When overseas companies can be considered Australian Tax Residents

Although we’re based in Australia, we regularly work with clients around the world that are seeking to do business or make investments here. One question we have received repeatedly is: “Can a company incorporated outside Australia be an Australian Tax Resident?” Let’s consider this question now…

The answer is yes, in the right circumstances. A company is a resident of Australia for tax purposes if it is incorporated in Australia, regardless of where the company is controlled. However, it is important to remember that companies incorporated overseas can still be caught in the Australian tax net.

A company that is not incorporated in Australia is a tax resident, if:

1. It carries on business in Australia and has its central management and control in Australia; or
2. It carries on business in Australia and its voting power is controlled by shareholders who are Australian residents

In a recent case, companies incorporated overseas were found by the High Court to be residents of Australia for tax purposes. The companies carried on share trading businesses in Australia. Their boards met overseas, however the court held that they were ultimately controlled by an Australian resident and were therefore residents here.

Carries on business in Australia

The question of where business is carried on is one of fact which looks at where the activities of a company are conducted. A company that has major operations (e.g. trading, service provision, manufacturing or mining activities) carries on business in the location that those activities take place. This may be separate from where the central management of the company is located.

On the other hand, a company whose business is largely dependent on investment decisions made in respect of its assets, carries on its business in the location where such decisions are made and not where the assets are found. For example, a share trading business can be carried on in Sydney where trades are placed and investments are bought and sold solely on overseas exchanges.

Central management and control

The central management and control of a company is the location where the high-level decisions of the company are made, including those involving: strategy, policy setting and significant financial matters.

As a general rule, central management and control is exercised in Australia when the majority of board meetings are held in Australia. Alternatively, where board meetings are held via teleconference, central management and control is located where the majority of attendees are physically present for each meeting.

Where a board of directors is made up of nominees who are not actually in control of the company, the central management and control will be exercised by those instructing the board members on how to vote.

Residence of controlling shareholders test

This test looks at the tax residence of those who control the voting power in relation to the shares in the company. The relevant shareholders are those appearing on the company’s share register, not the ultimate beneficial owners. Control means those who actually control the company, not those with the capacity to exercise control (but don’t).

Corporate residence is a complicated area.  If you wish to discuss this further, please do not hesitate to contact us on 02 9264 6733 or email allworths@allworths.com.au