Statutory rate without a valid treaty claim: 30%.
What sets the U.S.-Australia treaty apart
The U.S.-Australia treaty, as amended by a 2001 protocol, keeps withholding on interest (10%) and royalties (5%) where most modern U.S. treaties have eliminated it, but exempts interest paid to unrelated financial institutions and governments. Its 0% dividend rate is narrower than in other treaties: only listed companies, their subsidiaries and those granted relief by the competent authority can use it. It also has an unusual set of permanent establishment triggers, a headquarters company test, and it lets the U.S. keep taxing other income and capital gains arising here.
Common payments at a glance
| Payment | What the U.S. payer does | Article |
|---|---|---|
| Interest to an unrelated Australian bank or other financial institution | No withholding | 11(3)(b) |
| Interest to an Australian parent or other lender | 10%. Interest based on the issuer's profits: up to 15% | 11(2), 11(9)(a) |
| Software, patent, trademark, know-how or film royalty | 5% | 12(2) |
| Rent for industrial, commercial or scientific equipment | Business profits since 2003: no withholding without a U.S. permanent establishment | 7, 12(4) |
| Dividend to an Australian company holding directly 10% or more of the voting power | 5%; 0% if 80% held for 12 months and the parent is listed (or a listed company's subsidiary) or has a competent-authority grant | 10(2)(a), 10(3) |
| Dividend to anyone else | 15% | 10(2)(b) |
| Australian contractor working in the U.S. | Exempt if not more than 183 days in the tax year and no fixed base | 14 |
| Employee seconded to the U.S. | Exempt only if 183 days or fewer in the tax year, paid by a non-U.S. employer and not deductible by a U.S. PE or trade or business | 15(2) |
| Performer or athlete | Taxable if gross receipts for the year, including reimbursed expenses, exceed $10,000 | 17(1) |
| U.S. Social Security benefits | Taxable in the U.S.: withheld on | 18(2) |
| Prizes, gambling winnings and other income arising in the U.S. | Taxable: the U.S. keeps the right to tax | 21(3) |
Assumes the payee is the beneficial owner, is resident under the treaty, meets its limitation-on-benefits article and gives a valid W-8BEN, W-8BEN-E or Form 8233. Article references are to the treaty as amended.
Rates on investment and other income
Treaty in effect generally from Dec. 1, 1983. Protocols in effect from: Jan. 1, 2004. IRS country code AS.
| Income | 1042-S code | Treaty rate | Article |
|---|---|---|---|
| Interest paid by U.S. obligors, general | 01 | 10%gjjnn | 11(2) / P7 |
| Dividends paid by U.S. corporations, general | 06 | 15%mm | 10(2) / P6 |
| Dividends qualifying for the direct dividend rate | 07 | 5%mmoo | 10(2) / P6 |
| Royalties: industrial, commercial or scientific equipment | 10 | n/au | 12(2) / P8 |
| Royalties: know-how and other industrial royalties | 10 | 5% | 12(2) / P8 |
| Royalties: patents | 10 | 5% | 12(2) / P8 |
| Royalties: motion picture and television copyrights | 11 | 5% | 12(2) / P8 |
| Royalties: copyrights (including software, unless the treaty says otherwise) | 12 | 5% | 12(2) / P8 |
| Pensions and annuities | 15 | 0% (exempt) | 18(1) |
| U.S. Social Security benefits (applies to 85% of the payment) | 15 | 30% | 18(2) |
"n/a" means the payment type is not covered by the royalty article: equipment leasing is business profits (no withholding without a permanent establishment) or other income. Superscript letters are the IRS's own conditions, listed at the end of this page.
Pay for personal services performed in the United States
Each row is an exemption the treaty gives, with the limits the IRS lists. All conditions in a row must be met; if any is not, the pay is withheld on at 30% (contractors) or under the wage rules (employees). Services performed entirely outside the United States are foreign-source and need no treaty claim.
| Code | Purpose | Maximum presence in U.S. | Required employer or payer | Maximum amount | Article |
|---|---|---|---|---|---|
| 17 | Independent personal services7 | 183 days | Any contractor | No limit | 14 |
| 18 | Dependent personal services174757 | 183 days | Any foreign resident | No limit | 15 |
| 42 | Public entertainment25 | No limit | Any U.S. or foreign resident | $10,000 p.a. | 17 |
| 20 | Remittances or allowances11 | No limit | Any foreign resident | No limit | 20 |
Reading the U.S.-Australia treaty as a payer
Documents and dates
The convention was signed in Sydney on August 6, 1982 and entered into force on October 31, 1983; its withholding provisions apply from December 1, 1983. A protocol signed in Canberra on September 27, 2001 replaced the dividend, interest, limitation-on-benefits and other income articles, cut the royalty rate from 10% to 5%, and took equipment rentals out of the royalty article. The IRS tables list the protocol as effective January 1, 2004; its withholding changes applied to income derived from July 1, 2003 at the earliest. REIT dividends paid to a listed Australian property trust on REIT shares it held on March 26, 2001 are grandfathered at 15%.
