Australia is the 14th largest economy in the world and is one of the largest mixed-market economies in the world. A strong rule of law, a transparent and structured political system and an openness to foreign competition within multiple industries have established Australia as one of the most attractive destinations for foreign investment. This is further compounded by a strong domestic market as well as a skilled labour force. In terms of per capita GDP, Australia ranks 11th in the world, according to the International Monetary Fund’s 2018 figures.
The mining industry in Australia has been on an upward trend over the past decade. Australia is the world's largest exporter of coal, iron ore, alumina, lead and zinc. There is high demand for Australia’s commodities, including both hard commodities and soft ones, such as agriculture, from China, India and emerging countries within South East Asia and the Middle East. China is also a significant investor in Australia.
Additionally, the four banks dominating Australia's financial scene are amongst Global Finance magazine's World's 50 Safest Banks, with a total of four Australian banks making it on to the list. The country’s banks are supported by efficient regulatory frameworks and an established financial system; collectively they reinforce Australia's status as an attractive investment destination.
What solutions are available in Australia?
|Interest Optimisation||Maximise your interest yield from for your balances held with the bank.|
|Notional Pooling||Cash balances in different accounts are notionally offset to derive the net balance, which is then used to calculate interest.|
|Sweeping/ Zero Balance Account (ZBA)||ZBA are checking accounts with zero balances where funds are physically swept to eliminate excess balances and maintain greater control over disbursements.|
|Intercompany loans||Similar to bank loans, intercompany loans refer to lending between entities within the same group.|
Corporate Treasury in Australia
Australia has sound banks, a highly-skilled English-speaking workforce and close ties with the rapidly growing Asia-Pacific region. Here, we highlight some of the key benefits the country offers to treasury and cash management.
Financial Market Development
- The World Economic Forum ranks Australia 13th in the world for its financial system in The Global Competitiveness Report 2018.
- It ranks Australia fourth in the world for the soundness of its banks. It also ranks in the top 20 for its low level of non-performing loans, and high levels of market capitalisation, domestic credit to the private sector and financing of SMEs.
- Australia has a highly skilled English-speaking workforce, excellent business infrastructure, a stable political system and a sound legal environment.
- There are no general restrictions on moving money in and out of Australia.
Sophistication of Banking Systems
- There are 38 domestic banks in Australia, with the sector dominated by four large banks: Australia and New Zealand Banking Group, Commonwealth Bank, National Australia Bank and Westpac. There are also seven foreign subsidiary banks and 46 branches of foreign banks. In addition, there are 45 credit unions and 3 building societies.
- Australia’s foreign-exchange market has an average daily turnover of USD119.15 billion, accounting for 1.4% of global turnover (Bank for International Settlements Triennial Central Bank Survey 2019.
- Australia has an established debt market. Government securities, semi-government securities, corporate bonds and kangaroo bonds – Australian dollar-denominated bonds issued by non-resident companies – are all available. There is more than AUD1 trillion of outstanding corporate bonds.
- The banking industry is regulated by the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission. The Reserve Bank of Australia is the central bank.
- The corporate income tax rate is 30%. For companies with an aggregated turnover threshold of less than AUD50 million and where no more than 80% of their assessable income is passive income the corporate tax rate is reduced to 27.5%, falling to 26% for the 2020/21 tax year and 25% in the 2021/22 tax year. The government is no longer proposing to progressively reduce the corporate tax rate to 25% for all entities.
- Resident companies are taxed on worldwide income. Non-resident companies are generally taxed on Australian-sourced income.
- The profits of a branch of a foreign company are taxed at the same rate as resident company profits. There is no branch profit-remittance tax on the remittance of profits to the head office by the branch of a foreign company.
- The standard rate for Goods and Services Tax (GST) is 10% with certain goods and services being zero-rated whilst others are exempted.
- Capital gains are generally assessed with ordinary income and are subject to corporate income tax.
- Interest expenses that are used for business purposes are generally tax-deductible. However, the deductibility of the interest may be restricted when the company’s allowable debt level exceeds the prescribed amount unless it can satisfy the arm’s length test.
- Resident companies are not subject to withholding tax (WHT). WHT of 30% is charged on dividends and 10% WHT is charged on interest for non-resident companies where no treaties are in place. Rates range from 0% to 30% for dividends and from 0% to 25% on interest where a tax treaty is in place and the non-resident company can provide the Certificate of Residence.
