Taxes for Paying Overseas Contractors and Employees from Australia

 

Paying overseas contractors and employees can be complicated. Especially since foreign countries have different tax and social security considerations. This guide sets out to simplify the process by providing you steps you can take that suits your situation.

 

How to Pay Overseas Contractors and Employees

Paying your employees or contractors located overseas, while ensuring your company remains compliant with tax and social security can be challenging. Below are 3 steps you can take to successfully employ people overseas:

  1. Review the tax and tax withholding position of your employee
  2. Review the social security position of your employee
  3. Next steps – paperwork for tax and social security obligations
  4. Determine how, when and where payments should be delivered

 

1. Taxes for Overseas Contractors and Employees

If you are an Australian company and you are recruiting a person overseas for at least 60 days, then Australian tax obligations applies to you.

The geographical location of your employee doesn’t matter. If you are an Australian employer you need to follow Australian tax guidelines. That said, your overseas employees could also be subject to local employment laws. It is therefore important to check whether any conflicting provisions exist.

For example, if your overseas Australian employee faces double withholding tax. You may be able to find out whether there is a tax agreement between Australia and the country where your employee lives.

Australia has ‘double tax agreements’ with over 40 countries. The terms and conditions of these agreements can change in any given year, so it is important to be aware of any changes.

Tax rates for your foreign resident employee can be anywhere between 10-30%. This depends on where your foreign employee is located and whether they have a treaty with Australia or not. To avoid withholding tax at a higher rate of 47%, you need to provide a current overseas address of your employee overseas.

This calculator from the ATO makes it easier for you to decide whether your relationship with the person doing business with you is your employee or a contractor for tax and super purposes.

Here are 3 different tax scenarios. Choose which one applies to your situation.

a.) Tax Payments for Australian Residents Working Overseas

If you have Australian resident employees that are working in a foreign country you may have pay as you go (PAYG) withholding obligations.

However, some foreign earnings are subject to exemptions. For example, some payments for foreign services that relate to certain development projects, and charitable or government activities are exempt from tax.

Your employee should include non-exempt earnings in their income tax return as assessable income. They may also be entitled to a foreign income tax offset for amounts of foreign tax paid.

b.) Tax Payments for Australian Non-Residents

A foreign resident is someone who is not an Australian resident for tax purposes.

The withholding requirements for foreign resident employees are similar to those that apply to Australian workers. However, a foreign resident:

  • can't claim the tax-free threshold
  • is subject to different rates of withholding

c.) Tax Payments made to Overseas Contractors or Freelancers

In Australia, you usually need to withhold taxes from payments made to foreign contractors if the payments made are for interest, unfranked dividends or royalties. You may also have to withhold additional tax if any of these payment types have been reinvested or capitalised on behalf of the non-resident.

In addition, you will need to withhold tax from payments made to non-Australian resident employees if they are promoting or operating casino gaming junket arrangements in Australia; promoting or operating entertainment or sports activities in Australia; promoting or operating construction, installation or upgrading of buildings, plants and fixtures and for other works and related activities in Australia.

 

2. Superannuation for Overseas Contractors and Employees

As an Australian business, you may also have superannuation obligations. Again, here are 3 scenarios for you to choose from:

a.) Superannuation for Australian Residents Working Overseas

As an Australian business, you have superannuation obligations for Australian employees overseas. But this is only if they are residents of Australia for tax purposes. The foreign country your employee works at may also require you to make superannuation contributions. This means you need to be aware of any domestic schemes, otherwise you may end up paying superannuation twice (known as double superannuation).

Superannuation for Overseas Contractors and Employees
Australia has agreements with other countries to prevent double superannuation from happening, but as an employer, you will need to get a ‘certificate of coverage’ from the ATO BEFORE your employee leaves Australia. They can then give it to your overseas counterpart to be exempt from compulsory contribution in the other country.

b.) Social Security for Australian Non-Residents

You do not have to pay superannuation in Australia for non-residents, but you may have to make social security contributions on behalf of your foreign employee in the country they are working in. This means you need to have a good understanding of the domestic social security scheme in the foreign country your employee is working in.

c.) Social Security or Superannuation for Contractors or Freelancers

If you are enlisting the help of a foreign contractor or freelancer you have no obligation to make social security or superannuation contributions – it is up to them.

