On 13 September 2021, the Amending Australia's Offshore Banking Unit (OBU) Regime became law.
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 commencement of the OBU’s 2023-24 income year. For example, for an OBU whose income year end is 31 December, this will have effect from 1 January 2023. For an OBU whose income year end is 30 June, this will have effect from 1 July 2023. The interest withholding tax exemption for OBUs will also be removed for interest paid on or after 1 January 2024. In addition, the Act will remove the Minister’s power to approve OBU applications from 14 September 2021. 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.
- Treasury Laws Amendment (2021 Measures No. 2) Act 2021External Link
- Media release on 12 March 2021 by the TreasurerExternal Link