Unlocking foreign capital: Australian tax considerations for fund managers
Australia’s funds management sector continues to attract increasing interest from international investors. However, navigating the complex web of Australian tax rules is critical when it comes to unlocking foreign capital. Our experts explore the key tax considerations, structures and regimes enabling fund managers to attract and retain offshore investment while maintaining compliance.
Optimal investment structure
For Australian fund managers targeting foreign investors, the optimal investment structure often involves:
maximising managed investment trust (MIT)/attribution MIT (AMIT) benefits for equity participation;
taking advantage of existing tax concessions, where possible;
utilising fund or feeder structure that are familiar to offshore investors.
MIT and AMIT regimes
The MIT and regimes are central to attracting foreign capital into Australian funds. Most Australian funds are capable of meeting the conditions for eligibility.
Key benefits
- Reduced withholding tax rates
| Income type | MIT withholding rate |
|---|---|
| Fund payments (eligible income eg net rent, CGT on TAP shares [1]) | 15 per cent (for information exchange countries) |
| Interest | 10 per cent |
| Dividends (unfranked) | 30 percent (or treaty reduced) |
| Capital gains (non-TAP assets) | 0 per cent |
- Capital account treatment for gains on equities and property.
Structuring considerations
Trusts are well known in the Australian market but may be unfamiliar to offshore retail or institutional capital.
Should you consider a corporate collective investment vehicle (CCIV)?
The CCIV regime offers a corporate-style flow-through fund structure familiar to foreign investors.
Key benefits
- Company structure, but with flow-through outcomes for investors, like unit trusts.
- Sub-fund segregation.
Key issues
- Still relatively new in the Australian market and local investor familiarity is still developing.
- Operational and regulatory complexity.
Use of feeder vehicles
Common feeder structures:
- Singapore or Hong Kong vehicles for Asia-based investors;
- US or Cayman LLCs and LLPs, that are familiar to US-based and international private equity investors.
Why feeders are used:
- may simplify investor reporting;
- align with domestic tax classifications in investor jurisdictions;
- facilitate pooling of capital across different investor types.
Next steps
The HW Funds team can help you understand how these considerations apply to your fund structure, including MIT/AMIT eligibility, CCIVs and feeder funds.
For tailored guidance or to explore how we can help optimise your fund structure for foreign investors, please reach out to our specialist team.
[1] For example, shares in a company that has land interests that constitute at least 50% of the value of the company. Distributions of capital gains relating to non-taxable Australian property (non-TAP) assets attract a nil withholding
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