Foreign company

I am going to set up a company in an overseas country which is not a Listed Country or Section 404 country according to the ATO web site:
https://www.ato.gov.au/Individuals/Tax-return/2014/In-detail/Publications/Foreign-income-return-form-guide-2013-14/?page=27#Attachment_A

If the only purpose of the company is to purchase properties in the overseas country and all the rental income earned is retained in the company, will the rents still be counted as part of my taxable income?

My accountant says no but I would like to get opinions from other experts.

Thanks in advance.
 
I thought only if you tried to bring the money back to Australia?

Thanks for the reply.

This is what I think, but since I will own 100% of the company, I believe it will become a controlled foreign company (CFC) and I am not sure if this will make any differences.
 
Yes it would be a controlled foreign company CFC and the aim of the CFC rules is to tax aussie residents that try to avoid being taxed by setting up companies in foreign jurisdictions.

The rules vary depending on what the company is doing, which country it is in.

Complex rules, which a local accountant would not be aware of. complex advice
 
Yes it would be a controlled foreign company CFC and the aim of the CFC rules is to tax aussie residents that try to avoid being taxed by setting up companies in foreign jurisdictions.

The rules vary depending on what the company is doing, which country it is in.

Complex rules, which a local accountant would not be aware of. complex advice

Thanks Terry.

The company will only purchase investment properties and receive rental incomes. The company will be set up in Hong Kong. Will you be able to provide further advice on this?
 
Like Terry said you'll probably need specific advice. My understanding is that as aussie residents were taxed on our worldwide income. In this case even if the company doesn't distribute the income if you're the owner or beneficial owner of the company there's a good chance you'll have tp pay tax on the earnings. Will you be lending the company the deposit?
 
Like Terry said you'll probably need specific advice. My understanding is that as aussie residents were taxed on our worldwide income. In this case even if the company doesn't distribute the income if you're the owner or beneficial owner of the company there's a good chance you'll have tp pay tax on the earnings. Will you be lending the company the deposit?

Yes, I will be lending the company the deposit.

Are there any accountants specialised in this area?
 
I had a property owning company in the UK doing exactly this. It was classed as a CFC and I had to pay tax on the increase in value every year (the balance sheet was used for this purpose as all UK limited companies have to be audited). This was a pain when the AUD dropped as in AUD terms the value of the company had increased but I hadn't been paid any dividend so I had to find the money to pay tax on money I hadn't received. I can only say make sure you get some good advice from a good accountant.
 
I am going to set up a company in an overseas country which is not a Listed Country or Section 404 country according to the ATO web site:
https://www.ato.gov.au/Individuals/Tax-return/2014/In-detail/Publications/Foreign-income-return-form-guide-2013-14/?page=27#Attachment_A

If the only purpose of the company is to purchase properties in the overseas country and all the rental income earned is retained in the company, will the rents still be counted as part of my taxable income?

My accountant says no but I would like to get opinions from other experts.

Thanks in advance.

I wouldn't do it. Its easily detected by Austrak and crime commission and you will be surprised how they see such arrangements. It reeks of an identity washing arrangement used in criminal transactions.

You wont have to explain yourself so much to the ATO - More likely the Federal Police etc and when they look at it they pass the info to the ATO would will see it for what it is. A sham.
 
when they look at it they pass the info to the ATO would will see it for what it is. A sham.

That's a bit strong. There are many reasons for setting up an offshore company in a foreign jurisdiction. As long as the returns are properly reported it is not a sham.
 
I wouldn't do it. Its easily detected by Austrak and crime commission and you will be surprised how they see such arrangements. It reeks of an identity washing arrangement used in criminal transactions.

You wont have to explain yourself so much to the ATO - More likely the Federal Police etc and when they look at it they pass the info to the ATO would will see it for what it is. A sham.

I can see nothing to indicate a criminal element? There is nothing wrong with using companies overseas to hold property - as long as the relevant aspects are declared.

ATO have access to Austrac too.
 
There is nothing wrong with a foreign company owing an overseas property. In fact based on the country it may be necessary to have a foreign company established to hold such a property.

I hold property overseas and it must be held through a foreign company based on the countries ownership laws.

Yes it may well be a CFC. But what's the issue ? Passive income is attributed to the australian tax resident. Big deal. You complete your tax returns to show such and why on earth would the AFP or ATO be concerned. A sham. Come on do you advise all your international clients that their legitimate business and investment structures are a sham ?

Just because you enter into international transactions and have offshore companies does not mean you are doing anything wrong. If you have many international clients you would see this all the time.

Why scare people when it isn't necessary. Sounds like chicken little the sky is falling.
 
