Expanding business overseas? Avoid paying double!

Expanding business overseas? Avoid paying double!

Mardi Heinrich and Caroline Hickson discuss the cost of expanding your business overseas and the need to be aware of your tax and reporting obligations.

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The thrill of landing a new contract overseas is a sentiment many business leaders can relate to. However, the reality of moving operations into a new jurisdiction can be a considerable tax challenge, requiring careful planning and patience.

Whilst corporate tax compliance and the pervasive “permanent establishment” risk are well known, many issues relating to mobile employees such as payroll withholding, social security, and employment taxes are less obvious.

If an employee relocates overseas but remains tax resident of Australia and is paid by an Australian entity, Australian Pay As You Go (PAYG) withholding obligations (and, by extension, Fringe Benefit Tax obligations) remain in force. In addition, withholding obligations will often apply in the overseas jurisdiction. Careful planning is required to ensure that:

  • the tax residency position of each employee is known in order to correctly apply payroll withholding – consider appointing an external adviser to determine this
  • payroll withholding and remittance obligations in the overseas location are met. The close link between work permit types and payroll obligations (such as salary levels and location of payroll) should not be overlooked.
  • employees don’t suffer double tax – real time variation of Australian PAYG withholding in accordance with Variation 33 (legislative instrument relevant to Taxation Administration Act 1953) is a useful mechanism to employ.

Even if employees are only assigned to the overseas location temporarily, social security contributions may be due. If travelling to a country with which Australia holds a bilateral social security agreement, a Certificate of Coverage may be available which will negate the need for contributions to the foreign scheme provided Australian superannuation contributions continue.

If travelling elsewhere, be sure to check the host location requirements as social security can significantly increase employment costs, particularly given that in most situations, contributions cannot be recouped when the employee leaves and returns to Australia.

Finally, obtaining specialist, local advice regarding other employment taxes and reporting obligations is crucial. Overlooking these obligations could undo all the investment in landing that contract by jeopardizing the organisation’s privilege to operate in the new location.

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