Doing business in Australia - what you need to know
Doing business in Australia - what you need to know
Foreign residents are taxed in Australia on their Australian sourced income. This introduction explains how income from Australian business activities is treated. If you are earning income from passive investments in Australia (such as securities and rental properties) or interest and royalties, refer to Investing in Australia - what you need to know.
If you are a foreign-resident entity that receives income sourced in Australia, you must lodge an Australian tax return and pay tax on that income. However, you do not need to lodge a tax return if the only income you received consists of:
- interest, unfranked dividends or royalties from which withholding tax has been withheld by the payer
- fully franked dividends.
To work out how tax applies to income you receive from international transactions involving Australia, you must first work out if that income has an Australian or foreign source. This may depend on whether your country has a tax treaty with Australia.
Generally, if you are from a treaty country, your business income is not subject to tax in Australia unless you carry on your business through a permanent establishment in Australia.
What is a permanent establishment?
A permanent establishment is a fixed place of business through which an enterprise either wholly or partially carries on its business. It includes:
- sales outlets
- places of management
- dependent agents who have authority to enter into contracts on behalf of the enterprise and regularly exercise that authority.
Generally, having a website that is hosted by an independent internet service provider is not regarded as having a permanent establishment in Australia.
If you are from a country that does not have a treaty with Australia, income you receive from goods or services you supply to Australia is generally income from the place:
- of the contract, if you are exporting goods or information (such as technical knowledge)
- where the services are performed, if you are exporting services - however, it can also be the place of the contract.
You may need professional advice to work out the source of the income you receive from an international transaction.
Even if you don't have Australian income tax obligations, you may have other tax obligations in Australia.
Are you a foreign owned subsidiary incorporated in Australia?
A subsidiary that is incorporated in Australia is an Australian resident for tax purposes.
Generally, a subsidiary will:
- be taxed in Australia on both its worldwide income and capital gains, subject to a number of exceptions
- not be treated as a permanent establishment of their parent company.
To lodge a tax return in Australia, you will need a tax file number (TFN) - refer to Tax file number and income tax obligations.
You may also need an Australian business number (ABN). ABN essentials provides detailed information about all aspects of ABNs.
Partnerships, companies and trusts need their own TFN. You can apply for a TFN at the same time as an ABN, using the same application form. To apply, refer to the Australian Business Register.
If you have international dealings with a related party or an interest in an overseas entity
When lodging a company, trust or partnership return for the 2011-12 income year and later income years, you must complete an International dealings schedule (NAT 73345) and include it with your tax return if you have either of the following:
- international transactions or dealings with a related party, on either capital or revenue account, where the total amount of the transactions or dealings (including the value of property transferred or the balance outstanding on any loans) was more than $2 million
- a direct or indirect interest in a foreign trust, foreign company, controlled foreign company or transferor trust.
If you are lodging your tax return from the 2010-11 income year or an earlier income year, you must complete section B of Schedule 25A if you had a direct or indirect interest in a foreign trust, foreign company, controlled foreign entity or transferor trust.
Capital gains on disposal of Australian assets
If you are a foreign resident and you make a capital gain on the disposal of an asset that is taxable Australian property, then the capital gain may be taxed.
Special rules limiting debt deductions apply to both foreign investments in Australia and Australian investments overseas. These special rules apply if a thinly-capitalised (or highly-geared) entity is involved. A thinly-capitalised entity is an entity whose assets are funded by a high level of debt and relatively little equity.
If you employ people in Australia, you will have tax obligations for them.
As well as interest, dividends and royalty payments, payments you receive for certain business activities will have tax withheld by the payer.
Goods and services tax (GST) is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia. If your business is registered for GST, you include GST in the price of goods, services and other things you sell in the course of your business. This includes the disposal (by sale or otherwise transferring ownership) of capital assets used in your business, such as motor vehicles and business equipment. These are called taxable supplies.
GST may be included in the price of purchases (including importations) you make for your business. However, if you are registered for GST, you can generally claim a credit for any GST included in the price you pay for things for your business. This is called an input tax credit.
While GST is paid at each step in the supply chain, businesses don't actually bear the economic cost of the tax. This is because they include GST in the price of the goods and services they sell and can claim credits for most GST included in the price of goods and services they buy. The cost of GST is borne by the final consumer, who can't claim GST credits.
There are other types of sales where GST is not included in the price. These include:
- input-taxed supplies - these include financial supplies, such as loans, and residents' rents
- GST-free supplies - these include basic foods, such as fruit, milk and bread, exports, and some health and education courses.
Do you need to register for GST?
You must register for GST in Australia if you are carrying on an enterprise and either of the following applies:
- your GST turnover meets or exceeds the registration turnover threshold of A$75,000 (excluding GST) or A$150,000 (excluding GST) if you are a non-profit body
- you provide taxi travel as part of your business, regardless of your GST turnover.
If you do not meet one or more of these requirements, you do not have to register for GST in Australia. For example, if you do not make supplies connected with Australia or your GST turnover from supplies that are connected with Australia is below the registration turnover threshold, you do not have to register. However, you can choose to register for GST if your turnover is below the registration turnover threshold.
The Business Entry Point offers convenient access to government information, transactions and services. It is a whole-of-government service providing essential information about planning, starting and running your business.
For more information, refer to:
The government is continually reviewing international tax arrangements. For information about how potential legislative changes may affect you, refer to New legislation.
If you need help in applying this information to your own situation, phone us.
Last Modified: Thursday, 9 August 2012