28 Sep 2017

CU LAB: Doing Business in Australia – How can I get money out of an Australian subsidiary?

Mark Friezer runs through the options for repatriating funds from an Australian subsidiary.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.


Essentially you can repatriate funds to the parent company, over an Australian subsidiary either through pre-taxed or post tax repatriations. So I want to talk about post tax repatriations ‒ it's things like dividends or in terms of capital.

In Australia we operate an imputation system so that where dividends are paid out of taxed corporate profits (known as franked dividends) there is no withholding tax. In contrast, where dividends are paid out of untaxed profits, they're called unfranked dividends and they can be subject to a prima facie withholding tax of 30%. Commonly that's reduced under Australian tax treaties to either 15% or, in certain cases, to nil.

Where you seek to return capital to the foreign parent it's a slightly trickier exercise. There are rules which look to see whether that return of capital which is ostensibly a reduction in cost base is in fact a deemed dividend, and the Tax Office has powers to deem a return of capital to be a dividend in certain circumstances.

The other broad category of profit repatriation is what I'd call pre-tax profit repatriation, so in other words deductible fees and charges including interest, royalties and management fees. Interest and royalties are subject to withholding tax, again prima facie 30% but reduced if there's a tax treaty in place.

Management fees are not subject to withholding tax and they are not taxable in Australia at all, provided that the foreign parent isn't operating here with a permanent establishment. The issue with all of those sorts of charges is though that they need to be done on an arm's-length basis so they don't infringe our transfer pricing rules.