Withholding Tax for Non-Residents in Australia: Dividends, Interest, Royalties and Contractors (2026)

Australia takes its tax on three kinds of payment to non-residents at the source: the Australian payer withholds it and the net amount leaves the country. The rates are 30% on unfranked dividends, 10% on interest and 30% on royalties, and the withholding is final. Fully franked dividends carry no withholding at all. The US and UK treaties cap dividends at 15%, or 5% for a company holding 10% or more of the votes, leave intra-group interest at 10%, and cut royalties to 5%. Contractors are a different regime again: foreign resident PAYG withholding on three activities, creditable against a return rather than final.

The money is in the gap between the domestic rate and the treaty rate, and the gap closes only if the payer applies the treaty when it pays. On A$100,000 of unfranked dividend to a US or UK parent that is A$30,000 withheld or A$5,000, and nothing between those two numbers is refunded by itself. Below: what the tax is and which payments it covers, the rates and what the treaties do to them, dividends, interest and royalties stream by stream, and the contractor rules that use the same word for a different thing.

(General information for FY 2026–27, not tax advice for your circumstances. The ATO’s withholding pages for investment income and royalties paid to foreign residents, its foreign resident PAYG withholding pages and its capital gains withholding overview were read on 12 October 2026. US and UK treaty rates are from the treaty texts as verified for our earlier treaty articles. Whether a treaty rate applies depends on your facts; confirm before relying on it.)

1. What is non-resident withholding tax in Australia, and which payments does the ATO apply it to?

It is the tax Australia collects from a foreign resident by making the Australian payer withhold it. The ATO’s words: Australian payers “who pay interest, dividends, royalties or managed investment trust (MIT) payments to foreign residents, must generally withhold the final tax amount from the payment”. Three streams matter to an overseas business: dividends, interest and royalties. The withholding is final, which means that income never goes into an Australian return.

The trigger is the payee’s address, not its paperwork. A payer withholds from interest and royalties when it is “an Australian resident payer and pay[s] a foreign resident payee with an overseas address”, and from unfranked dividends when “the payment is made to an entity which has an address outside Australia”. A foreign resident payer with a permanent establishment in Australia has the same duty for payments relating to that Australian business.

The word “withholding” is used for three other things, and mixing them up is where the money goes wrong:

Regime	What it hits	Rate	Final or creditable?
Non-resident withholding tax (this article, sections 2–4)	Dividends, interest, royalties paid overseas	30% / 10% / 30%, less under a treaty	Final
Foreign resident PAYG withholding (section 5)	Payments to non-resident contractors for entertainment and sport, construction, gaming junkets	5% construction, 3% junkets, company or individual rates for entertainment	Creditable, varied on application
No-ABN withholding	Any trade invoice over A$75 ex-GST where no ABN is quoted	47%	Creditable; treaties don’t touch it
Foreign resident capital gains withholding	The price of Australian real property sold by a foreign resident	15% of the value, contracts from 1 January 2025, no threshold	A prepayment, settled in a return

The 47% rule has its own article on no-ABN withholding, and the 15% property rule is covered in our non-resident tax rates article. Neither is a tax on dividends, interest or royalties, and neither is reduced by a treaty.

2. What are the non-resident withholding tax rates, and what do the US and UK treaties cut them to?

The ATO’s rate page is one sentence: “The withholding rate is: 10% for interest payments; 30% for unfranked dividend and royalty payments.” Then the condition that moves money: “These rates apply to all payees unless: the payment is made to a resident of a country which has a tax treaty with Australia; a lower rate is specified in the relevant treaty. If this is the case, the lower treaty rate will apply.” Australia has treaties with more than 40 countries; the two our readers ask about most are these.

Payment	No treaty	US treaty	UK treaty
Fully franked dividend	0	0	0
Unfranked dividend, portfolio holding	30%	15%	15%
Unfranked dividend, company holding 10%+ of voting power	30%	5%	5%
Unfranked dividend, 80%+ holding meeting listing / limitation-on-benefits conditions	30%	nil	nil (12 months, listed)
Interest	10%	10%; nil for government bodies and financial institutions	10%; nil for unrelated financial institutions dealing independently
Royalties	30%	5%	5%
Equipment hire	30% (a royalty)	Business profits: no withholding without a PE	Business profits: no withholding without a PE

The treaty rate is not something you claim afterwards. The payer applies it at source, and the ATO publishes no treaty-rate form. In practice the payer satisfies itself that the payee is a resident of the treaty country and the beneficial owner of the payment, usually from a certificate of residence issued by the home tax authority and the shareholding or licence documents, and withholds at the treaty rate. If the payer doesn’t have that, it withholds at 30%.

