Withholding from a foreign resident employee

A foreign resident is someone who is not an Australian resident for tax purposes.

The withholding requirements for foreign resident employees are similar to those that apply to Australian workers. However, a foreign resident:

• can't claim the tax-free threshold
• is subject to special rates of withholding.

It is your responsibility to check if your foreign resident employee can legally work in Australia. The Department of Home Affairs (Home Affairs) has an online verification toolExternal Link you can use to check visa conditions.

Foreign resident employees need to complete a tax file number declaration form so their payer can work out how much tax to withhold from the payments they make.

When to withhold tax

If you are a resident employer, you:

• are required to withhold tax for foreign resident employees performing services in Australia
• may be required to withhold tax for foreign resident employees performing services outside Australia.

If you are a foreign resident employer, you may be required to withhold tax for foreign resident employees for services provided in Australia.

Payments to foreign resident employees for services performed in Australia

You are required to withhold amounts when making payments to foreign resident employees performing services in Australia.

It is not compulsory for foreign resident employees to have a tax file number (TFN). However, without a TFN, your payee can't:

• lodge a PAYG foreign resident withholding variation (FRWV) application
• lodge an Australian tax return
• apply online for an Australian business number (ABN).

Also, it will be more difficult for us to look up and discuss your employee's tax records with them.

The employee may also be liable for more tax if they do not provide a TFN to you.

Where the payment is to an individual foreign resident, you should withhold at the foreign resident rates in the weekly, fortnightly or monthly tax tables. However, special withholding rates apply to payments if they are in relation to:

• working holiday makers
• employee payments under the Seasonal Worker Programme and Pacific Labour Scheme
• employee payments under the Pacific Australia Labour Mobility scheme
• Gaming junkets, entertainment and sport activities or construction

Payments to foreign resident employees for services performed outside Australia

You may be required to withhold amounts when making payments to foreign resident employees performing services outside Australia.

Whether you are required to withhold will depend on an analysis of the individual circumstances of the employee.

If the payment relates to entertainment, sports, construction or gaming junket activities then withholding would be required unless one of the following applies:

• a tax treaty applies which places the 'taxing right' in another country
• the income being received is exempt income.

Withholding is unlikely to be required for payments that aren't related to entertainment, sports, construction or gaming junket activities. However, there are some circumstances where withholding may be required.

If the income is Australian-sourced and assessable and there is a tax treaty providing Australia a taxing right, withholding may be required.

If there is no tax treaty between Australia and the country of tax residency of the employee, then withholding may also be required for Australian-sourced income, unless that income is exempt income.

If you are uncertain whether withholding is required, you can contact us or speak to a registered tax professional.

Foreign resident employer paying foreign resident employees for services provided in Australia

If you are a foreign resident employer, you may be required to withhold amounts when making payments to foreign resident employees performing services in Australia.

Whether you are required to withhold will depend on an analysis of the individual circumstances of the employees.

If the payment relates to entertainment, sports, construction or gaming junket activities then withholding would be required unless one of the following applies:

• a tax treaty applies which places the 'taxing right' in another country
• the income being received is exempt income.

Withholding is unlikely to be required for payments that aren't related to entertainment, sports, construction or gaming junket activities. However, there are some circumstances where withholding may be required.

If the payment relates to income that is Australian-sourced and assessable and there is a tax treaty providing Australia a taxing right, withholding may be required.

If there is no tax treaty between Australia and the country of tax residency of the employee, then withholding may also be required for Australian-sourced income, unless the income is exempt income.

If you are uncertain whether withholding is required, you can contact us or speak to a registered tax professional.

Withholding when a payee does not quote an ABN

If a payee is required to supply you with an Australian business number (ABN), and they don't, you must withhold the top rate of tax from the payment.

In limited circumstances they do not need to supply you with an ABN. These include when the:

• income is exempt
• payee is not required to pay tax due to a tax treaty
• payee is a foreign resident and does not carry on an enterprise in Australia.

Where the foreign resident payee believes they don't need an ABN, you still need to consider whether you are required to withhold from the payment. The payee may also need to apply for a variation.

The withholding requirements where an ABN is not quoted take precedence over foreign resident withholding requirements. Therefore, if you have withheld because an ABN was not quoted, you do not also withhold under foreign resident withholding rules.

It is your responsibility to be satisfied that you do not need their ABN.

Making a payment in a foreign currency

To make a payment in a foreign currency, you need to calculate the equivalent Australian dollar value at the time you make the payment.

After converting the foreign currency payment to Australian dollars, you then calculate the amount to withhold at the required rate.

For more information, visit Translation (conversion) rules.

Reporting and paying

When and how you report and pay withholding amounts to us depends on whether you are a small, medium or large withholder.

To determine this, we look at how much your total withholding is, or is likely to be, each year.

If you withhold from payments to a foreign resident, you have specific end-of-year reporting obligations. For more information, visit Paying and reporting withheld amounts.