When an Australian company pays dividends, interest or royalties to a foreign resident, it must withhold tax and pay it to the ATO. The rates are 30% on the unfranked part of a dividend, 10% on interest and 30% on royalties. Franked dividends and conduit foreign income have no withholding. A tax treaty with the recipient's country can set a lower rate. For a recipient whose only Australian income is these payments, the withholding is generally the final tax.
If your company owns an Australian subsidiary, lends it money or licenses it your brand or software, money will flow back to you as dividends, interest or royalties. Australia taxes those payments by withholding. The Australian company deducts the tax before it pays you.
This guide covers the rates, who must withhold, how tax treaties lower the rate, and what the Australian payer must report. It is written for foreign parent companies and their Australian subsidiaries.
What is withholding tax in Australia?
Withholding tax is a tax on certain payments to foreign residents. The Australian payer keeps back part of the payment and sends it to the ATO. A foreign resident can be a company, an individual, a partnership, a trust or a super fund.
For the recipient, the tax is generally final. The ATO says foreign residents do not have to pay any more tax if their only Australian income is interest, dividends and royalties that had the correct amount withheld.
Withholding tax rates
| Payment to a foreign resident | Rate without a treaty | With a tax treaty |
|---|---|---|
| Dividends: franked part | Nil | Nil |
| Dividends: unfranked part | 30% | The treaty rate, if lower |
| Dividends declared as conduit foreign income | Nil | Nil |
| Interest | 10% | The treaty rate, if lower |
| Royalties | 30% | The treaty rate, if lower |
Source: ATO, withholding rate. The rules are in section 128B of the Income Tax Assessment Act 1936.
Dividend withholding tax
Australia uses a franking system. When a company pays tax on its profits, it can attach franking credits to the dividends it pays from those profits.
- Fully franked dividend: no withholding tax.
- Partly franked dividend: withholding applies only to the unfranked part.
- Unfranked dividend: withholding of 30%, or the treaty rate.
- Conduit foreign income: no withholding on the part of an unfranked dividend that the company declares as conduit foreign income. This is broadly foreign income passing through the Australian company.
The company must give the shareholder a statement showing how much of the dividend is franked or is conduit foreign income. For the wider picture on getting profits home, see profit repatriation from Australia.
Interest withholding tax
Interest paid to a foreign lender is subject to 10% withholding. "Interest" is wide. It includes amounts in the nature of interest, such as a discount on a security, and amounts paid instead of interest.
Some interest is exempt. Examples include interest on certain publicly offered debentures, and interest paid to a foreign resident that is earned through its own permanent establishment in Australia.
A loan from a foreign parent also has to meet the transfer pricing and thin capitalisation rules. See how foreign subsidiaries are taxed.
Royalty withholding tax
Royalties paid to a foreign resident are subject to 30% withholding, or the treaty rate. The ATO definition covers payments for the use of, or the right to use:
- copyright, patents, designs, trademarks, secret formulas or processes
- industrial, commercial or scientific equipment
- know-how: scientific, technical, industrial or commercial knowledge
- films, video and broadcasting material
It also covers services that are part and parcel of using those rights. A brand licence or a technology licence from a foreign parent to its Australian subsidiary is the common case.
How tax treaties reduce withholding tax
Australia has tax treaties with over 40 countries. A treaty can set a lower withholding rate than the default. When it does, the Australian payer withholds at the treaty rate.
The lower rate applies only if the recipient is both:
- a resident of the treaty country, and
- beneficially entitled to the income.
Treaty rates differ by country and by type of payment. Check the treaty for your country in Treasury's income tax treaties table, or see our double tax agreements guide. Hong Kong is not on Treasury's list, so the default rates apply to payments to Hong Kong residents.
Who must withhold, and when
An Australian payer must withhold. That means an Australian resident, or a foreign resident with a permanent establishment in Australia. For a foreign group, it is usually the Australian subsidiary paying its parent.
The payer must withhold when it:
- makes the payment
- credits the amount to the foreign resident's account, or
- deals with the payment on the foreign resident's behalf or at their direction.
So an interest amount credited to an intercompany loan account is subject to withholding even if no cash moves.
What the Australian payer must do
- Register for PAYG withholding before it withholds any tax.
- Withhold the right amount from each payment.
- Pay the amounts withheld to the ATO and report them on its activity statement.
- Give the recipient a payment summary.
- Lodge the annual report, PAYG withholding from interest, dividend and royalty payments paid to non-residents (NAT 7187), by 31 October each year. A payer that correctly reported the interest or dividends in an annual investment income report does not lodge it for those payments.
If the recipient needs proof of the tax for its home tax authority, the payer can apply to the ATO for a certificate of payment (NAT 6408) after lodging the annual report.
What happens if you do not withhold
- Penalty: a payer that fails to withhold is liable to a penalty equal to the amount it should have withheld (Taxation Administration Act 1953, Schedule 1, s16-30).
- Lost deduction: the Australian company cannot deduct interest or royalties if it failed to withhold or pay the tax (ITAA 1997, s26-25). The deduction is allowed once the withholding tax is paid.
If you withhold too much, you must refund the extra to the recipient if you find the error by 30 June of that year. After that date, do not refund it yourself, because the ATO will not refund it to you. Follow the ATO's process for refunds of over-withheld amounts instead.
Other withholding taxes foreign companies meet
- Wages: employers withhold PAYG from salaries. A foreign employer with no ABN registers with a withholding payer number.
- No ABN quoted: if you sell to an Australian business without quoting an ABN, it may have to withhold 47% from its payment to you.
- Property sales: buyers must withhold 15% foreign resident capital gains withholding from the price of many Australian property sales by foreign residents. See the foreign resident CGT changes from 1 October 2026.
- Managed investment trusts: fund payments to foreign investors have their own rates, which depend on the investor's country.
Branch or subsidiary: does it change withholding tax?
Yes. Dividend withholding applies to dividends paid by a company. An Australian branch is part of the foreign company, so it does not pay dividends to its head office. See how Australian branches are taxed and our branch vs subsidiary comparison.
Need help with withholding on payments to your parent? Our tax services (From $1,500/yr) cover PAYG withholding registration, activity statements and the annual non-resident report. Ask for a quote.
Frequently asked questions
What is withholding tax in Australia?
A tax the Australian payer deducts from dividends, interest and royalties paid to foreign residents and pays to the ATO. For a recipient whose only Australian income is these payments, it is generally the final Australian tax.
What is the withholding tax rate on dividends paid to a foreign company?
Nil on the franked part of the dividend. 30% on the unfranked part, unless a tax treaty with the recipient's country sets a lower rate. Unfranked amounts declared as conduit foreign income are also free of withholding.
Is there withholding tax on interest paid overseas?
Yes. Interest paid to a foreign resident is subject to 10% withholding tax, unless an exemption or a lower treaty rate applies.
What is the royalty withholding tax rate in Australia?
30% of the gross royalty, unless the recipient's country has a tax treaty with Australia that sets a lower rate.
Do franked dividends have withholding tax?
No. Fully franked dividends paid to foreign residents are not subject to withholding tax. Partly franked dividends are taxed only on the unfranked part.
Who pays withholding tax, the payer or the recipient?
The tax is the recipient's, but the Australian payer must withhold it and pay it to the ATO. If the payer fails to withhold, it faces a penalty equal to the amount it should have withheld.
When is the non-resident withholding annual report due?
By 31 October each year. It covers interest, unfranked dividends and royalties paid to foreign residents in the year to 30 June.
This content is general information only and is not legal, financial or tax advice. Laws and regulations change often. For advice on your circumstances, speak to a qualified adviser.