More Help

Visit these Australian Tax Office websites:

 

3. What to do next

a.) Once you’ve determined you do need to withhold tax payments made to your foreign resident employee you need to provide them with a PAYG payment summary – foreign employment (NAT 73297) which includes:

  • Income relating to period of foreign employment
  • Tax withheld and paid to a foreign government

To obtain a printed copy of the form download the following form and print in A4 size: Foreign Employment (NAT 73297, PDF, 274KB)

You can also use ATO’s automated self-help publications ordering service or you can phone ATO’s Publications Distribution Service on 1300 720 092 between 8:00am and 6:00pm Monday to Friday and quote “Foreign Employment” (NAT 73297)

b.) Give the payee their copy of the payment summary by 14 July, following the end of the financial year you made payments to them in. Note, if your employee requests a payment summary in writing prior to 9 June, you must provide the payment summary to them within 14 days of receiving their request.

c.) Send the ATO original copies of your employees PAYG payment summaries and your PAYG payment summary statement by 14th August, following end of the financial year. Do not send payment summaries printed from your payroll software, it must be ATO originals.

d.) Keep your copy of your PAYG payment summaries for at least 5 years.

 

4. How You Transfer Money Overseas

Now that you’re ready to pay your overseas employee or independent contractor you need to think of how to best transfer the money. Here are some helpful hints to ensure you choose the best currency transfer service option for your business needs.

 

a.) Use a specialist currency transfer company instead of a bank

While using your bank might be a more convenient option, it may also be more expensive. It is worthwhile to get in touch with businesses specifically set up to provide low cost money exchange at good exchange rates.

Companies like Transferwise, OFX, World First, TorFX, XE and HiFX allow you to transfer money directly into the recipient’s bank account using their online services and call centres. Some currency exchange providers like Western Union and Moneygram let the recipient collect their funds in cash.

We recommend using our comparison tables for international money transfers or currency exchange to help you with your decision.

 

b.) Be aware of any costs

There are many costs that could impact how much your overseas contractor or employee will receive when you send money to them. Hidden Costs When Transferring Money to Overseas Contractors and EmployeesAny hidden costs charged by your money transfer provider could be a big hit to your bottom line and operating expenses. Especially if you are making recurring overseas money transfers.

Here is a simplified list of the key costs involved when you send money overseas:

  • The currencies and countries you are moving currency between — different currency pairs have different exchange rates.
  • Fees levied by the currency exchange provider — different banks and providers will levy different fees.
  • The difference between the base exchange rate and what the currency provider offers you — you are unlikely to get the “mid-market / interbank” exchange rate. Instead, the rate you will get is often one or two percentage points worse than that rate.
  • Fees levied depending on how the exchange is funded — some providers will charge you a  fee if you fund the transfer in certain ways.
  • Recipient bank fees — some banks charge additional fees when funds from a money transfer are paid into an account.
  • The fees charged by the money transfer provider — different providers charge different fees, both as a flat rate and as commissions.

 

c.) Reliable customer support for your business

A reliable service is an important consideration when you transfer money overseas. Especially if you do multiple transactions to pay your international employee or contractor. Customer Support for Overseas Contractors and EmployeesYour provider should be flexible, responsive, and receptive to your specific needs. They should be able to actively demonstrate how important your business is to them. There are many advantages of using a specialist service to transfer your money internationally including:

  • Fast transfers, money can sometimes be transferred within one working day.
  • Dedicated customer support and advice.
  • Online options for sending money through their website or apps.
  • Forward or limit orders to manage currency risk and reduce market fluctuations.
  • Mobile apps and other tools to manage the money transfer processes.

With so many considerations, we've put together guides and reviews to help you make the right decision when you pay your overseas contractor or employee.

 


 

How to Find the Cheapest Way to Transfer Money Overseas

Compare The Total Cost

The total cost of the transfer comes down to 2 things:

Money transfer fees

1. Transfer Fees

Every Australian bank and money transfer company will charge you a different fee to send money overseas. Usually it’s between $10 and $32.

