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UKTI: E-Commerce in Australia –
Brits big business
20 February, 9.30am - 10am (UK)
By Ned Shelton
Managing Director, Starting in Australia Pty Ltd

N.Shelton@StartingInAustralia.com.au
www.StartingInAustralia.com.au
www.SheltonsGroup.com
Phone +61 2 9089 8792

© Ned Shelton 2013 1

‘Sheltons’ &
‘Starting in Australia’
 Sheltons – established in 1994 in Europe
 Offices in Denmark, Cyprus and Australia
 Areas
 Sheltons International Tax Training Institute (Sheltons-
SITTI)
 Local and international tax
 Corporate services
 Australian office (Sydney) – not ‘Sheltons’ but
‘Starting in Australia’

www.StartingInAustralia.com.au 2

Starting in Australia Pty Ltd
 Working exclusively with foreigners doing
business in Australia – existing and planned
 Services
 Tax advice & compliance
 Legal assistance
 Company secretarial
 Full range of accounting services, GST & payroll admin
 Providing local director, public officer, co secretary
 + business advice, intro to trusted partners & suppliers
 Specialists – many specific issues affect the
inward investor
 Independent – work well with your UK
accountants and lawyers
 Cost efficient – one stop but specialist shop

E-commerce - phases

 Pure export – do nothing
 Customs and GST issues
 AUD 1,000 exemption – per consignee/addressee
 No GST on import if GST-free in Aus (e.g., wheelchairs,
food, clothing)
 Customs duty important
 GST payable at customs clearance – unless
arrangement made for monthly/quarterly payments


E-commerce - phases

 Pure export – use .com.au domain
 Need an Australian entity
 Does not necessarily cause profits to be taxable in
Australia
 Useful (in searching), reassuring
 Pure export – use .com.au domain + marketing
in Australia
 Normally still not taxed in Australia on profits– even if
have own staff here conducting marketing


UK vs Australia – company tax

Australia – 30% (flat, not progressive)
– 2012 - reductions announced then withdrawn
– Applies to Aus subsidiary’s profits and to Aus branch’s
profits
UK – 24%
– 23% from 1 April 2013
– small profits rate currently 20%, new SPR to be
announced on 20 March 2013


Branch (‘permanent
establishment’)

UK ABC Ltd
ABC Ltd has a
branch in Aus

Australia
Branch


Branch (‘permanent
establishment’)

 Do you have a branch (‘Permanent
establishment’ (PE)) in Australia – deliberately
– or accidently? It matters.
 ‘A branch’ – general term, often used in the
context of company law
 ‘Permanent establishment’ (PE) – a tax term
 If UK business has a PE in Australia – taxed in
Australia on the ‘business profits’ (i.e. trading
profits) attributed to the PE
 PE arises if there is a certain type of physical
presence in Australia


Branch (permanent
establishment)
 Examples of a PE in Australia (i.e. gives rise to
30% Australian tax on the profits):
 An office generally trading / carrying on business
 Selling through an (unrelated or related) agent who
is mainly working for the UK principal
 UK business ‘has a building site or construction or
installation project in [Australia] or supervisory or
consultancy activity [in Australia] connected with
such a site or project, but only if that site, project or
activity lasts more than 12 months;’
 Example of no PE (no Australian tax):
 Export to Australia via unrelated importer
 Sales rep who simply introduces customers to the
UK business head office
 Renting a warehouse (for storage and delivery of
your goods)


UK tax – re Australian branch

 The profits from an Australian PE are most likely
exempt from tax in the UK if UK business is a UK
company
 What is best – to have a PE in Australia or not?
 UK corporate tax - lower than Australian tax
 Thus: best to not be taxed in Australia – thus only pay
23% or less in UK – rather than 30% in Australia
 Also: not being taxed in Australia means reduced tax
compliance burden in Australia, avoids ‘discussions’ on
transfer pricing, etc.
 (If the Australian tax rate was less than the UK, best to
have a PE here)


Australian subsidiary

UK ABC Ltd
ABC Ltd has a
subsidiary in
Aus

Australia ABC Pty Ltd


UK tax - with Australian
subsidiary
 30% corporate tax (flat, no progression)
 Profits calculation roughly similar to UK company
 No dividend withholding tax on the distribution of
the 70 (i.e. 100 less tax of 30)
 UK Co potentially not taxed on the dividend of 70
received (exemption method)
 Thus: from the 100 pre-tax Aus profits, UK Co
receives 70 cash > UK tax (of nil)
 Gain on sale by UK Co of shares in Australian
subsidiary – potentially exempt in the UK


No PE vs. PE;
PE vs. subsidiary
 UK corporate owner, tax aspects:
 No PE preferred – slightly less tax in total – and no/less
Australian tax compliance burden
 PE vs. subsidiary – little difference (30% Aus tax in
both cases, probably no UK tax on dividend from sub
or PE profits)
 UK corporate owner, non tax aspects:
 Far easier to do business in the form of a subsidiary –
if significant interaction and transactions in Australia
(e.g. employing staff, renting property, marketing,
interaction with local customers)
 Running a business with no branch (PE) or with a
branch – cumbersome
 Costs (legal, tax, accounting) – best to have no PE; PE
vs. subsidiary: about equal
 Depends on the case

Forming & running an
Australian company
 Can be formed in a day / on the spot
 No minimum share capital needed
 Must have
 an Australian resident director (company law) and
 an Australian resident public officer (tax law)
 Strict responsibilities for both
 Small companies do not need to prepare financial
statements or be audited
 Must always file tax returns
 GST (= VAT) quarterly for small companies


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