Setting up an Australian subsidiary for a SaaS or technology company

A software company can sell into Australia for years without a local entity, charging Australian GST on consumer subscriptions from offshore. The subsidiary usually arrives with the first Australian hire, an enterprise customer that wants to contract locally, or a plan to do engineering here. From that point the Pty Ltd needs an Australian-resident director. It also has to work out how it pays the parent for the software, and whether its development work qualifies for the R&D Tax Incentive.

Before the subsidiary: GST on digital sales from offshore

Since 1 July 2017, GST has applied to sales of imported services and digital products by overseas businesses to Australian consumers. The ATO's examples are close to a SaaS product list:

• online sales of apps, software, games and software maintenance
• digital content such as e-books, music, video and online subscriptions
• webinars and distance learning
• website design and publishing
• consultancy and other professional services.

App stores and marketplaces that act as electronic distribution platforms are generally responsible for the GST on sales made through them. Sales made through your own website and billing are your own responsibility.

Sales to Australian businesses are different. The ATO's cross-border guidance says business-to-business supplies of this kind by non-residents are generally not connected with Australia. A GST-registered customer that isn't buying wholly for a creditable purpose, such as a bank, may have to account for the GST itself under the reverse charge. Charging GST on those sales by mistake can leave the customer paying twice, and enterprise procurement teams notice. The ATO suggests confirming a business customer by getting its ABN and a statement that it is registered for GST, which ABN Lookup can verify.

How and when to register is covered in our GST registration guide.

What changes when you incorporate

Once there is an Australian Pty Ltd, the commercial model has to be designed, not inherited. The three common shapes:

Licence fees and withholding

Payments to a foreign resident for the use of copyright or similar rights can be royalties for tax purposes. The ATO's default withholding rate on royalties paid to foreign residents is 30%, reduced where a tax treaty with the parent's country sets a lower rate. Whether your licence fee is a royalty depends on what it actually pays for. Settle this with your tax adviser before the intercompany agreement is signed.

The 25% rate assumption

Founders often model the subsidiary at Australia's lower 25% company tax rate. The base rate entity test counts the turnover of connected entities, including the foreign parent, so a subsidiary of a group with $50 million or more of aggregated turnover pays 30%. Our company tax guide works through the test.

The R&D Tax Incentive in outline

The R&D Tax Incentive (R&DTI) is a tax offset for eligible R&D spending. It is jointly run by the Department of Industry, Science and Resources, which registers the activities, and the ATO, which processes the claim. The program overview on business.gov.au sets out the current rules.

Who can claim. Eligible R&D entities include corporations incorporated under Australian law, so a Pty Ltd qualifies as an entity. Foreign-incorporated companies can qualify in narrower cases.

What counts. Core R&D activities are experimental activities whose outcome can't be known in advance and can only be determined by a systematic progression of work: hypothesis, experiment, observation, evaluation and conclusions. Supporting activities must be directly related to core activities, and some need to be done for the dominant purpose of supporting them. Routine software development isn't automatically R&D, and certain activities are excluded. Eligibility is judged activity by activity, not project by project.

The numbers:

• Minimum R&D spend of $20,000 in the year, unless a registered research service provider does the work.
• Expenditure above $150 million a year gets an offset equal to the company tax rate only.
• Activities must be registered within 10 months after the end of the income year.
• Spending on R&D done overseas needs a positive overseas finding before it can be claimed.
• Registration doesn't confirm eligibility. The company is responsible for self-assessing, and the department and ATO can review claims.

The group turnover catch, again

The refundable offset is the one that helps a loss-making subsidiary, and it depends on aggregated turnover under $20 million. The ATO's grouping rules add the turnover of every entity connected or affiliated with the R&D entity, and control generally starts at a 40% interest. Most Australian arms of established software groups are therefore on the non-refundable offset, which only reduces tax the company actually owes.

Changes announced

The government announced changes to the R&DTI in the 2026–27 Budget, to start from 1 July 2028. Until then the current rules apply. If your Australian R&D plan runs past that date, factor in the announced changes with your adviser.

Hiring the first team

Hiring is usually the reason the subsidiary exists. The first employee brings PAYG withholding registration, super guarantee payments under the new payday super timing, and possibly state payroll tax. See hiring employees in Australia and payday super. Employee equity from the parent's plan has its own Australian tax treatment, which your adviser should review before grants are made to Australian staff.

The board of a tech subsidiary

The Australian-resident director signs off on things like the annual solvency resolution, intercompany agreements and the financial statements, so they need to see the numbers behind them. A subsidiary living on parent funding should have that funding documented. A director who is asked to confirm solvency will want evidence of it.

We provide that director and run the ASIC compliance calendar, with appointment typically within 5 business days of completed checks, or within 2 business days for an A$350 express fee. We don't advise on tax, R&D claims or transfer pricing, and we work alongside your accountant. Our packages are listed on the pricing page.

General information current at 27 October 2026. Not tax, legal or financial advice. R&D and withholding questions need advice from a registered tax agent.

General information about Australian law and practice, not legal or tax advice for your circumstances. Check the official sources, or ask your adviser, before you act.