Australia Tax Treaty Withholding Rate Table: Dividends, Interest, Royalties

Tax treaty framework

Australia has bilateral tax treaties (also called Double Tax Agreements or DTAs) with more than 45 jurisdictions. These agreements allocate taxing rights between Australia and the treaty partner country for various categories of income. The International Tax Agreements Act 1953 (Cth) gives effect to these DTAs in Australian domestic law.

For dividends, interest and royalties, DTAs generally reduce the standard domestic withholding tax rate. The standard rates are 30% for dividends, 10% for interest, and 30% for royalties. DTAs specify lower rates applicable to residents of the treaty partner country.

To benefit from a DTA, the recipient of the income must typically meet two conditions. They must be a ‘resident’ of the treaty country, as defined within the treaty itself. They must also be the ‘beneficial owner’ of the income.

Australia-United States treaty

The Australia-US tax treaty (signed 1982, amended by 2001 Protocol) governs withholding rates for dividends, interest, and royalties. For dividends, the withholding rate is 5% where the US recipient holds at least 10% voting power; otherwise, the rate is 15%. The 2001 Protocol updated the treaty to align with then-current OECD standards.

Interest is generally subject to a 10% withholding rate. However, reductions to 0% apply for interest paid to certain financial institutions, government entities and listed companies.

Royalties are subject to a 5% withholding rate under the treaty. The treaty includes a limitation on benefits (LOB) article to prevent treaty shopping.

Australia-United Kingdom and Japan treaties

The Australia-United Kingdom tax treaty (effective 2003, updated by the 2010 MLI) specifies different withholding rates for dividends based on ownership. A 0% rate applies if the UK recipient holds at least 80% of the voting power for 12 months. A 5% rate applies where the recipient holds at least 10% voting power. Otherwise, the rate is 15%. Interest is generally subject to 10% withholding, with a reduction to 0% for certain financial institutions and government entities. Royalties are subject to a 5% withholding rate.

The Australia-Japan tax treaty (effective 2008) also provides for tiered dividend withholding rates. A 0% rate applies if the Japanese recipient holds at least 80% voting power for 12 months. A 5% rate applies where the recipient holds at least 10% voting power. Otherwise, the rate is 10%.

Interest under the Japan treaty is subject to 10% withholding, with a 0% rate for certain entities. Royalties are subject to a 5% withholding rate.

MLI and treaty changes

Australia signed the Multilateral Instrument (MLI) in 2017 to implement changes related to base erosion and profit shifting (BEPS) to its double tax agreements (DTAs). The MLI has introduced a Principal Purpose Test (PPT) into most Australian treaties.

The PPT aims to prevent treaty shopping and is now included in treaties with countries such as the UK, Japan, France, Indonesia, Singapore and India. This test may impact the application of reduced withholding rates.

Treaty rates are subject to change through amending protocols or MLI modifications. It is essential to always confirm the current treaty text for the most up-to-date information. The Australian Taxation Office (ATO) publishes the current Australian tax treaty network and a summary withholding rate table on its website.