Residence and transparent entities
An Australian partnership, trust or estate is a resident only to the extent its income is taxed in Australia as a resident's income, at entity level or in the hands of its partners or beneficiaries (Art. 4(1)(a)). The 1983 technical explanation's example: a U.S. dividend paid to a partnership owned half by an Australian and half by an Indonesian partner gets the treaty rate on only half. A company resident in both countries is resident in neither and gets no benefits, because there is no corporate tie-breaker. For the 5% dividend test, a company counts its share of stock held through a partnership or trust.
Limitation on benefits
Article 16, rewritten in 2001, qualifies individuals, governments, companies whose principal class of shares is listed on a U.S. or Australian exchange and regularly traded, subsidiaries at least 50% owned by five or fewer listed companies, charities, pension funds with more than half their members resident in either country, and entities passing an ownership and base erosion test. Income connected with an active business in Australia qualifies item by item.
Two features are less common. A headquarters company qualifies if it supervises and administers a group active in at least five countries, each producing at least 10% of group income, with no other single country producing half or more and no more than 25% of its own income from the U.S. And there is no derivative benefits test, which matters for the 0% dividend rate below.
Dividends
The 5% rate needs a company holding directly at least 10% of the voting power, with no holding period. The 0% rate needs a company that has owned 80% or more of the voting power for the 12 months ending on the date the dividend is declared and that is either a listed company or a subsidiary of listed companies under Article 16(2)(c), or has a competent-authority grant (Art. 10(3)). Unlike the U.K., German or Japanese treaties, passing the active business, ownership or headquarters tests does not open the 0% rate.
RIC dividends get 15%. REIT dividends get 15% only for an individual holding no more than 10%, a holder of 5% or less of a listed class, or a holder of 10% or less of a diversified REIT. A listed Australian property trust gets 15% on REIT dividends, but unitholders owning 5% or more are looked through and tested individually (Art. 10(4)). The treaty has no special dividend rate for pension funds. The U.S. branch profits tax is capped at 5%, and is 0% for listed companies.
Interest
Interest is capped at 10% (Art. 11(2)) and is exempt in two cases (Art. 11(3)):
- it is beneficially owned by a government, political subdivision, governmental body or central bank; or
- it is beneficially owned by a financial institution that is unrelated to the payer and deals with it wholly independently. A financial institution is a bank or other enterprise that makes its profits substantially by raising debt finance in financial markets or taking deposits, and lending it. The technical explanation includes investment banks, brokers and commercial finance companies that borrow from the public, but not captive finance companies.
Back-to-back loans that put a financial institution in the middle lose the exemption and stay at 10% (Art. 11(4)). Interest determined by reference to the issuer's profits may be taxed at up to 15%, and REMIC excess inclusions in full (Art. 11(9)). Interest that is portfolio interest or bank deposit interest under the Code remains exempt without the treaty.
Royalties
Royalties are capped at 5% (Art. 12(2)). The definition is broad: copyrights, patents, designs, plans, secret formulas, trademarks and similar property; motion pictures; film, tape, disk or other means of image or sound reproduction or transmission for broadcasting, which the 2001 technical explanation says includes a live feed over air, cable, satellite or the internet; the supply of scientific, technical, industrial or commercial knowledge; assistance ancillary to that supply; and payments for agreeing not to use or supply any of these. The 1983 technical explanation distinguishes supplying an existing design (a royalty) from preparing a custom design (personal services).
Since 2003, rent for industrial, commercial or scientific equipment is no longer a royalty. It is business profits, exempt without a U.S. permanent establishment.
Permanent establishment and services
A construction, assembly or installation project is a permanent establishment after more than 9 months; drilling rigs and ships for natural resources after 6 months in any 24. Article 5(4) adds deemed permanent establishments that most treaties lack: substantial equipment kept in the country for rental or other purposes for more than 12 months, supervisory activities for more than 9 months in any 24 in connection with a construction project, and goods bought or produced in the country and then substantially processed there by a related enterprise.
