Why should US companies consider Australia for R&D?

December 3, 2014

Australia is finally being noticed as a strong market opportunity for US technology companies embarking on their global expansion. English speaking, a stable economy with a penchant for technology spending – Australia is a strong (and easy) customer in itself and a perfect test-bed for new product releases. Many US technology companies have caught on in the past year including Dropbox, Survey Monkey, Datastax and more. Most commonly US companies enter the Australia with sales, marketing and customer support staff to start servicing the local market.

What they may not know is that Australia also is a strong candidate for conducting R&D activity.

In many respects Australia has programs that are highly supportive of innovation undertaken in Australian borders. The Australian government encourages innovation with the Research & Development Tax Incentive, a program that has been around in many forms since the 1980’s. Not industry specific, the R&D Tax Incentive allows Australian companies to secure significant cash and non-cash benefits when undertaking eligible R&D activities in Australia.

At a high level – if experimental work is being undertaken with a view to generating new knowledge for which the outcome is unknown – then a company is generally seen to be engaging in eligible R&D.

The R&D Tax Incentive is a refundable tax offset program (for companies with associate turnover less than AUD$20m) – meaning that these additional tax losses can be ‘cashed out’. The program in its current format allows for a 45% refundable tax offset for eligible companies. The second is a non-refundable 40 per cent tax offset to eligible larger entities.

So for example, if a US technology or medical device company set ups an Australian entity, spends $100,000 on eligible R&D activities and is pre-revenue, the Australian Taxation Office will write them a check for $45,000. For ‘small’ companies i.e. those with company turnover (including associates) of less than $20m, this makes the Australian R&D scheme one of the best in the world.

Citrix Case Study

An example of a larger company taking advantage of the 40 per cent tax offset, is Citrix. The most recent changes to the R&D tax incentive have made it possible for multinational companies to claim the tax credit by changing the definition of R&D as well as the definition of sales activity. Read more on the Citrix case study here.

If you are a US company, don’t miss out on the talent Australia has to offer.

Australian universities now have 8 entries in the top 200 universities in the world. The pool of talent graduating from Australia is at a level never seen before. And local and global companies are partnering with Australian universities to develop innovative solutions for eventual commercialization. What’s more, with the cost of engineers and intense competition in Silicon Valley, companies are taking advantage of Australian engineering talent.

7 things for US companies to think about when investing into Australia

June 5, 2014

Australia has enjoyed 23 years of consecutive growth. Recently multiple US companies have chosen to take advantage of Australia’s strong economy, diverse talent and love for innovation. Dropbox, AdRoll, AppNexus, Twitter and others have chosen to open offices in Sydney the Australian hub of technology.

If you are a US company thinking about exploring the APAC and Australian market, here are a few things to consider:

 

1. Appropriate Company Structure

Ensuring you choose the right structure when thinking of investing in Australia is perhaps the most crucial consideration. The wrong structure can lead to inefficient outcomes, both commercially and from a tax standpoint.

Businesses generally operate in Australia through a corporate structure i.e. a public or private company. Other vehicles are available for foreign investors such as a foreign branch, trust or other special purpose vehicle.

 

2. Financing options

Debt or Equity? The decision for which of these is most appropriate for your business is generally one regarding availability, quantum and tax efficiency. Foreign investors may wish to lend funds to the Australian operation or increase their equity stake through the issue of further shares. Mechanisms are available that are a combination of the two e.g. convertible notes or Redeemable Preference Shares.

 

3. Tax Implications

Tax is major consideration when investing in a foreign country to ensure that obligations in that country are not only met, but efficiently and allow for the effective repatriation of profits to the head company.

Australia has numerous Double Tax Agreements with foreign countries that seek to minimise any potential double taxation scenarios and provide for credits to the extent that tax is withheld in Australia. For example, dividends paid from the US to Australia and vice versa can attract withholding tax ranging from 0% to 15% depending on the nature of the entities involved, however a full credit for this amount is available to the recipient of the dividend. The same rules applies to payments of interest and royalties.

Australia’s tax system is on a self-assessment basis. The Australian Taxation Office is responsible for the levying and enforcement of corporate tax in Australia, which is payable at 30% and withholding tax applies where funds are repatriated via dividends, interest or royalties.

Furthermore, any transactions between related entities must be conducted on an arms’ length basis.

 

4. Government Grants and Incentives

The Australian Government has various grants and tax incentives available to Australian businesses. These include the following:

  • Research & Development Tax Incentive – a 45% refundable tax offset (up to 45c in the dollar) for companies engaging in innovation and experimental activities;
  • Commercialisation Australia – grants are available for companies looking to commercialise new and innovative products. A matching requirement applies and is available in the following areas: Skills & Knowledge, Proof of Concept, Experienced Executives and Early Stage Commercialisation.
  • Export Market Development Grant – grants available for Australian companies looking to export their IP or products. Grants are provided for primarily marketing expenditure.
  • Australian Renewable Energy Agency – grants are provided for projects in the renewable energy space.

 

5. Employment Issues

There are various employment issues to consider in Australia including employment taxes, visas, superannuation (retirement withholding) and more.

Australia’s industrial and workplace relations laws have undergone significant change in recent times through government initiatives designed to make the labor market more flexible and efficient.

Broadly speaking, Australian employment law is derived from common law (notably the employment contract and implied duties imposed on employers and employees), the statutory and regulatory framework and industrial instruments, such as modern awards and enterprise agreements.

US employment law differs to Australian employment law. In California for example, contracts are “at-will”, while in Australia both parties need to provide up to four weeks notice when terminating a contract. There are plenty of local lawyers that can draw up employment contracts when you start to hire locally. Remember that in Australia employees are entitled to 20 days leave and 10 sick days!

On the other hand, in Australia employers are not required to provide health insurance for employees, as people take out their own policies privately.

 

6. Oversight and Management

Australian companies require an Australian resident director to represent the company. This person can either be solely for disclosure/signing purposes or serve to act as a representative of the foreign company in Australia.

There are also various sources in Australia that can assist you with finding the right person to expand operations into Australia from recruitment firms to domestic Chambers of Commerce.

 

7. Exit

Given Australia’s lucrative demographic, many businesses enter the Australian market with a view to exit. Structuring the business in the right way to ensure that it is appropriate for a future trade sale, listing or private equity buyout is important.

The Australian Stock Exchange (ASX) is the national stock exchange and other smaller exchanges are also operational. Australia also has a deep venture capital and private equity market across various industries so the options are plentiful in terms of potential partners or trade buyers.

Building this network through your financial and corporate advisors in Australia is a good way to position the business for a potential future sale.

Doing Business in Australia

June 5, 2014

Australia is the world’s sixth largest country and has one of the world’s best lifestyles.
Do you want to know more? Feel free to read our pdf document!

Firm Profile

June 2, 2014

Why CharterNet?

At CharterNet, our goal is to deliver our whole firm, to all our clients, all the time. This means dedicated, personalised service from our team who have expertise in accounting, taxation, audit and business advisory, coupled with detailed industry insight.

Download our Firm Profile here.

Medicare level changes

April 14, 2014

The increase in the Medicare levy from 1.5 per cent to 2 per cent, will effectively bring the top marginal tax rate to 47 per cent. This will not only impact on individual taxpayers but will have a flow on effect to small businesses. A number of tax laws that businesses regularly comply with apply.Tax Updates papers are now online for the new entrepeneurs tax exemptions. Continue Reading