• Whether it meet the requisite tests under the CCA, where it enters into consumer contracts, will also depend on various factors.

Use of a Local Agent

Similar to the above, the foreign entity may engage an independent contractor to act as an agent for the entity in Australia. In this example, the foreign company may not be COBIA, provided that the agent:

• Does not conclude contracts on behalf of the foreign entity;
• Has no authority to bind the foreign entity to transactions; and
• Is truly independent and the foreign company has no control over its activities.

However in practice this may be difficult. Risks of COBIA arise where:

• The foreign entity derives revenue from Australian customers through the agent’s activities;
• The agent’s activities are an essential part of the foreign company’s business; and/or
• The foreign company controls or directs the agent’s activities in Australia.

Concluding Remarks

Foreign businesses seeking to enter the Australian market need to be aware of the factors, buried under a patchwork quilt of laws and regulations, that may trigger the COBIA tests. If deemed to be COBIA, depending on its exact activities, the foreign business will be exposed to local statutory and regulatory compliance requirements, taxes and potential penalties.

If the foreign entity chooses to incorporate a local subsidiary, this is likely to quickly meet most relevant COBIA tests. Using a local subsidiary is a common approach, and it may best suit the foreign entity’s business purposes and goals down under. However there are alternative tailored structures that could better fit what the entity and its stakeholders seek to achieve.

When considering a move into the Australian market, timely and expert guidance is highly advisable.

Are you interested in expanding your foreign operations to Australia? To avoid being caught in contravention of the array of Australian legal frameworks, please contact us below. Edwards + Co has a wealth of experience advising companies on corporate and commercial matters under Australian law.

[1] According to the International Monetary Fund – World Economic Outlook Update, April 2022.

[2] https://www.dfat.gov.au/sites/default/files/australia-is-a-top-20-country-all-topics.pdf.

[3] UBS Global Wealth Report 2024.

[4] Section 21 Corps Act.

[5] Section 21(3) Corps Act.

[6] Australia has a corporate tax rate of 25 – 30% depending on the size of the business, and foreign entities carrying on business will also be taxed at this rate for its Australian sourced income.

[7] TR 2019/1.

[8] Defined in most of Australia’s tax treaties and subsection 6(1) of the ITAA 1936, and also applies for the purposes of both the of  ITAA 1997 and Schedule 1 to the Taxation Administration Act 1953: TR 2002/5.

[9] S. 5B, Privacy Act.

[10] Facebook Inc v. Australian Information Commissioner [2022] FCAFC 9.

[11] Accordingly, the Commissioner to pursue Facebook for a breach of the Privacy Act for a maximum a civil penalty of $2.22 million for serious and/or repeated interference with the privacy of an individual.

[12] Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224.