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If you are a foreign resident taking up employment in Australia it is strongly recommended that you seek expert advice on your Australian Taxation obligations. Expatriates working here will usually be liable for income tax on their Australian sourced income. This not only includes wages and salaries, but also interest and dividends that have their source within Australia.

Whether you are a resident for Australian income tax law will depend on your circumstances and this needs to be reviewed on a case by case basis.

If you are required to pay Australian income tax, it is important to note that the Australian tax year concludes on 30 June, and you will need to lodge an income tax return by 31 October. If you engage a tax agent or accountant they are eligible for lodgement extensions.

There are also a number of considerations that an expatriate needs to understand when negotiating their employment contract and also to legally minimising their tax. These include (but are not limited to):
Certain types of benefits can be "salary packaged" and result in significant tax savings. The two most common ones available to expatriates are the living away from home allowance (LAFHA) and motor vehicles. The LAFHA is designed specifically for expatriates to compensate for the additional costs of moving residency and provides for a tax break for food and rent. Motor vehicles can also be packaged and can often result in less tax being paid.Expenses incurred in deriving your income can also be claimed. For example depreciation on your notebook, stationery, internet and professional subscriptions can often be claimed and this will in turn reduce your taxable income. It is good practice to retain receipts for all items of expenditure that you would like to claim as a tax deduction. There are harsh penalties if you get it wrong.There are also a number of tax offsets or rebates that can be claimed to help reduce your tax. You will need to consult a tax expert to assist you with their eligibility.Australia also has a compulsory superannuation system, whereby your employer is required to contribute a percentage of your income into an Australian registered superannuation fund. There are some limited exemptions to this for expatriates, but if you find your employer making these contributions you can claim these back if you were to permanently leave Australia.

The key Australian tax rates for 2011/12 are outlined on Australian Tax Website http://www.ato.gov.au/.

Greg Newbury is the director and partner at Accru Felsers chartered accountants and business advisers in Sydney. Accru Felsers specialize in international tax for German subsidiaries in Australia and their staff who have relocated here. If you would like assistance with your tax affairs, please contact Accru Felsers on 02 8226 1655.

Accru can provide you with expert advice on business accounting, tax, audit, business management, outsourced accounting, international tax, financial planning and litigation support. Keeping this in mind, as a chartered accounting firm catering to every size and type of business, no job is too big or too small. Their business in Australia is based on "putting people first" and that is their affirmed point of difference.

NOTE: The key Australian tax rates for 2011/12 are outlined in this Tax Data Card produced by Accru Felsers Chartered Accountants on their website.

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Question:

I was working in Russia until June 2010 after which I came and started full-time employment in Cyprus. I have paid 13% Russian income tax on my remuneration in Russia.

Will I have to declare and pay any income tax in Cyprus on my Russian income and on what basis my Cyprus remuneration will be taxed?

Answer:

Thank you for your question.

Since you have accumulated over 183 days in Cyprus during 2010, you are de facto Cyprus tax resident and will be taxed on your worldwide income according to Cyprus Income Tax Law. Furthermore, you will have to file your Income Tax Return with the Cyprus Inland Revenue Department (IRD) by 30th April 2011. Applicable to your case are the Cyprus Income Tax Law 118(I)/2002 and the 1998 Treaty between Cyprus and Russia.

Now, let's move to the practical side of your situation by going through what you have to declare and what will be taxed.

Firstly, when filling in your Income Tax Return form IR.1, Part 4(A1) you will have to declare the name of your Russian employer, state that the income you received was from sources outside Cyprus (while working for a non-resident employer), the number of months in Russia, the gross income received and the tax withheld. Likewise, you will have to complete the same type of information for your Cyprus employment, this time indicating that income was derived from source in Cyprus and that you were non-Cyprus-tax-resident before. Finally, in completing Part 4(A2) you will have to indicate the date when you came in Cyprus, the date when you started your employment and the aggregate number of days you resided outside Cyprus before starting employment.

Secondly, there are two income elements in your case: income from employment in Russia, which was already taxed at 13% and income from employment in Cyprus. The first element of your income, the employment income in Russia, will be tax exempt as per Art.36(5) of the Cyprus Income Tax Law (i.e. the "90-days rule"). That is to say, it will not be taken into consideration when computing your tax liability and you will not pay Cyprus tax on the Russian employment income element. As regards the Cyprus employment income, it will be taxed at the progressive tax rates as per Art.25, Schedule 2 of the Income Tax Law.

We need to make a side note here, and say that if the income you received from Russia was not from employment but from other non-employment services, then you will be allowed to claim tax credit in Cyprus for the amount of tax paid in Russia, according to the 1998 Tax Treaty between Cyprus and Russia (Art.23(2)) and subject to the provisions of the Cyprus Income Tax Law.

Finally, those taking employment or office in Cyprus for a first time should remember that the Income Tax Law provides 20% exemption (with a maximum of ?8,550) on the remuneration received in Cyprus for a period of three years starting 1st January following the year when employment commenced.

Veronica Goncharenko
Quantia Advisors Ltd.
Chartered Certified Accountants
http://www.qnta.biz/

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