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  • Residence and basis for taxation

    A resident company is a company that is incorporated in Australia. It also includes a company that carries on its business in Australia and either its central management control is in Australia or its voting power is controlled by shareholders resident in Australia.

    Domestic 

    A resident company is subject to income tax on all its income and capital gain from sources anywhere in the world.

    Foreign 

    A non-resident company is generally taxed only on income and capital gain from Australian sources. A network of Double Taxation Agreements (DTA) operates to modify these rules including reducing the rate of withholding taxes.

  • Taxable income

    Domestic

    Taxable income of a resident company is equal to assessable income less allowable deductions.

    Foreign 

    Taxable income equals Australian-sourced income less allowable deductions incurred in respect of that income. Residents of countries that have a DTA with Australia are only subject to taxes on business profits in Australia if they conduct business in Australia through a permanent establishment. There is no branch profits tax in Australia.

  • Tax rates

    Both resident companies and non-resident companies (with Australian-sourced income) are subject to income tax at the company tax rate of 30%, unless they are small business entities (ie with less than AUD 2 million aggregated turnover) in which case they are currently subject to a tax rate of 28.5%. The Australian Government has introduced legislation which, if enacted, will progressively reduce the overall corporate tax rate to 25% for the 2026-27 income year.

  • Tax compliance

    Federal income tax returns must be lodged annually. The Australian tax year, or year of income, ends on June 30. A Substituted Accounting Period may be adopted as the income tax year with the written approval of the Commissioner.

    The Australian Government has released draft legislation which, if enacted, will increase the administrative penalties imposed on companies with global revenue of AUD 1 billion or more that fail to adhere to tax disclosure and related obligations. The proposed amendments are intended to apply from 1 July 2017 and will:

    1. Increase the maximum penalty to AUD 450,000 for multinational companies which fail to meet their reporting obligations, and
    2. Double the penalties relating to making false and misleading statements to the Australian Taxation Office (ATO) with a view to discourage multinational companies from being reckless or careless in their tax affairs
  • Alternative minimum tax

    Not applicable.

  • Tax holidays, rulings and incentives

    Tax holidays

    Not applicable.

    Tax rulings 

    The ATO and the different State Revenue Offices issue public rulings, determinations, interpretative decisions and practice statements that set out their views on the operation of the relevant federal or state law.

    In addition, a taxpayer can seek certainty in respect of their tax affairs by applying for a private ruling. A private ruling is legally binding on the Commissioner.

    Tax incentives

    There are tax incentives for specific activities, including research and development, and deductions for certain mining and primary production industries. In addition, lower withholding tax rates (15%) are available for distributions to certain non-residents from eligible Withholding Managed Investment Trusts.

  • Consolidation

    For income tax purposes, a head company of a wholly owned group of Australian resident entities can elect to consolidate with its wholly owned Australian subsidiaries and form a consolidated group. For a consolidated group, intra-group transactions are ignored for income tax purposes.

  • Participation exemption

    A Capital Gain Tax (CGT) exemption is available for the sale of an active foreign business by an Australian resident entity. Dividends received by corporate tax entities (eg companies and corporate limited partnerships) that have a 10% or more equity interest in a foreign subsidiary are generally exempt from further Australian tax. However, this needs to be addressed on a case by case basis.

  • Capital gain

    CGT forms part of the income tax regime. CGT applies to net capital gain relating to assets and notional assets acquired after September 19, 1985. Where the sale proceeds are less than the actual unindexed cost, the taxpayer will incur capital losses. These losses may only be offset against current or future capital gain. Capital gain is calculated on the proceeds from the disposal of the asset less its cost base and any incidental costs associated with its purchase and disposal. The taxable part of the gain is treated as assessable income. Some assets are exempt from CGT, and certain concessions are available for eligible Australian entities (eg 50% CGT discount for individuals and trusts, and 33.3% discount for complying superannuation funds).

  • Distributions

    Distributions by corporations (ie dividends) are taxable for shareholders. Australian resident shareholders may be entitled to a tax credit for corporate tax paid by the company. Dividends to foreign residents are prima facie subject to withholding tax at 30%, which may be reduced under a tax treaty. Also, certain exemptions are available in domestic tax law (eg for dividends paid out of taxed profits).

  • Loss utilization

    Company tax losses can be carried forward indefinitely, subject to satisfying certain loss utilization tests.

  • Tax-free reorganizations

    Tax-free reorganization provisions include CGT exemptions, exemptions for intra-group transactions in a consolidated group and a stamp duty exemption for corporate reconstructions.

