If you’re an Australian business doing business overseas, or a non-resident doing business in Australia, you should be aware of your tax obligations. International taxes could affect your business, such as the goods and services tax (GST) and Value Added Tax (VAT). You might also be affected for the different taxation rates for residents and non-residents.
Different tax rates apply for Australian residents and non-residents. The residency status of your business will also affect your Australian tax rates and obligations. Foreign residents are taxed in Australia on income from an Australian source, while Australian businesses are generally taxed on worldwide income.
Different criteria apply to sole traders, companies, corporate limited partnerships and trusts.
Sole traders – tax rates are based on a business owner’s residency status.
Companies – A company is an Australian resident if it is incorporated through Australia or (if not incorporated in Australia) has central management and control in Australia or voting power controlled by Australian residents
Corporate limited partnerships – A corporate limited partnership is an Australian resident if the partnership and was formed in Australia or carries on a business in Australia through an Australian-based central management. Individual partners are taxed on their share of the net partnership income based on their individual residency status.
Trusts – Trusts are considered to be an Australian entity if the trustee is an Australian resident during the income year or if the central management and control was in Australia at any time of the year. There are capital gains tax (CGT) implications for trusts. If the trust is a unit trust, it must meet the unit trust residency requirements, of which there are two parts, during the year to not incur CGT.
Goods And Services Tax (GST)
A 10% tax is added to goods and services for applicable businesses in Australia and should also be added to services and digital products sold. Digital products apply to movies, apps, games and e-books.
Pro Tax Tip: GST is not charged to Australian GST registered businesses who purchase digital items for use in their business from overseas.
Business’ who earn over $75,000 are obligated to register and collect the GST on goods or services sold overseas if the product or service is made in Australia in the course of your business.
Pro Tax Tip: You may not need to register for GST if the only sales made are through an electronic distribution platform.
If your goods or services are valued at or below $1,000 and are considered to be low value imported goods (clothing, cosmetics, books and electric appliances), a $1,000 threshold is available based on the customs value, and transport and insurance costs. Costs under $1,000 in total are excluded.
Pro Tax Tip: GST is not charged to Australian GST-registered businesses purchasing these items for their business.
Value Added Tax (VAT) for European Union (EU) businesses
Businesses supplying telecommunications, broadcasting or electronic services will be charge VAT where your business is a European Union (EU) based business to another EU nation, or if your Australian based business exports to the EU.
Foreign Business Income
Any income earned is required to be declared in your tax return. This includes worldwide income, but the treatment of your tax depends on the tax treaties that Australia has between other countries, and the scale and nature of your business.
If you’ve paid foreign tax, you may be entitled to an Australia foreign income tax offset, which helps to provide relief from double taxation. In some cases, the offset is subjected to a limit. You must have actually paid or deemed to have paid an amount of foreign income tax and the income you paid in foreign income tax must be included in your assessable income. If you claim $1,000 or less, you only need to record the actual amount of foreign income tax that counts towards the offset.
Pro Tax Tip: Before you lodge your tax return, all foreign income should be converted into Australia dollars. The ATO provides foreign income exchange rates. Daily, monthly, end of year rates and rates prior to 1 July 2003 are available.
Some types of foreign business income are not subject to Australian tax, and includes:
- Foreign income from businesses from an overseas permanent establishment
- Foreign income from listed countries
- Equity distribution from a foreign company made after 16 October 2014 (with a minimum 10% participation interest)
- Dividends from a foreign company paid before 17 October 2014 (With at least a 10% voting interest)
- As an Australian resident, if you’ve earned any foreign income, this must be declared in your tax return. Sources of income include:
- Pensions and annuities
- Business activities
- Employment and personal services
- Assets and investments
- Capital gains on overseas assets
- Salary or wages
- Director fees
- Consultancy fees
- Interest from bank deposits or bond’s dividends
- Pensions, annuities and lump sum payments from managed funds
- Superannuation income streams
- Some government pensions.
If you’re an Australian resident and have a Tax File Number (TFN), you’ll generally pay tax at a lower rate than non-residents. Australian residents for tax purposes must hold a temporary resident visa so that most of your foreign income isn’t taxed in Australia. If you receive foreign income, you may have to pay tax in Australia and any country you earn your income from.
ITP Accounting Professionals have helped Australian individuals and businesses for 50 years. There’s not a lot we don’t know about tax and finances. Phone 1800 367 487 and chat about your budgeting needs and how we can help you save on your tax dollar.