What then happens is set out on the ATO’s obligations page. The payer pays the withheld amount to the ATO, issues the payee a payment summary and lodges the annual report for withholding from interest, dividend and royalty payments paid to non-residents. On the payee’s side: “Foreign residents do not have to pay us any more tax if their only Australian income is from interest, dividends and royalties which have had the correct amount of withholding tax withheld.” If too much was withheld, “the payee can apply for a refund”; if too little, “the payee must make a top-up payment”. After the annual report, the payer can request a certificate of payment for the payee’s home tax authority, which is how the withheld tax becomes a credit at home. Our US treaty article and UK treaty article go through the articles themselves.

3. Dividend withholding: why franked dividends carry 0% and unfranked 30%, and the 15% / 5% / nil treaty rates

A fully franked dividend is paid out of profits that have already borne Australian company tax, and the ATO’s rule is that “you do not have to withhold tax if the dividends you pay have been fully franked or they are conduit foreign income”. The 30% applies only to the unfranked part of a dividend paid to an overseas address, and that is the part the treaty reduces.

Three things follow for an overseas owner of an Australian company:

Franking is a withholding decision. If the subsidiary has paid Australian company tax, at 30% or 25% for a base rate entity, it can frank the dividend and nothing is withheld, treaty or not. The distribution statement must show “the extent the dividend is franked or is conduit foreign income”. A partly franked dividend is withheld on the unfranked portion. The company tax has still been paid, so a franked dividend is not tax-free; it is taxed once rather than twice.
The treaty rate turns on the holding. Both treaties give 15% on a portfolio holding and 5% where the beneficial owner is a company that holds directly at least 10% of the voting power in the paying company. The UK text: “5 per cent of the gross amount of the dividends, if the beneficial owner of the dividends is a company which holds directly at least 10 per cent of the voting power”. The nil rate at an 80% holding comes with conditions a private parent will not meet: under the UK treaty the shares must have been held “for a 12 month period ending on the date the dividend is declared” and the company must be listed, or owned by listed companies, or cleared by the competent authority; the US treaty routes it through the limitation-on-benefits article’s public listing tests.
A payee with an Australian permanent establishment is assessed instead. The payer does not withhold from dividends or royalties paid to “a foreign resident of a treaty country” that “carries on a business in Australia through a permanent establishment” where the payment is effectively connected with that business. The income then goes into the payee’s Australian return.

Hana owns a US company that set up an Australian Pty Ltd to hold stock and sell. In its first profitable year the subsidiary pays an unfranked dividend of A$100,000, because it has not yet paid enough Australian company tax to frank it. If the payer treats the parent as a non-treaty payee: 30%, A$30,000 withheld. If it applies the US treaty, with the parent as beneficial owner holding 100% of the votes: 5%, A$5,000. The nil rate is not available; the parent is private. Same dividend, A$25,000 apart, decided by what the subsidiary’s accountant had on file the day the dividend was paid.

4. Interest and royalty withholding: 10% and 30%, and where the treaty takes them

Interest is withheld at 10% and the treaties leave it there for the payment overseas businesses actually make, a loan from the parent to the subsidiary. Royalties are withheld at 30% and both treaties cut that to 5%. On the same A$80,000 licence fee that is A$24,000 against A$4,000.

Interest. The ATO’s definition is wider than a bank loan: it includes discounts on securities, lump sums paid instead of periodic interest and “charges you pay under hire purchase and similar financial arrangements”. Domestic rate 10%. The US and UK treaties also cap interest at 10%; their nil rates are for government bodies and for financial institutions. The UK version is precise: nil for “a financial institution which is unrelated to and dealing wholly independently with the payer”, clawed back to 10% for back-to-back arrangements. So a parent lending to its own subsidiary pays 10% with or without a treaty, while the same subsidiary borrowing from an unrelated UK bank may pay nothing. A shareholder loan also raises thin capitalisation and transfer pricing questions, outside this article.

Royalties. The ATO’s list covers payments for “the use of, or the right to use” any copyright, patent, design, secret process or trademark; “industrial, commercial or scientific equipment”; films and broadcasts; know-how, “the supply of scientific, technical, industrial or commercial knowledge or information”; and services “part and parcel of enabling” those rights to be used. Domestic rate 30%. Both treaties: 5%. One difference matters for sellers who hire out equipment: domestically that is a royalty at 30%, but under both the US and UK treaties equipment payments are business profits, taxable in Australia only through a permanent establishment, so a treaty-resident lessor with no PE has nothing withheld at all.

Hana’s subsidiary also pays its parent A$30,000 of interest on a A$500,000 loan at 6%, and A$80,000 of royalties for the brand and product designs. Interest: A$3,000 withheld, treaty or not. Royalties: A$24,000 withheld at 30%, A$4,000 at the treaty’s 5%. Across the three streams:

Stream	Amount	No treaty applied	US or UK treaty applied
Unfranked dividend	A$100,000	30% = A$30,000	5% = A$5,000
Interest	A$30,000	10% = A$3,000	10% = A$3,000
Royalties	A$80,000	30% = A$24,000	5% = A$4,000
Withheld	A$210,000	A$57,000	A$12,000

A$45,000 a year, and the only variable is whether the payer applied the treaty.

