Foreign resident withholding¶

Most of the withholding you will ever deal with is for wages, or for a supplier who did not quote an ABN. But there is another set of rules that can apply when you pay certain amounts to someone who lives overseas — a foreign resident.

This lesson is a signpost, not a how-to. Most small businesses never touch these rules. The aim is simply to help you recognise the situation, so you know when to get proper help.

In one line

Separate withholding rules apply to some payments to foreign residents — rare for most small businesses, so check with the ATO or an adviser if you think one applies to you.

Why this matters¶

If one of these rules applies and you do not withhold, you can be left responsible for the amount that should have been held back. Knowing these rules exist means you can pause and get advice before making an unusual overseas payment, rather than finding out afterwards.

What you will learn¶

That separate withholding rules exist for certain payments to foreign residents
The main types of payment this can involve
When to check with the ATO or an adviser

Understanding the concept¶

There are two broad areas to be aware of. You do not need to learn the detail — just to know they exist.

Payments of investment-type income to foreign residents. If your business pays certain amounts — such as some interest, dividends or royalties — to a person or company overseas, there can be an obligation to withhold some of the payment and send it to the Australian Taxation Office (ATO). The amount that has to be held back depends on the type of payment and the country involved, which is why this needs a proper look rather than a rule of thumb.

Foreign resident capital gains withholding on property. This is a different rule again. When Australian property is sold, the buyer may have to hold back part of the price and pay it to the ATO if the seller is a foreign resident. Australian resident sellers avoid this by giving the buyer a clearance certificate. This one is about property sales, not everyday business payments.

If you think either area might apply to a payment you are about to make, the safest step is to check the ATO's guidance or speak to your accountant or tax adviser before you pay.

For accountants & bookkeepers

Withholding on interest, unfranked dividends and royalties paid to non-residents runs under its own part of the PAYG withholding rules, with rates set by the relevant tax treaty (or a default rate where there is no treaty) and its own annual report. Foreign resident capital gains withholding is a separate regime attached to the disposal of certain Australian property, driven by clearance certificates and variation notices. Both sit outside ordinary wage and no-ABN withholding — this lesson deliberately keeps to the shape of the obligations and points affected clients to the ATO or an adviser rather than reproducing rates.

Example¶

Priya's design studio takes on a project that involves paying a royalty to a photographer who lives overseas. She has never made a payment like this before and is not sure whether she is meant to hold any tax back.

Rather than guess, Priya pauses before paying. She recognises this could fall under the foreign resident rules, so she checks the ATO's guidance and asks her accountant. That way she gets it right the first time, instead of discovering an obligation after the money has already gone.

Common mistakes¶

Assuming overseas payments work exactly like local ones — separate rules can apply.
Trying to work out an overseas withholding rate yourself — it depends on the payment type and the country, so get it checked.
For property, forgetting that the buyer's obligation is removed when the seller provides a clearance certificate.

How this works in myaccountant¶

In the app — myaccountant records the withholding you handle through payroll and for suppliers who have not quoted an ABN, and reports those withheld amounts to the ATO. Foreign resident withholding is a specialised area, so if you think it applies to a payment, check with the ATO or your adviser.

Key points¶

Separate withholding rules can apply to certain payments to foreign residents.
They can involve some interest, dividends and royalties paid overseas.
Foreign resident capital gains withholding is a separate rule for property sales.
Most small businesses never deal with these rules.
If you think one applies, check the ATO's guidance or speak to an adviser first.

Learn next¶

General information only — not tax, super or financial advice.

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