New Exemption for Foreign-Based Funds Announced

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19 January 2011 – The Assistant Treasurer has announced a new exemption for relevant investment income derived by foreign-based funds investing in Australia via Australian fund managers. The exemption is intended to increase the inflow of foreign funds into Australia and encourage foreign investment through Australian fund managers.

The exemption will apply to the 2010-2011 and later income years and enable investment returns (income and gains) to flow back to foreign investors free of Australian tax. The exemption will apply to specified investments, including portfolio interests in companies and trusts, certain bonds and other financial interests such as derivatives.

The exemption is designed to address the situation where a foreign managed fund is taken to have a permanent establishment in Australia because of an Australian intermediary that is a dependent, branch or subsidiary of the foreign fund.

This is welcoming news for Australian fund managers as it means that it more likely that foreign based funds will use Australian based fund managers.

The exemption is a positive step in Australia’s international taxation as it not only aligns Australia’s taxing rules with international practice but will encourage foreign inflows and stronger relations between foreign funds and Australian fund managers.

The full announcement can be accessed at: Assistant Treasurer – Investment Manager Regime – Proposed Exemption