Lift Your Game: a quick tutorial on setting up a video gaming business in Australia

By Ben Hamilton and Monique Sterrenberg

When thinking about setting up a business in Australia, one of the most important considerations is how your business will be structured. Each of the possible structures has important financial and tax implications. We provide a quick overview for those in the gaming sector who want to do business in Australia, whether you are a local dev or an overseas studio looking to invest in the Aussie gaming industry.

Structure of your business

There are a number of structures to choose from depending on what your needs and objectives are, and these include:

• sole trader (where you operate the business in your own name – simple and inexpensive, though can have very serious liability issues as everything will be in your name);
• proprietary private company limited by shares (a ‘Pty Limited’ company, which is relatively inexpensive to set up but has restrictions on shareholder numbers and fund raising);
• public company (usually larger than a proprietary company, not subject to the same restrictions on shareholders or fundraising, but with more procedural and reporting requirements – also, can list on a stock exchange);
• partnership (usually made up of two or more individuals who distribute income or losses between themselves);
• discretionary or unit trust (where a trustee carries on a business of the benefit of others – trusts are complex legal structures with set legal obligations, and as such are not often used to carry on a business); and
• an incorporated or unincorporated joint venture.

Many businesses, particularly those just starting up, use the ‘proprietary private company limited by shares’ structure. It generally costs less, has lower administrative requirements, and allows you to set up a company with very low share capital (from as little as $2), and you can always transition to being a public company later as your business grows.

If you select this option, you will need to determine who will act as your company director(s) and (if desired) company secretary(s) (this can be the same person if you wish to establish a single director company). However, be aware there are legal obligations and liabilities that come with being a company director, and you should make sure you are comfortable with what these are before you sign up to be one! We’ve put out a short article on the legal obligations of directors of Australian companies that may be a useful reference.

Once you have selected your business structure, you should register for an Australian Business Number. It is not compulsory for businesses to register for an ABN – however, getting an ABN is free and makes running your business easier, particularly if you have to register for other taxes like GST.

You will need to ensure that at least one (or two, if you are a public company) of the directors of your company ordinarily reside in Australia, and all directors must be 18 or older.

Also, under recent legislative changes that came into force on 1 November 2021, the director (or directors if you have more than one) of your company will need to apply for a director identification number if they don’t have one already.

For foreign entities looking to expand into the Australian market, you will need to consider whether you will set up an Australian entity or operate through an offshore entity. The latter option often involves complex regulatory and tax issues, and requires registration with the Australian Securities and Investments Commission (ASIC) in order to carry on business in Australia.  Foreign entities will also need to consider issues such as the payment of withholding tax, application of double taxation agreements and 'transfer pricing' rules.

Be aware that a foreign entity establishing an Australian company is subject to the same Australian-resident director requirements set out above.

The much anticipated 30% Digital Games Tax Offset (DGTO) is only available for Australian resident companies. In order for a foreign entity to take advantage of the DGTO, it will want to make sure that, although not incorporated in Australia, it carries on business in Australia, and has either:

• its central management and control in Australia; or
• its voting power controlled by shareholders who are residents of Australia.

What's in a name?

The best way to legally protect your 'brand' in Australia (which may include a name or logo you wish to use or trade under) is through the registered trade mark system.

Applications to register trade marks are made with IP Australia and undergo a formal examination process before acceptance.

There is something to be said about choosing your trade marks carefully. Some trade marks are better than others, and the difference between selecting a good trade mark first up, as opposed to adopting and using marks which are challenging, can be significant. Among other things, it is important to consider whether your adopted brand might infringe the intellectual property rights of other businesses in Australia before trading. Professional searches and advice can assist.

The rebranding of Facebook to Meta provides a good example. A Chicago-based tech company, Meta Company, released a public statement noting Facebook's rebranding to 'Meta' infringed on their trademark with Meta Company taking legal action against Facebook.

Assembling your team

If you are hiring Australian employees, you will need to be familiar with Australian employment law, in particular the Fair Work Act, as well as your obligations as an employer under Australian taxation laws.

If you are hiring overseas workers, you will need to ensure you are complying with Australia's relevant migration laws and procedures, particularly if you intend to sponsor non-Australian citizens to work in Australia as it will be subject to stringent audit requirements and there are risks of committing a criminal act if you allow someone to unlawfully work in Australia.

A place to call your own

Depending on the nature of your business, whether it is a development and VFX studio requiring office space or an e-Sports event organisation needing to hire spaces for events, property may also be another key consideration for your business. You will need to consider whether you intend to enter into any leases or hire arrangements to achieve this.

For foreign entities, entering into a lease for your business may be a relatively simple undertaking. However, if you intend to purchase any property as part of establishing the Australian arm of your business, you may be subject to Foreign Investment Review Board approval.

As a full service firm, the team at Hall & Wilcox has extensive experience in assisting startups with the early stages of establishing a business and can assist you in establishing your presence in the gaming market.

Where is your IP?

The most important loot of any business in the gaming sector is their intellectual property.

At the coding level, copyright is a key intellectual property right – 'computer programs' are protected works under the Copyright Act 1968 (Cth).

Consider how intellectual property rights will be structured depending on your corporate structure. It is not uncommon for IP to be owned by a separate holding company and then licensed down to an operating subsidiary company. A key driver behind this setup is to attempt to quarantine the IP from risk which might accrue in the operating company.

Another consideration is to ensure that developed IP (such as copyright created by developers when subsequently developing code) is properly captured and ends up being owned by the appropriate entity, particularly if that entity is different from the entity that employs the developers.