There are a number of ways to bring back money from an overseas company into Australia.
Danny’s overseas shoe manufacturing company in the Philippines is producing a large quantity of shoes for sale in Korea and Australia. Since the point of sale is through his Australian website, Danny has his company in the Philippines pay a commission amount to his Australian company for every pair of shoes sold on the site. He also has shares in the Filipino company.
Julia hires a travel agent in Bolivia to set up a travel company. She gives the agent a loan from her travel business in Australia. The company in Bolivia is successful, outsourcing and managing tours booked through her Australian website, and it returns the profits from its tour sales to her in the form of interest and repayments on the loan, which in turn helps fund her website. She also has equity in the foreign travel company.
Both Danny and Julia need to understand when they will be taxed on each occasion when profit is earned. Both will need to weigh up the tax costs in foreign jurisdictions and the relevant costs of transferring dividends from their foreign businesses back to Australian. For Danny, each commission payment he receives from the Philippines will be subject to corporate tax, while Julia will likewise pay company tax on the loan repayments and interest from Bolivia that are being used to fund her Australian website. The remains of this company income will then be subject to their own personal tax when drawn as dividends.
For both, once they have understood the points where tax will come into play, they will then need to decide how to adjust the value of interest, repayments, service charges, and dividends so as to minimise their tax exposure.
Different tax costs apply for different forms of profit. Loans repayments, interest, service charges, and dividends attract different tax hits in Australia and overseas. Your specific profit repatriation strategy will rely on balancing these tax costs so as to ensure maximum return for you and your shareholders here in Australia.
In addition, you need to consider how your strategy impacts your business as a whole. For example, if you rely on the EMDG, charging a service fee to your foreign operations may make it easier for you to access the grant, rather than if you simply earn interest or a dividend from overseas.
This requires expert help. You will need more than an accountant. A business advisor or virtual CFO who has a thorough knowledge of both Australian and overseas tax requirements can help you explore all your tax options. They can look at each step of your repatriation process – from overseas earnings, overseas money transaction costs, local corporate tax, to local personal tax – so as to better structure your business operations and cash flow here and overseas. In this way you can make sure your overseas venture benefits you as much as it does the tax office.
Calibre Business Advisory invests more time than most firms into finding solutions for our clients. Contact our business advisors and tax accountants to discover new options for your business in Australia and beyond.
Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.