One common misconception that is often raised by Australian expats in Singapore is the concern that if they invest in Australian shares or listed investments, that they will need to pay tax in Australia on any capital gains and dividends. If you are a tax resident of Singapore, then this is not the case, and you can read more about your tax residency in my recent article here. If you’re an Australian expat living and working in Singapore, then the key tax that you need to be aware of if you’re looking to invest in Australian shares and listed investments is Withholding Tax.
Let’s start with the basics, what exactly is Withholding Tax?
Australian residents are required to withhold tax for any payments that are made to non-residents of Australia that fall under the following three broad categories:
- Unfranked Dividends
What are the rates of withholding tax that apply?
The withholding tax rates are 10% for any interest payments that are made to non-residents, and 30% for any unfranked dividends. These withholding tax rates apply unless there is a Double Tax Agreement with the country that you’re a resident of. In some instances, the rates can be lower or not apply at all, depending on the agreement.
What rates apply to Aussie Expats in Singapore?
As an Australian expat living in Singapore, the withholding tax rates that apply are 10% for interest payments and 15% for unfranked dividends. It’s important to note that no withholding tax applies to fully franked dividends. A fully franked dividend is a distribution of income to the shareholder after the company has already paid their corporate tax on this income. Not that these rates apply as long as you are not a tax-resident of Australia.
How does this impact my investment strategy?
Many Australian expats in Singapore and across the globe prefer to accumulate their wealth in Australian Dollars (AUD), particularly where they plan to repatriate to work and/or retire in Australia as it removes a lot of the currency risk. Currency risk is often overlooked by many and can often leave to negative surprises, particularly if the exchange rates move against you quickly. You can read more about currency risk and your investment strategy in my recent post here. Given that many aim to accumulate their wealth in AUD, it’s important to consider whether the companies within your portfolio pay fully franked, partially franked or unfranked dividends and the overall impact on your net returns of this.
You may decide to sell any holdings that pay unfranked dividends prior to the record date, and reinvest after the record date, as the share price will typically fall by the dividend amount. When factoring in the tax implications, this could prove to be a sensible strategy and improve your overall returns. You may also decide to simply avoid unfranked dividends in your portfolio altogether. There is no ‘one-size-fits-all’ approach to portfolio management, so it’s important to consider your own situation and how withholding tax impacts you.
Can’t I just avoid investing in the Australian market?
The short answer here is yes, of course you can. However, it’s important to consider the potential impacts of currency risk on your portfolio. If recent political events such as Brexit and Trump’s leadership have taught us anything, it’s that currencies can experience large and unexpected swings in both directions. Ensure that your retirement plans aren’t put on hold because you didn’t consider the potential impact of currency moves on your investment strategy.
To your financial success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian expats in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is licensed by Global Financial Consultants in Singapore, with a team of Australian-trained, experienced and qualified, allowing us to provide specialist advice to Australians living abroad.
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.