A limited company that is not incorporated in Australia is a tax resident of Australia under the central management and control test of residency if it:
- Carries on business in Australia; and
- Has its central management and control in Australia.
If a company has its central management and control in Australia, and it carries on business in Australia, it will carry on business in Australia within the meaning of the central management and control test of residency.
As per the ATO’s new Ruling: “It is not necessary for any part of the actual trading or investment operations from which its profits are made to take place in Australia.
This is because the central management and control of a business is factually part of carrying on that business.
It follows that a company carrying on business does so both where its trading and investment activities take place, and where the central management and control of those activities occurs.”
Becoming a tax resident of Australia can have significant consequences for a company, particularly if income or capital gains are to be derived from outside Australia.
Tax Treaty considerations are also likely to be a factor resulting if a company is a resident of Australia under the central management and control provisions, as many companies that become a tax resident of Australia as a result of these tests will then become dual residents: the company is also likely to be a tax resident of the country in which it was incorporated.
All in all, this is not a subject for the faint hearted!
Contact GM Expat Tax if you have concerns in this area.