  • Anti-deferral rules

    Under the controlled foreign corporation (CFC) rules, a domestic corporation may be subject to tax on a current basis on “attributable income” of a foreign subsidiary.

  • Foreign tax credits

    Where foreign sourced income is included in a taxpayer’s assessable income, foreign income tax offsets are available at the lesser of the foreign tax paid or the Australian tax payable.

  • Special rules applicable to real property

    Foreign residents are generally exempt from Australian CGT except where the relevant asset is a direct or indirect interest in Australian real property (including through an interposed entity).

    From 9 May 2012, the 50% CGT discount allowed for gains made by individuals on Australian real property is reduced for any periods in which the taxpayer has been a foreign resident during the period of ownership. From 1 July 2016, a new foreign resident CGT withholding tax (CGT WHT) regime applies in Australia. Under the CGT WHT rules, unless an exemption applies, purchasers of direct or indirect interests in Australian real property are required to withhold 10% of the purchase price and remit this to the ATO if at least one of the vendors is a foreign resident. The CGT WHT is not a final tax as the vendor may claim a credit for the tax withheld when lodging its tax return for the relevant year.

  • Transfer pricing

    “Arm’s-length” principles are applied to transactions between related parties under an international agreement. Australian rules are similar in many respects to the OECD guidelines, with certain material differences.

    In addition to satisfying transfer pricing documentation requirements, multinational entities with an annual global income of AUD 1 billion or more are required to provide the ATO with three statements (a master file, a local file and a country-by-country (CbC) report) within 12 months after the end of their income tax year. These statements require multinationals to report details regarding their international related party dealings, revenues, profits, and taxes paid by jurisdiction. These amendments took effect from income years commencing on or after 1 January 2016.

  • Withholding tax

    Generally, a 30% withholding tax rate applies to dividends (unless an exemption is available under domestic law or double tax treaties) and royalties and 10% for interest, which may be reduced under a double tax treaty.

    Dividends, royalties, etc 

    Not applicable.

    Service fees

    Not applicable.

  • Capital duty, stamp duty and transfer tax

    No capital duty. Stamp duties and transfer taxes may be imposed at the State and Territory level on transfers of assets and other “dutiable transactions.”

    From 1 July 2016, share transfer duty was abolished in all States and Territories.

  • Employment taxes

    Employers must withhold federal income tax from wages paid to employees. Employers also must pay Fringe Benefits Tax and Payroll Tax where applicable.

  • Other tax considerations

    Anti-Avoidance Regime

    In an effort to tackle multinational anti-avoidance, Australia's general tax anti-avoidance regime was amended with the introduction of the Multinational Anti-avoidance Law (MAAL) which was operative from 1 January 2016. The MAAL applies to multinational entities with an annual global income of AUD 1 billion or more and is targeted at multinational entities entering into contrived arrangements to avoid a taxable presence in Australia.

    Further, the Australian Government has proposed to introduce a Diverted Profits Tax (DPT), which if enacted, will apply from 1 July 2017. The DPT is targeted at multinational entities with an annual global income of AUD 1 billion or more, which have entered into contrived arrangements to shift taxable profits out of Australia.

    Superannuation

    Employers must make superannuation contributions to their employees’ nominated super fund, at the rate prescribed by the relevant legislation.

    Workers’ Compensation

    Employers are required to take out insurance with an approved insurer covering the employer’s full liability for workers’ compensation as well as damages.

    Goods and Services Tax (GST)

    GST is a form of value added tax (VAT). It applies at a rate of 10% to taxable supplies of goods, services and other things that are connected with Australia.

    From 1 July 2017, GST will apply to inbound intangible supplies made to Australian Consumers, but GST will not usually apply if the same inbound intangible supply is instead made to an Australian business. This reform is referred to as the "Netflix Tax".

    Also from 1 July 2017, GST will apply to inbound supplies of goods with a value of less than AUD 1,000 which are made to Australian Consumers. This may capture online sales of goods made by non-residents to Australian Consumers where the goods are shipped directly to Australian customers.

  • Key contacts
    Jock McCormack
    Jock McCormack
    Partner DLA Piper Australia jock.mccormack@dlapiper.com T +61 2 9286 8253 View bio

Residence and basis for taxation

Australia

A resident company is a company that is incorporated in Australia. It also includes a company that carries on its business in Australia and either its central management control is in Australia or its voting power is controlled by shareholders resident in Australia.

Domestic 

A resident company is subject to income tax on all its income and capital gain from sources anywhere in the world.

