Situations that may affect the amount to withhold
Special rules apply if your employee works overseas, is not an Australian resident or earns personal services income (PSI).
Paying employees that work overseas
If you make payments to Australian employees who are working for you overseas, you have the same tax obligations as if they were working in Australia.
Some payments for foreign services that relate to certain development projects, charitable activities or government activities are exempt from tax and you do not have to withhold amounts from these payments.
Withholding for foreign resident employees
If your employee answered 'no' to the question 'Are you an Australian resident for taxation purposes?' on their Tax file number declaration, you must use foreign resident tax rates.
There are two ways to withhold from the earnings of a foreign resident:
- If the payee has not given you a valid TFN you need to withhold at the top rate of tax for each $1 of earnings.
- If the payee has given you a valid TFN, withhold the amount calculated from 'foreign resident tax rates' in the tax tables.
Foreign resident employees generally cannot claim tax offsets. They may be entitled to claim a zone or overseas forces offset in limited circumstances. If a foreign resident employee has claimed any other tax offsets on the Tax file number declaration do not make any adjustment to the amount withheld.
Some foreign residents are exempt from paying tax in Australia. If you are satisfied that your employee’s income is exempt from tax in Australia you don’t have to withhold amounts from their payments. The employee can apply for a private ruling from us on whether their income is exempt.
Withholding from other foreign resident payees
Payers are required to withhold prescribed amounts from specific payments made to foreign resident payees.
Foreign resident payees include all foreign individual and non-individual entities (for example, companies, partnerships, trusts, government organisations and superannuation funds).
Follow the links for more information about payments to foreign residents who work or take part in:
These special rules do not apply to payments made to foreign residents (non-residents) if either of the following applies:
- they are engaged as employees
- the payment is interest, dividends and royalties
Personal services income (PSI)
PSI is income earned mainly by your personal efforts and skills.
If you operate a company, partnership or trust that does not pass the tests for a personal services business, some income your employees earn may be PSI.
When the PSI rules apply, your business will have additional PAYG obligations for the amount attributed (treated as belonging) to each individual who performed the services.
Find out more
Special rules apply if your employee works overseas, is not an Australian resident or generates personal services income.