5. Withholding on non-resident contractors: the three activities, the 47% no-ABN rule and voluntary agreements

Contractors are not in the dividend-interest-royalty regime. The ATO’s foreign resident PAYG withholding applies to payments to a non-resident for three activities only: “entertainment or sports activities; construction and related activities; casino gaming junket activities.” The rates are 5% for construction and related activities and 3% for gaming junkets; for entertainment and sport, the company tax rate for a foreign resident company that supplies an ABN, or the foreign resident individual rates for an individual, which start at 30% from the first dollar. It is not a final tax.

The construction category is wider than building. The ATO lists head contractors and subcontractors, and related activities including “design and engineering”, “fabrication”, “installation”, “repair and maintenance” and “supply of plant and equipment”. Payments include non-cash benefits such as flights and accommodation. Employees are outside it: “Foreign resident withholding doesn’t apply to you if you’re engaged as an employee.”

Four rules decide what is actually withheld:

It is creditable, and it can be varied to nil. The withheld amount is credited when the contractor lodges an Australian return. Before that, the contractor can lodge a PAYG foreign resident withholding variation (form NAT 11097): “You may apply to vary the rate to zero, if the applicable amount is not taxed in Australia” through a treaty or exemption, “and/or tax-deductible expenses are equal to or greater than the payments”. The payer may not change the rate until it receives the ATO’s notice. A US entertainer or sportsperson earning under US$10,000 in Australia in the year is not withheld from at all.
No ABN, and the 47% rule wins. “The withholding requirements where an ABN is not quoted takes precedence over the foreign resident withholding requirements.” A contractor in one of the three activities who does not quote an ABN is withheld from at the top rate, not at 5% or 3%. The ABN isn’t required where the income is exempt or “not taxed due to a tax treaty”, but “it is your payer’s responsibility to be satisfied that you don’t need to provide your ABN”, so that position needs to be documented with the payer before the first invoice.
Outside the three activities, there is usually nothing to withhold. A non-resident designer, developer, consultant or manufacturer paid from Australia for work done overseas is not in a foreign resident withholding category: the ATO says withholding “is unlikely to be required for payments that aren’t related to entertainment, sports, construction or gaming junket activities”. The only exposure is the no-ABN rule, which does not apply where the supplier is not carrying on an enterprise in Australia and says so. Our no-ABN withholding article covers the statement that evidences it.
Voluntary agreements are for individuals with an ABN. A PAYG voluntary agreement lets a payer withhold at the contractor’s instalment rate or a flat 20%, but the ATO says it “is only valid if the payee: has an ABN; is an individual person”, and it cannot cover a payment already in another withholding category. It is rarely the route for an overseas company.

Hana also sends a US engineer, trading through his own company with an Australian ABN, to install racking in the subsidiary’s leased Sydney warehouse for A$40,000. That is construction and related activities: the subsidiary withholds 5%, A$2,000, and he claims it in an Australian return, or lodges an FRWV beforehand to take it to nil if the treaty’s business profits article shields him and he has no permanent establishment. Had he not quoted an ABN, the subsidiary would have withheld 47%, A$18,800, recoverable only by lodging.

Where it’s worth getting help

If you own an Australian company outright, or license a brand to an Australian distributor, the rate table is the free path: tell the payer which country you are resident in, give it a certificate of residence and the holding or licence documents, and it withholds at the treaty rate.

The judgment calls are these:

Which rate actually applies. Beneficial ownership, the 10% voting-power test, the listing and 12-month conditions on the nil rate, and the MLI’s principal-purposes test all sit between the table and your payment.
Franked or unfranked, loan or equity. The withholding on a dividend is decided by the subsidiary’s franking account before the dividend is declared, and interest is 10% whatever the treaty says; the structure of the payment is where the planning is, not the rate.
Contractor categorisation and the variation. Whether an installation contract is “construction and related activities”, whether the contractor needs an ABN, and lodging the FRWV before the first payment rather than after the first 47% deduction.
Recovering over-withheld tax. The refund is on application with evidence, not automatic, and it is far cheaper to get the rate right on the day than to chase A$25,000 back afterwards.

That’s the difference between doing it and doing it right the first time: the parent that was paid A$95,000 net on the day, versus the one that was paid A$70,000, found out why in the next audit, and spent a year on the refund.

If you’d like that looked at properly, our initial assessment form scopes it in about twelve questions, including the streams, the countries and the holdings, without needing a meeting. A contractor who needs an ABN before the first invoice can start with our ABN application.

FY 2026–27. General information, not tax advice for your circumstances. Domestic rates, the foreign resident PAYG withholding rates and the capital gains withholding rate are the ATO’s published settings at 12 October 2026; the US and UK treaty rates are from the treaty texts as verified for our treaty articles. Whether a treaty rate applies depends on residency, beneficial ownership and the holding, and the payer decides at the time of payment. Confirm the current figures before relying on them.