Foreign 

A non-resident company is generally taxed only on income and capital gain from Australian sources. A network of Double Taxation Agreements (DTA) operates to modify these rules including reducing the rate of withholding taxes.

Austria

An entity is treated as a domestic entity for corporate income tax purposes if its registered seat or the effective place of management is located in Austria.

Domestic

Global income of a domestic entity generally is subject to Austrian taxation.

Foreign

Only certain income of legal entities which are neither seated in Austria nor have their effective place of management in Austria is subject to corporate income tax in Austria. Such income would be treated as connected with Austria under the applicable rules.

Brazil

Domestic

A legal entity incorporated under the Brazilian legislation will be treated as a domestic legal entity.

A Brazilian national is automatically a resident while legally domiciled in Brazil or, if not domiciled in Brazil, upon his or her election to be treated as a resident for tax purposes.

Foreign

In principal, foreign legal entities are not subject to Brazilian taxes except when carrying out activities in Brazil through a permanent establishment.

Foreign individuals are considered residents for tax purposes from the moment they enter the country to work under an employment contract.

Non-resident individuals and legal entities who render services to a Brazilian party are subject to Brazilian withholding income tax received from Brazilian sources. Other taxes may apply depending on the transaction at hand.

Canada

A corporation formed in a Canadian jurisdiction is generally treated as a resident corporation for Canadian tax purposes.

Domestic

A resident corporation is subject to Canadian tax on its worldwide income. A Canadian-resident corporation generally is not subject to Canadian tax on the income of its foreign subsidiaries unless an anti-deferral provision applies (eg the foreign accrual property income rules).

Foreign

Non-resident corporations are not generally subject to Canadian income tax except on:

  • Income earned from carrying on business in Canada
  • Income arising on the disposition of taxable Canadian property, and
  • Certain types of cross-border payments subject to non-resident withholding taxes

Income tax treaties can reduce or eliminate these taxes.

China

A resident enterprise is an enterprise established in China under the laws of China or an enterprise that is established under the laws of a foreign country (region) but that maintains its place of effective management in China.

Domestic

A resident enterprise is subject to enterprise income tax in China on its worldwide income.

Foreign

A non-resident enterprise is subject to enterprise income tax in China only if:

  • It has derived China-sourced income by an establishment or place in China, or it has income incurred outside China but effectively connected with its establishment or place in China, or
  • It has derived China-sourced income even if it does not have an establishment or place in China, or the income is not effectively connected with its establishment or place in China

Finland

Domestic

Companies incorporated in accordance with Finnish legislation are subject to tax in Finland (unlimited tax liability).

Foreign

Foreign companies are subject to tax in Finland only to the extent specified in Finnish tax legislation (limited tax liability).

France

A company is a resident of France if it has its legal seat or place of effective management in France. As a general rule, the corporate income tax base is territorial.

Domestic 

Profits of a resident corporation generally are subject to French corporate tax only if derived from a business operated in France, real estate assets located in France or activities taxable in France pursuant to a double tax treaty. Resident corporations can be subject to tax in France on foreign source income under anti-avoidance rules (eg CFC rules).

Foreign

Foreign corporations are not subject to French corporate tax unless they have in France:

  • An autonomous establishment
  • A dependent agent empowered to act on behalf of the corporation, or
  • A complete cycle of activity

For residents of tax treaty countries, these concepts generally are superseded by the permanent establishment concept set out in the applicable double tax treaty.

Germany

A corporation that has either its registered seat or its effective place of management in Germany will be treated as a resident corporation.

Domestic 

A resident corporation is subject to German tax on its worldwide income. A resident corporation generally is not subject to German tax on the income of its foreign subsidiaries unless an anti-deferral provision applies (ie the CFC rules).

Foreign

A non-resident corporation is taxed only on its German source income, as defined in German tax law and applicable double taxation treaties.

Hong Kong

Residence is generally not relevant for Hong Kong tax purposes. Rather, the basis for taxation is whether or not a person carries on a trade or business in Hong Kong. Nevertheless, the concept of residence can be relevant for the purposes of Hong Kong tax treaties as well as certain exemptions (such as the offshore fund profits tax exemption). In such case, Hong Kong would follow the common law tests of residential ties for individuals and management and control for other entities.

Domestic

Hong Kong has a territorial system of taxation without a general definition of income. Generally, only:

  • Profits arising in or derived from Hong Kong from a business carried on in Hong Kong
  • Employment remuneration for services rendered in Hong Kong, and
  • Income from real properties situated in Hong Kong can be subject to tax

Any other item of income is exempt from tax.

