Offshore Finance Company

Offshore Finance Company

offshore finance

Multinational businesses often finance their Australian business investments with large amounts of overseas debt instead of equity as it is more tax effective for the following reasons:

  • 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.

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