← Guides / Australia

Australia Permanent Establishment Guide

Australian permanent establishment (PE) rules. The guide covers: the PE definition — the 'PE' (the 'permanent establishment') is the 'fixed place of business' through which the 'foreign enterprise carries on the business in Australia' under the 'Section 6 of the ITAA 1936' and the 'Article 5 of the OECD Model Tax Convention'; the 'PE includes': (i) the 'place of management', (ii) the 'branch', (iii) the 'office', (iv) the 'factory', (v) the 'workshop', (vi) the 'warehouse', (vii) the 'mine or the oil well or the quarry', (viii) the 'building site or the construction project that lasts more than 12 months' (the 'building site PE'), (ix) the 'person acting on behalf of the foreign enterprise who exercises the authority to conclude the contracts in Australia' (the 'dependent agent PE'); the branch taxation for the foreign companies — the 'foreign company that has the PE in Australia is 'subject to the Australian corporate tax' at the rate of 30% (the 'corporate tax rate for the foreign companies' — the 'standard 30% rate' for the 'corporate tax entities' that are NOT the 'base rate entities'); the 'foreign company with the PE must 'lodge the Australian tax return' (the 'company tax return') reporting the 'income attributable to the PE' (the 'PE income' — the 'profits attributable to the PE under the 'attribution of the profits to the PE' rules — the 'Article 7 of the OECD Model Tax Convention'); the 'branch profits' are 'subject to the branch profits tax' (the 'branch profits tax' under the 'Section 128T of the ITAA 1936') — the 'final withholding tax' at 30% on the 'branch profits' that are 'not reinvested in the Australian business' (the 'branch profits tax' is 'reduced by the tax treaties' — the 'UK treaty reduces the branch profits tax to 15%', the 'US treaty reduces to 15%', the 'Japan treaty reduces to 12.5%', the 'NZ treaty reduces to 15%'); the PE compliance risks — the 'ATO' is 'active in the PE compliance' (the 'ATO PE compliance program') and may 'audit the foreign companies' for the 'PE risks' — the 'PE risks' include: (i) the 'home office' of the 'foreign employee' in Australia (the 'home office PE'), (ii) the 'sales agent' in Australia who 'concludes the contracts' (the 'dependent agent PE'), (iii) the 'service PE' (the 'services performed in Australia by the foreign company for more than 183 days in the 12-month period'), (iv) the 'building site PE' (the 'construction project lasting more than 12 months'); the double tax treaties and the PE — the 'Australian tax treaties' provide the 'PE exemption' for the 'certain activities' (the 'preparatory and auxiliary activities' — the 'storage, display, delivery, maintenance of the goods, and the purchasing of the goods'); the 'tax treaties' also 'reduce the branch profits tax' and 'provide the relief for the double taxation' (the 'foreign income tax offset (the 'FITO')' for the 'Australian company with the PE overseas').

PE Definition

  • Fixed place of business: The 'office', the 'branch', the 'factory', the 'workshop', the 'warehouse', the 'mine', and the 'oil well' are the 'PE'.
  • Building site PE: The 'construction site or the building project' that 'lasts more than 12 months' is the 'PE in Australia'.
  • Dependent agent PE: The 'agent who concludes the contracts for the foreign company' creates the 'dependent agent PE'.

For the cross-border tax and the FIF rules, see our Cross-Border Tax Guide →.

Branch Taxation

  • Corporate tax at 30%: The 'foreign company with the PE in Australia' pays the 'corporate tax at 30%' on the 'PE income'.
  • Branch profits tax: The 'branch profits' that are 'not reinvested in the Australian business' are subject to the 'branch profits tax at 30%' (reduced by the 'tax treaties').
  • Tax return: The 'foreign company with the PE' must 'lodge the Australian company tax return'.

For the corporate tax returns and the company tax rates, see our Corporate Tax Guide →.

ATO Compliance

  • Home office PE: The 'employee working from the home in Australia' for the 'foreign employer' may create the 'home office PE'.
  • Service PE: The 'services performed in Australia for more than 183 days in the 12-month period' create the 'service PE'.
  • Transfer pricing: The 'transactions between the Australian PE and the foreign head office' must be at the 'arm's length' under the 'transfer pricing rules' (the 'Division 815 of the ITAA 1997').

For the transfer pricing rules and the arm's length principle, see our Transfer Pricing Guide →.