Foreign

There is no special regime for non-residents. A Hong Kong branch of a foreign corporation is treated the same way as a locally incorporated company and is subject to similar corporate and tax obligations as a resident company.

 

India

A corporation formed in an Indian jurisdiction is treated as a domestic corporation.

Domestic

A domestic corporation is subject to Indian tax on its worldwide income. A domestic corporation generally is not subject to Indian tax on the income of its foreign subsidiaries unless it is deemed to have a permanent establishment in such a country.

Foreign

Foreign corporations are not subject to Indian tax except on:

  • Income arising from an Indian trade or business
  • A permanent establishment, or
  • Corporations wholly managed and controlled from India

Tax treaties can reduce or eliminate these taxes.

Ireland

A company incorporated in Ireland on or after 1 January 2015 is regarded as tax resident in Ireland, unless a tax treaty provides otherwise.

Domestic 

An Irish resident company is subject to Irish tax on its worldwide income and gains.

Foreign

A non-Irish resident company is not subject to Irish tax on income unless it carries on a trade in Ireland through a branch or agency or it receives income from Irish sources (eg income from the rent of Irish properties). A non-Irish resident company is not subject to Irish tax on capital gains unless it makes a disposal of:

  • Irish land
  • Irish minerals or mining rights
  • Unquoted shares deriving their value from (1) or (2) above, or
  • Irish situate assets which at or before the time when the gains accrued were used in or for the purposes of a trade carried on by the company in Ireland through a branch or agency

Israel

A corporation is considered an Israeli resident, for tax purposes, if it is incorporated in Israel, or if its business is managed and controlled in Israel.

Domestic

An Israeli resident corporation is subject to Israeli tax on its worldwide income, including capital gains. A foreign tax credit may be granted for tax paid in other jurisdictions.

Foreign

A nonresident corporation is subject to tax in Israel on its Israeli source income, including capital gains from dispositions of Israeli assets. Israeli source income also includes income attributed to business activity carried on in Israel. If a nonresident corporation is entitled to the benefits of a treaty for the avoidance of double taxation, the threshold regarding the level of business activity in Israel is raised and requires the existence of a permanent establishment in Israel.

Italy

A corporation is considered to be resident in Italy if it has its legal seat, its place of management or its main business activity therein for the major part of the fiscal year. A foreign corporation can be deemed to be resident in Italy when it owns a controlling participation in an Italian company and:

  • Is controlled, even indirectly, by resident entities, or
  • The board of directors (or similar body of management) is mainly formed by Italian resident directors

Domestic

Resident corporations are taxable in Italy on their worldwide income. Italian permanent establishments of foreign entities are subject to taxation in the same manner as domestic corporations.

Foreign

Foreign corporations are not subject to Italian taxation on corporate income that is considered Italian source. Tax treaties can reduce or eliminate these taxes. Specific anti-deferral provisions apply to foreign-controlled companies.

Japan

A corporation having its head office or main office in Japan will be treated as a domestic corporation.

Domestic

A domestic corporation is subject to Japanese corporate tax on its worldwide income.

Foreign

A foreign corporation is subject to Japanese corporate tax only on income derived from sources in Japan; however, tax treaties can reduce or eliminate these taxes. If a foreign corporation has a permanent establishment in Japan, such foreign corporation is subject to Japanese corporate tax on income attributable to its permanent establishment in Japan.

Luxembourg

A company is considered as a resident if its legal seat or central administration is in Luxembourg.

Domestic

A resident company is taxed on its worldwide income, unless a double tax treaty provides for an exemption.

Foreign

A non-resident company is only taxed on Luxembourg-source income.

Mexico

Legal entities that are residents of Mexico are subject to Mexican taxation. For this purpose, legal entities that have their effective seat of management in Mexico are considered to be residents of Mexico. Resident taxpayers are subject to Mexican income tax with respect to income from whatever source derived.

Domestic

An entity resident in Mexico for tax purposes is subject to Mexican taxation on its worldwide income, regardless of the source of income.

Foreign

Foreign entities are subject to Mexican taxation when:

  • They have a permanent establishment (PE) in Mexico
  • Do not have a PE in Mexico, but income is generated from a Mexican source, or
  • Have a PE in Mexico, but income is not attributable to the PE

Whether Mexican source income exists or not depends on the nature of the income received, and Income Tax Treaties entered into by Mexico may be able to reduce or eliminate Mexican taxes.

Netherlands

A corporation that is effectively managed in the Netherlands will be treated as a resident corporation. Companies incorporated under Dutch law are deemed to be residents of the Netherlands.

