Royalty withholding tax exemption

Payments made to non-residents by Australian resident companies for the lease of eligible vessels on a bareboat basis (vessel leased without a crew) are exempt from royalty withholding tax. This aims to reduce the costs for Australian shipping companies when leasing foreign vessels on a bareboat basis, which is expected to increase the ability of Australian operators to crew those vessels with Australian workers.

The exemption from royalty withholding tax will only apply if the following criteria are fulfilled:

  • the lessee must be an Australian resident company
  • the vessel must not be an excluded vessel listed in subsection 10(4) of the Shipping Reform (Tax Incentives) Act 2012
  • under the lease, the lessee has whole possession and control of the vessel, including the right to appoint the master and crew of the ship (i.e. the vessel must be leased on a bareboat basis)
  • the vessel must be used, or available for use, wholly or mainly for business or commercial activities that involve shipping cargo or passengers for consideration.

Lease payments that fulfil these criteria will not be subject to withholding tax. Consequentially, there will also be no obligation on the Australian payer of the royalty to withhold any royalty withholding tax on these payments.

A company will not need to apply for a notice or certificate under the Shipping Reform (Tax Incentives) Act 2012 to be eligible for this tax incentive.

For more information on the specific requirements of this tax incentive and how it applies to your circumstances, please contact the ATO.