Thanks for everyone's comments.

I've found some examples from ATO web site regarding the CFC and I will double check with my accountant. I will probably check with another accountant just in case.
 
There is nothing wrong with a foreign company owing an overseas property. In fact based on the country it may be necessary to have a foreign company established to hold such a property.

I hold property overseas and it must be held through a foreign company based on the countries ownership laws.

Yes it may well be a CFC. But what's the issue ? Passive income is attributed to the australian tax resident. Big deal. You complete your tax returns to show such and why on earth would the AFP or ATO be concerned. A sham. Come on do you advise all your international clients that their legitimate business and investment structures are a sham ?

Just because you enter into international transactions and have offshore companies does not mean you are doing anything wrong. If you have many international clients you would see this all the time.

Why scare people when it isn't necessary. Sounds like chicken little the sky is falling.

Fair call....I start at the line then step back. If there is a reason to disguise ownership it may indicate a concern. Correct that many countries actually only allow foreign companies and not some/all foreigners to own interest in property. Just as we have rules. (Thailand is a problem that springs to mind and the new govt seems to be ''enforcing'' it now)

If its also disclosed in the international dealings section of a tax return if required then also no concern. Provided all of this is given consideration .... I do get endless enquiries each week for people asking to disguise both local and foreign property ownership from relevant authorities. For foreign ownership its often a interest in a family home that someone wants to neg gear here etc.

A recent enquiry (attributed to SS) from a commonwealth agency leaves me sensitive to such requests. It seems to have involved a suspected effort to transact by a transfer of ownership of a foreign entity that owned tangible property. It seems it may have been a way to avoid a reportable currency transfer. Fortunate I didn't get involved.

My intolerance in assisting such requests based on experience has shone through. No slur intended. But a message for all advisers to be careful.
 
Agreed the setup could be for legitimate purposes or for a more suspect reason. But the starting point should always be to try to find out what the client is trying to achieve.

I've helped a number of mid sized businesses setup backend operations for their accounts payable, accounts receivable, payroll processing, graphic design, website development with staff based in the Philippines.

The cost savings have been significant. Sometimes in the hundreds of thousands of dollars.

Many times they have a permanent establishment in the Philippines and so under the CFC rules the income isn't attributed. Throw in a PEZA registration and you have tax free status for five years. 5% of gross income after that. Transfer pricing documentation needs to be done but provided all of that is done then you have something not dissimilar to what the likes of Google, Apple, etc are doing everyday.

It's the clients who want to have one person, without a permanent establishment and transfer pricing across 40% without TP documentation that would be an issue.

In this day and age work is now done all over the world and some people have many staff in back end operations based in many different countries.

Yes you will probably get a call from the ATO because you will be making significant and numerous international funds transfers to various offshore locations but if it's legitimate and properly documented the ATO understands this is the new age of business.
 
Agreed the setup could be for legitimate purposes or for a more suspect reason. But the starting point should always be to try to find out what the client is trying to achieve.

I've helped a number of mid sized businesses setup backend operations for their accounts payable, accounts receivable, payroll processing, graphic design, website development with staff based in the Philippines.

The cost savings have been significant. Sometimes in the hundreds of thousands of dollars.

Many times they have a permanent establishment in the Philippines and so under the CFC rules the income isn't attributed. Throw in a PEZA registration and you have tax free status for five years. 5% of gross income after that. Transfer pricing documentation needs to be done but provided all of that is done then you have something not dissimilar to what the likes of Google, Apple, etc are doing everyday.

It's the clients who want to have one person, without a permanent establishment and transfer pricing across 40% without TP documentation that would be an issue.

In this day and age work is now done all over the world and some people have many staff in back end operations based in many different countries.

Yes you will probably get a call from the ATO because you will be making significant and numerous international funds transfers to various offshore locations but if it's legitimate and properly documented the ATO understands this is the new age of business.

Yes Optus is a large scale example I encountered last weekend. Technical and accounts are Philippines based not Singapore. Or Australia. I'm confident that the low cost operations are just one motivator. I would imagine the country with lowest tax rate may also just happen to receive much of the TP profits. These days a call/support centre can be anywhere or even move around the world with time zones (ie airlines)
 
Yes if a BPO (which a call centre is) and 100% of your income is not from Philippines (which in Optus case it would be) then you could be PEZA registered and the PEZA entity doesn't pay tax for five years. After that 5%. An enormous tax advantage.

If in a freeport zone then it's tax free for life.

Most local accountants would have no idea how it works and yet their clients have international operations or looking at outsourcing back end operations to save costs. So who do they go to ? Most struggle on their own.
 
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