Individuals' independent services are taxable in the U.S. only if the person is present more than 183 days in the tax year or has a fixed base here (Art. 14). Employees are exempt only if present 183 days or fewer in the tax year, paid by a non-U.S. employer, and the pay is not deductible by a U.S. permanent establishment, fixed base or trade or business of the employer (Art. 15(2)). Directors are covered by the same employment article, so the 183-day test applies to them too. Performers and athletes are taxable once gross receipts for the year, including reimbursed expenses, exceed $10,000, and then on the whole amount (Art. 17). Under Article 27(2), these exemptions do not apply to income the person's home country does not tax.
Pensions, Social Security and alimony
Private pensions and annuities are taxable only in the country of residence (Art. 18(1), (3)). The pension definition covers periodic payments only. Social Security and other public pensions are taxable only in the paying country, so U.S. Social Security paid to an Australian resident is withheld on (Art. 18(2)). Alimony and child support are taxable only in the country where they arise (Art. 18(6)), so U.S.-arising alimony paid to an Australian resident is U.S.-taxable.
Students, other income and gains
Students in full-time education are exempt only on payments from outside the U.S. for maintenance or education (Art. 20). There is no article for teachers, researchers or trainees. Other income is taxable in the country of residence, but Article 21(3), adopted from the U.N. model in 2001, lets the source country tax it as well; the technical explanation lists gambling income. Article 13(7) leaves capital gains other than those the article specifically covers to each country's domestic law.
Where payers get it wrong
- Granting 0% on a parent dividend because ownership is 80%. The parent must also be listed, a listed company's subsidiary, or hold a competent-authority grant. Active business or headquarters status is not enough.
- Withholding 10% on every interest payment. Interest to an unrelated bank or other financial institution, or to a government or central bank, is exempt, unless it is part of a back-to-back arrangement.
- Using pre-2003 royalty rules. Royalties are 5%, not 10%, and equipment rent is no longer a royalty at all.
- Treating U.S. Social Security or U.S. alimony paid to an Australian as treaty-exempt. The treaty gives both to the U.S.
- Assuming gambling winnings or other income are exempt. Article 21(3) keeps the U.S. right to tax income arising here.
Read from the treaty documents: Convention of Aug. 6, 1982; Protocol of Sept. 27, 2001; Treasury Technical Explanations of the Convention (1983) and the Protocol. Texts and technical explanations: United States income tax treaties, A to Z.
How the payee claims these rates
- Individuals claim a reduced rate on interest, dividends, royalties or pensions in Part II of Form W-8BEN: treaty country, article, rate and any conditions. Most claims need a U.S. TIN or a foreign TIN on the form.
- Entities claim in Part III of Form W-8BEN-E, which also asks which limitation-on-benefits test the entity meets (the Australia treaty's LOB provision is Article 16).
- Pay for services performed in the United States by an individual is exempted on Form 8233, not the W-8BEN, one form per tax year and per payer.
- The payer reports the payment on Form 1042-S with the income code shown above and chapter 3 exemption code 04 (exempt or reduced withholding under a tax treaty). From 2026 an exemption code is required whenever less than 30% is withheld.
The rate in a table is the most the United States may withhold under the treaty, not an entitlement. The payee has to be a resident of Australia under the treaty, the beneficial owner of the income, and (for entities) meet the limitation-on-benefits article, and the payer has to hold a valid certificate before the payment. The IRS tables are a summary: check the article itself when the amount is material.
Questions payers ask
What is the U.S. withholding rate on dividends paid to a resident of Australia?
15% on dividends generally and 5% on dividends qualifying for the direct dividend rate, under Article 10(2) / P6, if the shareholder documents the claim on a W-8BEN or W-8BEN-E. Without a valid claim the rate is 30%.
What is the U.S. withholding rate on royalties paid to a resident of Australia?
5% on copyright and software royalties (income code 12), 5% on patent royalties and 5% on film and television royalties, under Article 12(2) / P8.
What is the U.S. withholding rate on interest paid to a resident of Australia?
10% under Article 11(2) / P7, before considering the Code's own exemptions for portfolio interest and bank deposit interest.
Is a contractor from Australia working in the United States exempt from U.S. withholding?
Under Article 14, pay for independent personal services is exempt if the contractor is present in the United States for no more than 183 days, subject to the conditions in the article. An individual claims the exemption on Form 8233; without it, withhold 30%.
Do we withhold on a contractor from Australia who works only outside the United States?
No. Pay for services performed entirely outside the United States is foreign-source income: no withholding and no Form 1042-S. Keep the contractor's W-8BEN or W-8BEN-E on file.
Is interest paid to an Australian bank subject to U.S. withholding?
No, if the bank is unrelated to the payer, deals with it independently and is the beneficial owner. Article 11(3)(b) exempts interest paid to financial institutions that raise funds in financial markets or take deposits. Other interest is capped at 10%.
