Jul 2017

Australians taking tax shortcuts overseas

Australians taking tax shortcuts overseas. Short term gain, long term pain.

By: Odyssey Legislation
Tags: law, overseas tax, Vietnam

After almost three decades overseas, we’ve seen some interesting behavior from Australians taking shortcuts overseas.

Below are several of the examples, and some of the more interesting cases we’ve seen.

Starting off with the interesting story of an Australian who killed a taxi driver over a $10 dispute on a taxi fare.

However, let’s look at some of the issues relating to businesses. We had a client a few years ago that was stopped at the border for failing to correctly pay the appropriate corporate income taxes. He called in a mild panic as he hadn’t expected the Vietnamese authorities had the power to halt his exit.

I recently read about a lass from our neck of the woods. She was working as an English teacher, and mentioned “I guess my employer pays my taxes correctly for me”, and had a gig in her spare time as a freelancer. She was using one of the popular freelance sites to land gigs. She was quite open about how much she earnt on the freelance gig, and seemingly oblivious that the Vietnamese government was expecting her to pay personal income tax on her earnings.

A couple of months ago I was approached by an Australian accountant who had a client over here. The client was in the tech industry and had hired 20 programmers. The accountant was a little confused about the tax laws over here. The tech-client was transferring money for the operations through “Western Union”, which was being received by the Vietnamese director, and no receipts for any of the money were given. After discussing further with her, the employees were all being paid as contractors, which allowed the tech company to escape their personal income tax and other tax obligations (health insurance, social insurance, labour fund etc). Not to mention no corporate income tax was being paid.

After explaining Vietnam’s laws are similar to Australian laws, it became obvious that the tech client was breaching several laws. Whilst I offered to assist with clarifying the tax laws, the tech client preferred to continue as they were.

Vietnam also has a “representative office” entity which allows foreigners to setup a small office to manage contracts / Quality issues between the foreign entity and Vietnamese entities. As a representative office effectively makes no revenue, it cannot pay corporate income tax. We have an Australian entity down the road from us that has finally (some 50 staff) accepted they should be setting up a company, after several years of staying below the radar – and not paying corporate taxes!

With the advent of Australian companies moving over to the Philippines, we’ve also started to see the “interposed entity” pop up again. In this case there are some spruikers out there indicating it’s ok for Australians to have a Hong Kong entity in between their Philippines entity and their Australian entity, and to “trap the profits” in Hong Kong at a lower tax rate. Certainly there is one Accounting firm that has about 200 entities registered at his office in Hong Kong. Let’s see how long that lasts until the Australian tax office sends out a “Please explain”.

As Australian accountants, we’re usually pretty annoyed when people don’t pay the right taxes in Australia. As we learnt from day one, it’s ok to manage your tax affairs legally, but it’s not ok to avoid paying taxes. It seems that many Australians headed overseas don’t feel the same way about correctly paying taxes in the jurisdictions in which they operate. These short term gains can only come back in the future with dire consequences. If your client is telling you that the tax jurisdictions are different overseas, then better that you spend the time to fully understand the taxes, so that you can be sure your client is doing the right thing overseas.