Exchange rate margin fees

2. Exchange Rate Margin

There is no “standard” exchange rate. Each bank will offer you a different exchange rate based on the currency you want to send overseas and the amount you need to send.

Provider Exchange
Rate
Transfer
Fee
Transfer
Time
Total (AUD) Rates last updated October 22 2018
TransferwiseRead Review 0.7089 $64.98 1-2 Days $14,171.34Lowest Cost Option Go to site Read Review
So, sending USD 10,000 to United States at an exchange rate of 0.7089 will cost you $14,171.34 which includes a fee of $64.98

About TransferWise

Transparency and an easy online experience are the 2 things that set TransferWise apart from the banks and other money transfer companies. If you prefer to bank online, you'll like TransferWise. Setting up an account and making a transfer is very easy. They are also very clear on the exchange rate and fees you'll pay before you make a transfer. Click here for the full review

Pros

  • Clear and transparent exchange rates fees
  • The online experience is first class
  • Like the banks, they are regulated by ASIC and registered with AFSL
  • Constantly bringing out new innovative products

Cons

  • There are currently a number of global currencies they do not currently support
  • Limited support based in Australia
  • Percentage based fee can add up on very large transfers

TorFXRead Review 0.7054 $0.00 2-3 Days $14,177.25$5.91 more expensive Go to site Read Review
So, sending USD 10,000 to United States at an exchange rate of 0.7054 will cost you $14,177.25 with no fees.

About TorFX

TorFX are particularly good taking care of customers over the phone but using their website isn't the easiest to use. They don't charge a flat fee which is great but it's important to consider their exchange rates. While, they don't offer fantastic rates for small amounts under $2000 , TorFX offer exceptionally good exchange rates for larger transfers to the UK, New Zealand, South Africa and Europe.

Pros

  • No transfer fees
  • Highly competitive exchange rates
  • Secure transfers with authorised
  • Assigned account manager
  • 24 / 7 Assistance
  • Available range of transfer options

Cons

  • Limited exotic currencies available
  • Exchange rates on small transfers aren't great
  • Website experience could be better

XERead Review 0.7051 $0.00 2-3 Days $14,182.95$11.61 more expensive Go to site Read Review
So, sending USD 10,000 to United States at an exchange rate of 0.7051 will cost you $14,182.95 with no fees.

About XE

XE is a well known and trusted name in the money transfer industry. With over twenty years experience, they now help 33,000 people and 2,000 businesses make transfers each year. Over 60 currencies can be transferred with XE and they pride themselves on the free tools and transparent rates they offer. Click here to read the full review

Pros

  • Well known and trusted brand.
  • Very informative website. Extensive information on currency and money transfers.
  • XE App is available on both iOS and Android. It allows you to see the interbank rate for over 100 currencies.
  • XE themselves charge no fees for international money transfers.
  • Offers support for both individuals and businesses when it comes to international money transfers.

Cons

  • Cannot pay via cash or cheque. Must pay via bank transfer, BPay is also accepted in Australia.
  • Maximum transfer amount is $500,000USD.
  • While XE compares more than 100 currencies, there are only 60 that are available for money transfers.

WorldFirstRead Review 0.7046 $0.00 2-3 Days $14,191.51$20.17 more expensive Go to site Read Review
So, sending USD 10,000 to United States at an exchange rate of 0.7046 will cost you $14,191.51 with no fees.

About World First

World First was founded in 2004 in the UK and has grown rapidly with offices now in the U.S., Canada and throughout Asia. They consistently receive strong customer reviews and in a recent study, 98% of their clients said they would use them again.World First have a strong online offering, particular for businesses selling online. They do provide local support as well with offices in Sydney. Click here to read the full review

Pros

  • Low fees and great exchange rates
  • Safe and secure transfers
  • Regulated by ASIC and registered with AFSL
  • Great for personal and business payments

Cons

  • Does not accept BPAY, credit card, cheque or cash
  • Limited currencies available

HIFXRead Review 0.7046 $0.00 2-3 Days $14,191.51$20.17 more expensive Go to site Read Review
So, sending USD 10,000 to United States at an exchange rate of 0.7046 will cost you $14,191.51 with no fees.

