There are several options for foreign investors structuring investments in Australia assets depending on their:
- Investment objectives (e.g. long term versus short term gains versus income stream);
- Country of residence; and
- Investment strategy.
Foreign investors are advised to carefully consider the structuring alternatives available as careful planning can often result in cost savings and greater global tax efficiency.
Three common examples of Australian investment structures are:
1. Via an Australian Holding Company
The preferred option for the holding of operating businesses and related assets. This is because corporate trusts are generally treated as a company for Australian tax purposes and attract the corporate tax rate of 30% on worldwide income and capital gains.
2. Direct (Foreign) Ownership
There are generous capital gains tax exemptions and concessions available to foreign investors, particularly in relation to non-Taxable Australian Property, that is, passive Australian assets, other than real property (direct and indirect interests), mining, quarrying and prospecting rights and certain assets connected with Australian permanent establishment business operations.
3. Via an Australian Unit Trust
For passive investment activities, an Australian Unit Trust offers a range of tax advantages, including:
- The tax liability on the income of the trust is generally attributed to the unitholders. For non‑resident unitholders, this tax liability is usually managed through the Australian withholding tax system on distributions made by the trustee;
- The withholding tax rates for non-resident investors in a Managed Investment Trust are generally lower than the Australian corporate tax rate (see below);
- The trust’s capital gains (realised on the disposal of trust assets) are generally exempt from Australian tax for foreign unitholders where the trust qualifies as a fixed trust and at least 90% of the trust’s assets are nonTaxable Australian Property;
- Investors enjoy flexibility on entry and exit, that is, investors can generally buy/sell their units in the trust to manage their interest; and
- As noted above under Direct Ownership, foreign unitholders will be exempt from Australian capital gains tax on the disposal of their units where the unitholding qualifies as non-Taxable Australian Property.
Withholding Tax Concessional Rates for Managed Investment Trusts
Distributions by a Managed Investment Trust to foreign investors are generally subject to the concessional withholding tax rate of 15%. However, this rate does not apply to distributions of dividends, interest and royalties and gains in respect of Taxable Australian Property.
The concessional withholding tax rate applies where certain conditions are satisfied, including:
- The foreign investor is a resident of a country (link below) which has an exchange of information agreement with Australia;
- The unit trust is operated by a financial services licensee;
- The unit trust:
- Is listed; or
- Has in excess of 50 investors; or
- At least 1 unit is owned by an entity such as an Australian Life Company or a Superannuation/Pension Fund, with in excess of 50 members.
- The trustee of the unit trust must be an Australian Resident or the central management and control of the trust must be exercised in Australia.
One Investment Group operates 6 entities which are licensed by the Australian Securities and Investment Commission to act as the trustee of such a Managed Investment Trust. One Investment Group currently acts as trustee for more than 50 trusts with in excess of $2bn under management.
Contact One Investment Group to discuss whether a Managed Investment Trust is a suitable structure for an Australian investment you are considering.
For further information on Managed Investment Trusts click here