Foreign investment into Australia through an Australian Unit Trust
There are several options for foreign investments in Australian assets depending on their:
- Investment objectives (e.g. long term versus short term gains versus income stream);
- Country of residence; and
- Investment strategy.
Foreign investors are advised to carefully consider the structuring alternatives available as careful planning can often result in cost savings and greater global tax efficiency.
Investment through an Australian Unit Trust
For passive investment activities, an Australian Unit Trust offers a range of tax advantages, including:
- The tax liability on the income of the trust is generally attributed to the unitholders. For non‑resident unitholders, this tax liability is usually managed through the Australian withholding tax system on distributions made by the trustee;
- The withholding tax rates for non-resident investors in a Managed Investment Trust are generally lower than the Australian corporate tax rate (see below);
- The trust’s capital gains (realised on the disposal of trust assets) are generally exempt from Australian tax for foreign unitholders where the trust qualifies as a fixed trust and at least 90% of the trust’s assets are non-taxable Australian Property;
- Investors enjoy flexibility on entry and exit, that is, investors can generally buy/sell their units in the trust to manage their interest; and
- As noted above under Direct Ownership, foreign unitholders will be exempt from Australian capital gains tax on the disposal of their units where the unitholding qualifies as non-Taxable Australian Property.
Withholding Tax Concessional Rates for Managed Investment Trusts
Distributions by a Managed Investment Trust to foreign investors are generally subject to the concessional withholding tax rate of 15%. However, this rate does not apply to distributions of dividends, interest and royalties and gains in respect of Taxable Australian Property.
The concessional withholding tax rate applies where certain conditions are satisfied, including:
- The foreign investor is a resident of a country (link below) which has an exchange of information agreement with Australia;
- The unit trust is operated by a financial services licensee;
- The unit trust:
- Is listed; or
- Has in excess of 50 investors; or
- At least 1 unit is owned by an entity such as an Australian Life Company or a Superannuation/Pension Fund, with in excess of 50 members.
- The trustee of the unit trust must be an Australian Resident or the central management and control of the trust must be exercised in Australia.
The information shared does not provide legal advice. In any token sale, there is a host of legal requirements to consider. Please consult your own securities lawyer.