What is the royalty rate under the U.S.-Australia treaty?
5% since the 2001 protocol, for copyright, software, patent, trademark, know-how and film royalties. Equipment rent is no longer a royalty and is exempt unless the lessor has a U.S. permanent establishment.
Does the U.S.-Australia treaty have a 0% dividend rate?
Yes, for an Australian company that has held at least 80% of the voting power for 12 months and is listed, a subsidiary of listed companies, or has a competent-authority determination. Other companies holding directly 10% or more of the voting power get 5%.
The IRS notes behind the figures
Notes to the rates (IRS Table 1)
- g Exemption or reduced rate does not apply to an excess inclusion for a residual interest in a real estate mortgage investment conduit (REMIC).
- u If enterprise earns income from leasing of equipment in the conduct of a trade or business, covered by Business Profits article (net tax). If passive income from the leasing of equipment, and not in Royalty article, covered by the Other Income article, if any. In Pakistan payment for TV broadcasting rights are covered by the Royalty article but not rental income from motion picture films.
- jj The rate is 15% (10% for Bulgaria and Spain; 30% for Austria, Germany, and Switzerland) for contingent interest that does not qualify as portfolio interest. In general, contingent interest is interest that is determined with reference to (a) receipts, sales, income, profits or other cash flow of the debtor or a related person, (b) any change in the value of any property of the debtor or a related person, or (c) any dividend, partnership distribution, or similar payment made by the debtor or related person. For Sweden and Germany, contingent interest is covered by the dividends article of the treaty.
- mm The rate in column 6 applies to dividends paid by a regulated investment company (RIC) or real estate investment trust (REIT). However, that rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is (a) an individual (or pension fund, in some cases) holding not more than a 10% interest in the REIT, (b) a person holding not more than 5% of any class of the REIT's stock and the dividends are paid on stock that is publicly traded, or (c) a person holding not more than a 10% interest in the REIT and the REIT is diversified.
- nn Interest received by a financial institution is exempt, as is interest received by the government of Australia, a political or administrative sub-division or a local authority thereof, or by any other body exercising governmental functions in Australia, or by a bank performing central banking functions in Australia.
- oo Dividends received from an 80% owned corporate subsidiary are exempt if certain ownership period and limitation on benefits conditions are met by the recipient. For Japan, greater than 50% ownership is necessary. See specific treaty article to determine other conditions.
Notes to the services table (IRS Table 2)
- 7 Exemption does not apply to the extent income is attributable to the recipient's fixed U.S. base. For residents of Korea and Norway, the fixed base must be maintained for more than 182 days (for Norway, 30 days in the case of the exploration or exploitation of the seabed and sub-soil and their natural resources); for residents of Morocco, the fixed base must be maintained for more than 89 days.
- 11 Applies only to full-time student or trainee.
- 17 The exemption does not apply if the employee's compensation is borne by a permanent establishment (or in some cases a fixed base) that the employer has in the United States.
- 25 Exemption does not apply if gross receipts (including reimbursements) exceed this amount.
- 47 Fees paid to a resident of the treaty country for services as a director of a U.S. corporation are subject to U.S. tax, unless the services are performed in the country of residence.
- 57 Remuneration for employment exercised aboard a ship or aircraft operated in international traffic by a resident of a contracting State may be taxed in that State. Canada may tax the income from employment if the income is derived by a resident of Canada and the ship or aircraft is operated by a resident of Canada. If operated by a Luxembourg resident and Luxembourg fails to tax the income, such income shall be taxed in the State of which the employee is a resident. The income may be taxed in Tunisia only if the ship or aircraft is operated by an enterprise that is managed and controlled in Tunisia.
Transcribed from the IRS Tax Treaty Tables. Treaty texts and technical explanations: United States income tax treaties, A to Z.
Other treaty countries
Austria · Bangladesh · Barbados · Belgium · Bulgaria · Canada · Chile · China · Commonwealth of Independent States · Cyprus · Czech Republic · Denmark · Egypt · Estonia · Finland · France · Germany · Greece · Iceland · India · Indonesia · Ireland · Israel · Italy · Jamaica · Japan · Kazakhstan · Latvia · Lithuania · Luxembourg · Malta · Mexico · Morocco · Netherlands · New Zealand · Norway · Pakistan · Philippines · Poland · Portugal · Romania · Slovak Republic · Slovenia · South Africa · South Korea · Spain · Sri Lanka · Sweden · Switzerland · Thailand · Trinidad and Tobago · Tunisia · Turkey · Ukraine · United Kingdom · Venezuela