About HiFX

HiFX are one of the biggest money transfer companies in the world. Their parent company Euronet is listed on the NASDAQ and recently acquired Xe.com. They are particularly useful for individuals doing regular transfers overseas. HiFX provide competitive exchange rates no matter how much is being transacted. Their $50 minimum transaction size and flat fee makes them a great option for any international payment. Locally, HiFX have Australian offices in Sydney, Melbourne and are expanding to the remaining capital cities. Click here to read the full review

Pros

  • Fantastic bank - beating exchange rates
  • Low fees for transactions less than $10, 000
  • No fees for transactions of $10, 000 or more
  • High security transfers regulated by ASIC and FMA
  • Fast and easy for personal or business accounts

Cons

  • Only electronic bank transfers accepted
  • Limited exotic currencies
WorldRemitRead Review 0.7028 $3.99 1-2 Days $14,233.60$62.26 more expensive Go to site Read Review
So, sending USD 10,000 to United States at an exchange rate of 0.7028 will cost you $14,233.60 which includes a fee of $3.99

About WorldRemit

WorldRemit are particularly good for transfers under $10,000 to destinations across Asia, Africa and South America. Sending money online is significantly easier than using companies like Western Union or Moneygram and their exchange rates and fees are clear and transparent. With 2 million users, WorldRemit has a focus on improving access to remittances for the billions people worldwide who don’t have access to banking. Because of this, WorldRemit has a number of ways to both make and receive transfers. They concentrate on servicing individual needs as opposed to businesses. Click here for the full review

Pros

  • They have a great network in Asia and Africa and number of receiving options like cash-pick up or bank transfer.
  • They are clear about their exchange rates and fees
  • No minimum amount

Cons

  • Maximum transfer sizes for every transfer
  • No support for business customers
  • They are not licensed to provide financial advice.
OFXRead Review 0.6994 $0.00 1-3 Days $14,297.97$126.63 more expensive Go to site Read Review
So, sending USD 10,000 to United States at an exchange rate of 0.6994 will cost you $14,297.97 with no fees.

About OFX

OFX (formally known as Ozforex) is the largest Australian owned money transfer company. It launched in 1998 and grew rapidly until finally listing on the Australian Stock Exchange in 2013. OFX excels in 2 areas – Online experience and customer service. The company was born online and continues to develop easy, intuitive products. While OFX customers do most of their transactions online, they are backed up with exceptional customer service.

Pros

  • Better exchange rates compared to banks
  • Highly safe and secure transfers
  • 1 - 2 days delivery times for most countries
  • Quick response time
  • Fantastic customer service

Cons

  • Credit cards, cheques and cash are not accepted
  • Transfers to Thailand can take up to 4 days
  • Fees for transfers smaller transfers

ANZRead Review 0.6854 $0.00 1-2 Days $14,590.02$418.68 more expensive Go to site Read Review
So, sending USD 10,000 to United States at an exchange rate of 0.6854 will cost you $14,590.02 with no fees.
ANZ International Money Transfer is a secure and fast way to transfer money overseas.

Pros:

  • Fast transfers
  • Safe and secure
  • No fee for transfers under $10 000 via Internet banking

Cons

  • $12 fee for transfers under $10 000 via Internet banking
  • Poor exchange rates
  • 24 hour hotline not available

Commonwealth BankRead Review 0.6716 $12.00 1-2 Days $14,901.82$730.48 more expensive Go to site Read Review
So, sending USD 10,000 to United States at an exchange rate of 0.6716 will cost you $14,901.82 which includes a fee of $12.00
Commonwealth Bank provides secure and easy transfers to over 200 countries and more than 30 currencies.

Pros:

  • Fast transfers+ Easy transfers
  • Security guarantee covers any losses from unauthorised transactions

Cons

  • $6 fee for transfers under $1000 via Internet banking
  • $12 fee for transfers under $1000 via Internet banking
  • Poor exchange rates


 

Disclaimer

General advice: The information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements before making any legal, accounting or financial decisions.

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