Australian Desk Newsletter
The newsletter of the Australian Desk of Deloitte Legal would like to keep you up to date on current developments in the German-Australian relations.
- Foreign Direct Investments
- Reduction of corporate tax burden
- Free Trade Agreement between the EU and Australia
On 8 May 2018 the Australian treasurer handed down the Federal Budget for 2018-19. The budget is already heavily influenced by the election campaign for the federal elections in 2019. A summary of the main features of the Federal Budget prepared by our Australian colleagues can be found here: Link.
Foreign Direct Investments
On 1 February 2018 two changes to the Australian foreign direct scheme were announced.
Firstly, new conditions for the sale of electricity assets to foreign investors were announced, which conditions will take effect immediately.
Secondly, rules have been introduced pursuant to which, when selling agricultural land, a process must be observed by which Australian bidders are given the opportunity to purchase that land before it can be sold to foreign investors. The onus of proof is with the foreign investor. The foreign investor will have to prove that the agricultural land in question was part of a public sales process and has been marketed widely to potential Australian bidders for a minimum of 30 days.
Moreover, it is foreseen to implement a critical infrastructure assets register. This register will be administered by the new Critical Infrastructure Centre, which again will be part of the Department of Home Affairs. By those means, the Australian government wants to develop a national security risk assessment, which can be drawn upon in the government decision-making process concerning investments in critical infrastructure.
Reduction of corporate tax burden
Already before the US announced their tax cuts in December, the current Australian government relied on an analysis of the treasury to support their plans of gradually lowering corporate taxation from 30% to 25% until 2025. According to the analysis Australia has to expect a lower increase in gross domestic product and lower actual earnings if it does not implement tax cuts. Opponents argue that Australia’s tax regime already provides for generous tax benefits which means that the efficient corporate tax rate is far below 30%. According to a report of the US Congressional Budget Office from 2017 the efficient corporate tax rate in Australia was at 10.4% in 2012. Newspaper reports allege that many big corporations have not paid taxes in Australia for years. The government opposition does not support these plans and should they win the elections next year, very likely no tax cuts will take place.
A short overview on corporate taxation in Germany and Australia
|Corporate income tax for companies (15,825%, incl. solidarity surcharge in an amount of 5.5% of corporate income tax)||Companies are subject to income tax at the corporate tax rate of 30% (27.5% for certain small businesses)|
|Income tax applies on a sliding scale with the top marginal tax rate being 45%||For individuals, the income tax applies on a sliding scale with the top marginal tax rate being 45% plus the Medicare levy, which is usually 2% of taxable income for individuals who are resident of Australia.|
|Trade tax (7% - 17%, varies depending on municipality)||n/a|
|Social security contributions (varying percentages) (all such contributions are being shared by the employer and the employee in equal amounts)||Superannuation contributions - employers are required to contribute an amount (based on 9.5% of an employee’s wages, subject to certain caps) into the employee’s superannuation account.|
|Real estate transfer tax (3.5% - 6.5%)||Stamp Duty (varies, up to 7% plus a surcharge in some cases)|
|Land tax (1.5% - 3%) (The German Constitutional Court recently ruled that the assessed values of real estate used to determine the land tax have to be updated by law. This has to be done until the expiry of 2019. Afterwards the current rules shall not be applied anymore.)||Land Tax (varies, up to 3.7% plus a surcharge in some cases)|
|Value Added Tax (19%/7% reduced)||Goods and Services Tax (10%)|
(a) Dividends 0%/25% (26.375%, incl. solidarity surcharge)
(b) Interest 0%/25% (26.375%, incl. solidarity surcharge)
(c) Royalties 15% (15.825%, incl. solidarity surcharge)
(a) Dividends (0%/30%)
(b) Interest (0%/10%)
(c) Royalties (30%)
|The taxation of partnerships takes place at two levels:
(a) Separate and joint determination of the basis of taxation at the level of the partnership followed by the taxation of the shareholders depending on their legal form at individual tax rates.
(b) Trade tax at the level of the partnership (7% - 17%).
|Partnerships are taxed similarly as described in (a), except for limited partnerships which are taxed similarly to companies.|
Taxation in Germany is not based on a uniform system of corporate taxation. The taxation of corporate profits depends on the legal form of the company.
Corporations are themselves tax subjects and are subject to income tax, trade tax and value added tax.
When dealing with partnerships one must differentiate between the partnership and the shareholders as tax subjects. The partnership is the tax subject as concerns trade tax and value added tax. The determination of the income tax respectively corporate tax takes place at the level of the shareholders and depends on the legal form of the shareholder.
The uniform federal corporate tax rate amounts to 15% (15.825% incl. solidarity surcharge). The trade tax is a communal tax and each municipality determines the applicable tax rate (by determining the tax factor). Depending on the respective rates as determined by the municipalities the trade tax rate varies between 7% and 17%. The usual trade tax rate amounts to approx. 14% to 17%.
Therefore, a corporation is generally subject to an average tax rate of approx. 30%.
Companies usually pay an income tax amounting to 30% (27.5% for small businesses). No separate corporate tax exists as, for example, in the United Kingdom. A capital gains tax arises where assets are sold. However, capital gains tax is part of the income tax. Companies can claim tax credits on the taxation of certain goods and services under certain circumstances. The above listing of taxes is not conclusive and further taxes can apply on federal and state level, for example the Payroll Tax, which is paid on the salaries of employees, and the Fringe Benefits Tax.
An overview on the Double Tax Treaty
At the end of 2015, Germany and Australia entered into the new Agreement for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion and Avoidance. The Agreement came into force on 7 December 2016. Especially the prevention of fiscal evasion and the alignment of rules concerning the information exchange to the OECD standards were a motivation for the amendment of the double tax treaty. For a detailed description of the Agreement, we refer to the article of our tax colleagues (in German): Link.
Free Trade Agreement between the EU and Australia
On 23 April 2018 the heads of government of Germany and Australia met in Berlin. At the meeting, they spoke of remarkable progress on the way to a free trade agreement between the EU and Australia. Australia pushes for the begin of the negotiations with the EU, which is Australia’s most important trading partner after China. Some areas like investment protection were excluded from the planned free trade agreement to prevent a lengthy sign-off process. The Australian prime minister found explicit words against protectionism at this visit and would like the free trade agreement to be understood as a sign for freedom. Following the consent of the Council of the European Union on 22 May 2018 respective negotiations can be expected to commence in due time.