Beware of foreign tax pitfalls
9 September 2009,
GOLD Coast businesses are expanding into global markets, but are sometimes unaware of income tax obligations in other countries.
Director of HLB Mann Judd South East Queensland Janelle Manders, advises that when dealing with global markets, it is essential to check income tax rules in advance.
“The main issue to consider is whether your business on the Gold Coast is carrying on a ‘permanent establishment’ in another country. It is not just companies that are caught; the issues raised cover all entities operating a business including individuals and partnerships as well,” explains Manders.
Under the various tax treaties Australia has with other countries, if an entity of one country has a ‘permanent establishment’ in the other country, the business operated in the ‘host’ country is subject to that country’s tax regime.
For example, a Gold Coast business sells goods through a ‘permanent establishment’ in the United Kingdom. Under the Double Tax Agreement, it may have to pay income tax in the UK based on their Income.
There are a number of questions which determine whether one exists:
A Gold Coast business that has managers operating from premises in another country, managing the business in that country
Manders says building and construction sites that last for more than 12 months would also be regarded as a permanent establishment.
“The determination of whether a ‘permanent establishment’ exists is one of degree and depends not only on the facts of each individual case but also the interpretation by the host country,” she says.
What does this mean for your business?