Hope to get some help and confirmation on this :
We are an Australian resident company engaging a non Australian resident as a non executive director. The employee is based overseas (has no australian address) and work overseas .
Does the Australian Company have to deduct withholding tax from the payment fo him (non executive directors fees)
Thank you
Hi @Lielin
Generally there is no obligation to withhold from payments of salary or wages made to foreign residents where the employment services are performed overseas, as this will constitute foreign source income. Tax treaties can change whether certain income is considered foreign sourced or Australian sourced, so it does depend on which country they are working from.
You can read more about tax treaties here:
Tax treaties
Hope that helps.
Hi @Lielin
Generally there is no obligation to withhold from payments of salary or wages made to foreign residents where the employment services are performed overseas, as this will constitute foreign source income. Tax treaties can change whether certain income is considered foreign sourced or Australian sourced, so it does depend on which country they are working from.
You can read more about tax treaties here:
Tax treaties
Hope that helps.
Thank you for the response.
I was reading further about directors fees paid to foreign resident by Australian Company where the work is performed outside Australia. It mentioned ATO ID 2005/180.
In this interpretative decision, it was decided that directors fees paid by australian company is australian sourced income.
Is this ID still valid /current ?
If directors fees paid by australian company, is australian sourced, then I supposed the Company has a PAYG withholding obligation. The foreign resident paid non executive directors fees happens to be a UK resident and Switzerland resident (tax). If PAYG deducted by australian company , what does the Company needs to give them
(the directors) as a receipt so that they can claim foreign tax credit in their own tax resident country. ?
Thank you
L
Hi @Lielin
The employer will issue a Payment summary and the end of the financial year showing earnings and tax withheld. The payee will use that to complete an Australian tax return. Once their return has been processed we will issue them with a Notice of Assessment (NOA). They can use the information in the NOA to assist with their tax affairs in their resident country.
Ari
Thank you for the reply !
The foreign resident (Switzerland tax resident) does not have an Australian Tax File no, as such the PAYG will be deducted at the highest marginal rate for Non resident.
If he does not have and does not intend to apply for an australian TFN , this would be the final tax for him.
What sort of ATO recognised document does the Company give him in order for him to claim a foreign tax credit when he claims in his Switzerland tax returns?. I have searched the ATO website and could not find any specific form for the PAYG deduction to be given to non resident for him to claim foreign tax credit (only availble form would be for withholding tax deducted from interest, dividend and royalties from non resident)
I suppose he does not have to complete a TFN Declaration if he does not have nor intend to apply for a TFN?
Regards
L
Hi @Lielin
The client will need to check with their resident country about what documents they require to claim an offset for foreign tax paid when they complete the tax return of that country.
I can only advise what would be suitable evidence for an individual claiming a foreign income tax offset in their Australian return and a NOA or payment summary mentioned previously would be acceptable to us. It could be similar for the foreign country.
They'll need to apply for a TFN to lodge a tax return. They could be entitled to a refund if too much tax has been withheld.
Please check out these helpful links to our website
TFN application for people living outside Australia
How to lodge a tax return
Notice of assessment
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