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  • Changes to Australia's Offshore Banking Unit Regime

    On 17 March 2021, the Government introduced a Bill into Parliament with measures to reform Australia’s Offshore Banking Unit (OBU) regime, subject to the passing of legislation.

    Currently, the regime provides an effective concessional tax rate of 10 percent on offshore banking income derived by an OBU from its offshore banking activities. The Organisation for Economic Cooperation and Development’s (OECD) Forum on Harmful Tax Practices raised concerns in October 2018 over Australia’s OBU regime, on the grounds that it provides a concessional tax rate and is “ring-fenced” to exclude domestic transactions from its scope.

    In response, the Government will remove the concessional tax treatment for OBUs in respect of offshore banking activities, effective from the 2023-24 income year. The interest withholding tax exemption for OBUs will also be removed for interest paid on or after 1 January 2024. In addition, the Bill will remove the Minister’s power to approve OBU applications from the day after Royal Assent. Any outstanding applications made before this date will, from this date, lapse.

    The Government has committed to consult with industry on alternative measures to support the affected parties and ensure Australia remains globally competitive and an attractive market for financial services once the two-year grandfathering period ends.

    See also:

      Last modified: 20 Apr 2021QC 65331