Branch or Australian Subsidiary? The Two Main Options for US Businesses Entering Australia

Deciding how to structure your US business when it starts operating in Australia is one of the biggest early decisions you’ll face. The structure you choose affects how much Australian tax you pay, whether losses can be used, how easily you can repatriate profits, and how much of your US business is exposed to Australian legal and tax risks.

In most cases, US businesses choose between two main options. Here’s a clear summary before we go into the details.

Quick summary of your options

Option 1: Operate directly through your existing US entity (as a branch or permanent establishment)

• Your US company or LLC registers with ASIC but no new Australian company is created.
• You are generally only taxed in Australia on profits attributable to an Australian permanent establishment (PE).
• Losses can often flow through to the US (especially useful for qualifying US LLCs).
• Profits can usually be sent back to the US with no additional Australian tax.
• Your entire US entity remains directly liable for Australian obligations.

Option 2: Set up a new Australian subsidiary company (Pty Ltd)

• You incorporate a separate Australian company that is wholly owned by your US parent.
• The subsidiary is taxed on its worldwide income at 25% or 30%.
• Profits repatriated as dividends are subject to withholding tax of 0%, 5% or 15% under the Australia-US tax treaty (or potentially tax-free if fully franked).
• Losses stay trapped in the Australian company.
• The Australian company provides limited liability protection for the US parent.

Both structures are fully compliant when set up correctly under Australian tax law and the Australia-US tax treaty. The best choice depends on your specific circumstances.

Operating directly through your US entity (Branch or PE)

You register your US company or LLC with ASIC as a foreign company carrying on business in Australia. This is generally the simpler and lower-cost option to establish.

Under the Australia-US tax treaty, your US entity is only taxed in Australia on business profits that are attributable to a permanent establishment (PE) here. A PE usually means a fixed place of business (such as an office) or certain agent activities that allow you to conclude contracts in Australia. If your activities do not create a PE, business profits are generally not taxed in Australia.

Tax is charged at the corporate rate of 25% if you qualify as a base rate entity, otherwise 30%. There is no branch profits tax, so profits can normally be repatriated to the US without further Australian tax.

For many US LLCs, Australia treats the entity as a partnership under Division 830 of the Income Tax Assessment Act 1997 (foreign hybrid rules). This allows income and losses to flow through to the US owners, which can be a significant advantage if you expect early-stage losses.

The main downside is that your entire US entity is exposed to Australian tax debts and legal claims. There is no separate limited liability company to ring-fence the risk.

Setting up an Australian subsidiary (Pty Ltd)

You incorporate a new Australian proprietary company. This creates a completely separate legal entity with its own limited liability.

The Australian subsidiary is an Australian tax resident and is taxed on its worldwide income. The rate is 25% or 30%, depending on whether it meets the base rate entity tests (most US groups with material US turnover pay 30%).

When profits are paid to the US parent as dividends, the Australia-US tax treaty limits the withholding tax to:

• 5% if the US parent owns at least 10% of the voting power, or
• 15% in other cases.

In many cases where the US parent owns 80% or more and meets the treaty’s limitation on benefits tests, the rate can be reduced to 0%. Fully franked dividends can also often be paid with no withholding tax.

The main trade-offs are that losses cannot flow back to the US parent, and you have a higher level of Australian compliance (full company tax returns, potential transfer pricing documentation, and corporate governance requirements).

This structure is usually preferred when limited liability protection and efficient profit repatriation are priorities.

Other important considerations

A representative or liaison office with only preparatory activities may avoid creating a taxable PE, but your ability to actually do business is very restricted.

You will also need to factor in GST registration (mandatory once turnover exceeds $75,000), Superannuation Guarantee contributions at 12% for eligible employees, state payroll tax, and strict transfer pricing and thin capitalisation rules on dealings with your US parent.

Australian anti-avoidance rules are strong, so the commercial substance of your arrangements matters.

Getting the structure right from the start

The branch route often suits businesses that want simplicity and the ability to use early losses. The subsidiary route is usually better when you want limited liability and a clean, scalable Australian presence.

Because the outcomes depend heavily on your specific facts — including the nature of your activities, whether you use a US LLC, your ownership percentage, and your profit repatriation plans — it is worth getting tailored advice before you commit.

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Need help setting up your business in Australia?

For personalised guidance on choosing and implementing the right structure for your US business in Australia, contact CTK Accounting. We can review your situation, model the tax outcomes, and help you set things up correctly from day one. We can also manage all tax and compliance aspects of your entity including bookkeeping, payroll, ASIC compliance and sales tax.

Foreign businesses operating in Australia face increased compliance and complications due to the interaction of Australian and U.S tax law and the Double taxation agreement between the two countries Accounting fee's are higher than regular Australian based entities and we must insist that U.S based clients have a reputable U.S CPA we can co-ordinate with for best outcomes and tax minimisation.

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