Our Australian domestic Conduit Foreign Income (CFI) rules help to make Australia an attractive location for foreign businesses to make Australia their regional headquarters in the Asia Pacific Region.
CFI is foreign income received by a foreign resident through one or more interposed Australian corporate entities. It comprises amounts that are exempt from tax in Australia under the foreign dividend and foreign branch income exemptions. The rules allow conduit foreign income to flow through Australian companies to foreign shareholders without being taxed in Australia.
An Australian company that receives foreign sourced income can then designate some, or all, of a declared dividend to be CFI.
Distributions of CFI are treated in the shareholders hands as follows:
- Distributions to a non-resident shareholder are exempt from Australian withholding tax.
- Distributions to another Australian company retain their nature in that company (ie the recipient company can pass on the conduit foreign income to its members).
- Distributions of conduit foreign income to an individual Australian resident member is treated like any other unfranked distribution.
If you have a client looking to expand into the Asia Pacific region, don’t hesitate to contact us for a more detailed explanation of how the CFI rules might apply to them, and how it might make sense to set up in Australia.
Author – Darren O’Malley
*Correct as of 12 October 2022
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.
