Offshore Finance Company

• Subject to compliance with the thin capitalisation rules the interest expense is deductible against the Australian business’s profits. Each $1.00 of interest expense saves $0.275 or $0.30 in tax.
• The interest expenses payable to non-residents are only subject to a final 10% withholding tax.

Australian businesses financed with 100% overseas debt often end up with no Australian taxable income or tax liability after paying the foreign interest expense (so the ‘effective tax rate’ is 10% which is the withholding tax payable to the ATO). If the offshore finance company is domiciled in a tax haven, no additional tax will be payable overseas on the interest income received.