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Australia Cross-Border Tax Guide

Australian cross-border and international taxation. The guide covers: the foreign resident withholding taxes — the foreign residents are subject to the withholding tax on the Australian-sourced income: (a) the dividend withholding tax (the "DWT") — the dividends paid by the Australian company to the foreign resident are subject to the DWT at the rate of 30% (reduced by the tax treaties); the DWT is NOT imposed on the "franked dividends" (the dividends with the franking credits attached) paid to the foreign residents; the DWT is withheld by the company and remitted to the ATO, (b) the interest withholding tax (the "IWT") — the interest paid by the Australian resident to the foreign resident is subject to the IWT at the rate of 10% (the "interest withholding tax rate" — the rate of 10% for the "interest on the debentures" and the "interest on the deposits"); the IWT is reduced or exempted for the "public offerings" (the "public offer test" exemption) and for the "offshore banking units" (the "OBU exemption"), (c) the royalty withholding tax (the "RWT") — the royalties paid to the foreign resident are subject to the RWT at the rate of 30% (reduced by the tax treaties to 5% to 15%); the Foreign Investment Fund (FIF) rules — the FIF rules apply to the Australian residents who hold the interests in the foreign trusts, the foreign companies, and the foreign superannuation funds (the "FIFs"); the FIF rules require the Australian resident to include the "attributable income" of the FIF in the assessable income (the "FIF attribution" — the "FIF attribution method" or the "FIF market value method"); the FIF rules do NOT apply to: (a) the interests in the "listed FIFs" (the "listed FIFs" — the foreign companies listed on the recognised stock exchanges), (b) the interests in the "exempt FIFs" (the "exempt FIFs" — the wholly-owned subsidiaries of the Australian company), (c) the interests where the "cost base" of the FIF is below $50,000 (the "FIF de minimis" exemption); the tax treaties (the "Double Tax Agreements" — the "DTAs") — Australia has the tax treaties with more than 45 countries (the "comprehensive DTAs"); the DTAs override the domestic law (the "treaty override"); the DTAs allocate the taxing rights between Australia and the treaty partner; the DTAs provide the "foreign tax credit" (the "FTC") for the tax paid in the treaty partner; the DTAs reduce the withholding tax rates (the "treaty rates" — the typical treaty rate for the dividends is 15% for the portfolio holdings and 5% for the substantial holdings, the interest is 10%, the royalties are 5% to 15%); the Foreign Tax Credits (the "FTCs") — the Australian residents who pay the foreign tax on the foreign income can claim the "foreign income tax offset" (the "FITO" — the offset of the foreign tax against the Australian tax on the same income); the FITO is limited to the Australian tax payable on the foreign income (the "foreign income tax offset limit"); the excess foreign tax cannot be carried forward; the Controlled Foreign Company (CFC) rules — the CFC rules (the "attribution rules" under the Divisions 818 to 820 of the ITAA 1997) apply to the Australian companies that control the foreign companies in the "listed countries" (the "listed countries" — the "comparable tax countries" such as the UK, the US, the Canada, the Japan, the New Zealand, and the France) and the "unlisted countries" (the "low-tax countries"); the CFC rules require the Australian company to include the "attributable income" of the CFC in the assessable income (the "CFC attribution"); the transferor trust rules (the "transferor trust rules") — the transferor trust rules apply to the Australian resident who transfers the property (the "property" — the cash, the shares, the real estate) to the foreign trust (the "offshore trust"); the Australian resident is treated as the "transferor" (the "transferor") and is taxed on the income of the trust (the "transferor trust attribution"); the CGT on the foreign assets — the Australian residents are subject to the CGT on the disposal of the foreign assets (the "foreign assets" — the foreign shares, the foreign real estate, the foreign business assets); the 50% CGT discount applies to the foreign assets held for at least 12 months; the foreign tax credit is available for the foreign CGT paid. All amounts in Australian Dollars (AUD). For related reading, see our Non-Resident Taxation Guide → and Capital Gains Tax Guide →.

Withholding Tax Rates

  • Dividends — 30% (treaty reduced): The unfranked dividends paid to the foreign residents are subject to the DWT at 30%. The franked dividends are exempt from the DWT. The treaty rates typically reduce the DWT to 15% for the portfolio holdings (less than 10% of the shares) and 5% for the substantial holdings (10% or more of the shares).
  • Interest — 10%: The interest paid to the foreign residents on the "debentures" (the loans, the bonds, the notes) is subject to the IWT at 10%. The interest on the "public offerings" (the "public offer test" — the debentures offered to the public) is exempt from the IWT. The interest on the "offshore banking units" is also exempt.
  • Royalties — 30% (treaty reduced): The royalties paid to the foreign residents are subject to the RWT at 30%. The treaty rates reduce the RWT to 5% to 15% depending on the treaty partner.

For the FIF rules and the transferor trust rules, see our Trust & Partnership Tax Guide →.

Tax Treaty Countries

  • Comprehensive DTAs (45+): Australia has the comprehensive double tax agreements with: the UK, the US, the Canada, the New Zealand, the Japan, the China, the India, the Singapore, the Malaysia, the Indonesia, the Vietnam, the Thailand, the Philippines, the South Korea, the Taiwan, the Hong Kong, the Switzerland, the Norway, the Sweden, the Denmark, the Finland, the France, the Germany, the Italy, the Netherlands, the Spain, the Belgium, the Ireland, the Austria, the Czech Republic, the Hungary, the Poland, the Romania, the Russia, the South Africa, the Turkey, the UAE, and the Chile.
  • Treaty relief: The treaty provides the "tie-breaker" rules for the dual residents (the "dual resident" — the individual who is the resident of both Australia and the treaty partner). The treaty provides the "mutual agreement procedure" (the "MAP") for the dispute resolution. The treaty provides the "exchange of information" (the "EOI") between the tax authorities.

For the foreign tax credits and the foreign income tax offset, see our Corporate Tax Guide →.

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