1. What is interest withholding tax

Withholding tax is a tax administration arrangement which Australia government levies tax on certain income that is derived by overseas non-residents in Australia. Thereof interest withholding tax is the tax levied by Australia government on interest income which overseas investors gained in Australia. Interest withholding tax will reduce return on investment, and it affects long-term international capital flow. Australia government has signed double taxation agreement with many countries. The purpose of the double taxation agreement is to avoid double taxation and tax evasion for the income derived by the residents of the two countries under the agreement and levy of withholding tax is normally formed part of the agreement.

2. How to calculate interest withholding tax in Australia

Unless otherwise agreed in the double taxation agreement, the interest withholding tax generally is at 10% of the interest income, so the investor could only get 90% of total interest income. The interest withholding tax for 10% will be paid to local government by the party who pays interest. According to a special Australian tax rule, for foreign bank branches that operated in Australia and borrow fund from their non-resident related party, interest withholding tax is levied at 5%, Calculation details are shown below.

(a)  Non-residents:

Interest withholding tax = interest payment * 10%

(b) Non-resident related party of foreign bank branch:

Interest withholding tax = interest payment * 5%

There are circumstances that payment of interest withholding tax is exempt.

(a) Under the double taxation agreement of Australian government with certain overseas countries, interest withholding tax is mutually exempted on the interest payment of the fund borrowed from the Financial Institutions of either country.

(b)Interest paid under bonds issued by Australian government or under debentures issued by Australian corporation is eligible for exemption from interest withholding tax when purchased by non-residents as long as the bond/debenture issued satisfies public offer test.

Public offer test are:

● to at least 10 persons operating in a capital market

● to at least 100 investors whom it was reasonable for the company to have regarded as either having previously acquired debentures or likely to be interested in acquiring debentures

● as a result of the debentures being accepted for listing by a stock exchange where the company had previously entered into an agreement with a dealer, manager or underwriter requiring the company to seek a listing

● as a result of negotiations initiated publicly in electronic form (eg through Reuters or Bloomberg), or in another form, used by financial market for dealing in debentures, or

● to a dealer, manager or underwriter for the purpose of placement of the debentures.

3. CCB Sydney branch procedure on reporting and payment of interest withholding tax

Sydney Branch deducts interest withholding tax for clients every month and reports and pay the tax to Australian Taxation Office by 21st of following month. Detailed processes are:

(a) Based on the details of the depositor and interest payment amount to calculate withholding tax according to applicable tax rate. If interest payment and related withholding tax is in non-Australian dollar, it will be converted to Australian dollar.

(b) To pay interest withholding tax to Australian Taxation Office.

(c) To fill in the amount of withholding tax deducted on  Business Activity Statement and post it to Australian Taxation Office.