Domestic

A resident company is subject to income tax on all its income and capital gain from sources anywhere in the world. under the territorial tax system, however, there are a number of exemptions for income related to foreign sources.

Foreign

A non-resident company is generally taxed only on its Dutch source income. A network of Double Taxation Treaties operates to modify these rules including reducing the rate of withholding taxes.

Norway

Domestic

Companies are considered tax resident in Norway if they are:

  • Established and registered in Norway, or
  • Have its place of effective management in Norway

Foreign

Foreign companies not tax resident in Norway, may have limited tax liability in Norway if they:

  • Conduct or participate in business activities in Norway
  • Operate or manage business activities from Norway
  • Make employees available to others in Norway, or
  • Wwn real estate or other property in Norway

Portugal

An entity is treated as a domestic entity for corporate income tax purposes if its registered seat or the effective place of management is located in Portugal.

Domestic

A domestic entity is subject to Portuguese corporate tax on its worldwide income.

Foreign

A foreign entity is subject to Portuguese corporate tax on:

  • Income from business carried on through a Portuguese permanent establishment, and
  • Portuguese-source profits income

Russia

An entity is treated as a tax resident for corporate profits tax purposes if it is registered as a Russian legal entity in accordance with Russian law. Likewise a foreign entity whose place of effective management is located in Russia is treated as a tax resident for corporate profits tax purposes (unless otherwise established by an applicable double tax treaty).

Domestic

A resident company (both Russian and foreign entities are recognized as Russian tax residents) is subject to the corporate profits tax in Russia on its worldwide income.

Foreign

A non-resident company is subject to corporate profits tax in Russia only on income derived through a Russian permanent establishment or on passive income derived from a Russian source.

Spain

A corporation will be tax resident in Spain if:

  • It has been registered under Spanish laws
  • It is domiciled in Spain, or
  • Its center of effective management is located in Spain

Domestic

A resident corporation is subject to Spanish tax on its worldwide income. A resident corporation generally is not subject to Spanish tax on the income of its foreign subsidiaries unless an anti-deferral provision applies (ie the CFC rules).

Foreign

Foreign corporations are not subject to Spanish tax except on:

  • Income effectively connected with the conduct of Spanish trade or business
  • Taxable income under the Spanish CFC rules, or
  • “Look-through” entities

Tax treaties can reduce or eliminate these taxes.

Sweden

Domestic

Companies that are registered in Sweden or, if no registration is made, are domiciled in Sweden are regarded as unlimited tax liable in Sweden.

Foreign

Companies that are not considered unlimited tax liable in Sweden are treated as limited tax liable in Sweden.

Switzerland

Domestic

Corporate taxpayers are resident under Swiss domestic tax laws if either their statutory seat or effective management is in Switzerland.

Foreign

Non-resident companies may be subject to Swiss corporate taxation if they:

  • Are partners of a business in Switzerland
  • Have a permanent establishment in Switzerland
  • Wwn Swiss real estate
  • Have claims secured by a mortgage on Swiss real estate, or
  • Act as brokers for Swiss real estate

Taiwan

A company (including a subsidiary of a foreign company) formed in Taiwan will be treated as a Taiwan company.

Domestic

A Taiwan company is subject to Taiwan income tax on its worldwide income.

Foreign

A company with its head office outside Taiwan (including a foreign company with a branch office in Taiwan) is considered a foreign company for tax purposes, though the Taiwan branch itself is considered as a domestic profit-seeking enterprise.

United Kingdom

A company will be treated as a UK resident if it is formed in a UK jurisdiction or managed and controlled (at the board level) in the UK.

Domestic 

A resident company is subject to UK corporate tax on its worldwide income and gains (subject to relief for any tax paid on the same income or gains in other jurisdictions). The company may elect to leave out of account all profits and losses arising from branches outside the UK.

Foreign

A non-resident company is not subject to UK tax except on:

  • Income from a business carried on through a UK permanent establishment
  • Other UK source income, but only to the extent of any withholding tax borne by that income (see Taxable income), and
  • Capital gain on arising on disposals of certain UK assets only (see Capital gain)

United States

A corporation formed in a US jurisdiction will be treated as a domestic corporation.

Domestic

A domestic corporation is subject to US tax on its worldwide income. A domestic corporation generally is not subject to US tax on the income of its foreign subsidiaries until it is repatriated unless an anti-deferral provision applies (ie the CFC or PFIC rules).

Foreign

Foreign corporations generally are not subject to US tax except on:

  • Income effectively connected with the conduct of a US trade or business, and
  • Certain FDAP (generally passive) income from US sources

Tax treaties can reduce or eliminate these taxes.