- All states and territories impose a stamp duty on a wide variety of transactions at different rates.
- Australia has tax treaties with more than 45 countries and territories.
- The Australian government has enacted a range of measures to address tax avoidance in Australia by multinational companies with global revenue of more than AUD 1 billion.
- Australia is a signatory to the Organisation for Economic Co-operation and Development’s Multilateral Competent Authority Agreement, through which information is exchanged between tax administrations, to provide a single, global picture on some key indicators of economic activity within multinational enterprises.
Benefits for Regional Treasury Centres
- Australia has strong economic and cultural ties with the fast-growing Asia-Pacific region, as well as overlapping trading hours.
- Its two financial centres are Sydney and Melbourne.
- It has a strong legal system, highly skilled English-speaking workforce and excellent business infrastructure.
- Australia is developing as a renminbi settlement hub for the Asia-Pacific region.
- Australia has a liquid foreign-exchange market and the necessary clearing and settlement systems to facilitate smooth financial transactions.
- Its New Payments Platform offers real-time fund transfers.
- It is a member of the Asian Payment Network, a common payment settlement platform within the Asia-Pacific region.
- Domestic and cross-border notional pooling and cash concentration are permitted for resident and non-resident companies.
- There are 38 Australian-owned banks, seven foreign-subsidiary banks and 46 branches of foreign banks. In addition, there are three building societies and 45 credit unions.
- The banking sector is dominated by four Australian-owned banks: Commonwealth Bank, Australia and New Zealand Banking Group, Westpac and National Australia Bank. Together they make up approximately 75% of total assets of authorised deposit-taking institutions.
- A free-trade agreement with China (ChAFTA) has provided various concessions to Australian banks to operate in China, as well as making Sydney an RMB settlement hub. The Bank of China in Sydney is the official RMB clearing bank in Australia.
- Residents may hold foreign-exchange and domestic currency accounts domestically and overseas, whereby domestic currency accounts are freely convertible to foreign currency through a licensed dealer.
- Non-residents may hold foreign and domestic currency accounts, whereby domestic currency accounts are freely convertible to foreign currency through a licensed dealer.
- Interest is available to resident and non-resident bank accounts.
Legal and Regulatory
- The Australian Prudential Regulatory Authority (APRA) oversees the banking sector.
- The Australian Securities and Investment Commission (ASIC) regulates consumer credit activity.
- A company is resident if it is incorporated in Australia or it carries out its head office activities and control in Australia or the voting power is held by shareholders who are resident in Australia.
- If a company continues business in Australia but is not physically present there, it may be registered as a foreign corporation with the Australian Securities and Investments Commission.
- Australia has anti-money laundering and counterterrorism-financing legislation in place.
- Australia is a member of the Financial Action Task Force (FATF) and has set up a financial intelligence unit, AUSTRAC, which is a member of the Egmont Group.
(Reserve Bank Information and Transfer System)
Australia's National Real-time Gross Settlement (RTGS) system
Australian Payments Network (AusPayNet)
(formerly Australian Payments Clearing Association (APCA))
Payment systems regulator
(New Payments Platform)
Low value payment system
(High Value Clearing System)
Electronic high value exchange and multilateral net settlement system
(Australian Paper Clearing System)
Interbank cheque and paper-based exchange and settlement system
(Bulk Electronic Clearing System)
Interbank bulk electronic exchange and settlement system
- Paper-based or automated, although they are mostly automated.
- High-value and urgent electronic credit transfers cleared and settled through HVCS in real time.
- Low-value, non-urgent and bulk electronic credit transfers settled through BECS same day.
- Used for payroll, supplier and third-party payments.
- Low-value and urgent electronic transfers cleared and settled through NPP in near real-time.
- Paper-based credit transfers processed through APCS.
Direct Debits (auto debits)
- Used for low value, recurring payments such as utility and insurance bills.
- Arranged via a Direct Debit Request (DDR).
- Processed through BECS same day and coordinated by AusPayNet.
- Credit and debit card payments are the most widely used form of electronic payment in Australia,representing 52% of all payments.
- Recent surveys show that consumers are using cards for small as well as large transactions, largely due to the growth in contactless (tap-and-go) payment systems.
- The number of debit and credit card transactions has steadily increased by an average of 14% and 7% per year over the past decade.
- The main card brands are Visa and MasterCard, in addition to American Express, JCB and Diners Club, all of which are Europay-, MasterCard- and Visa (EMV)-compliant.
- The main debit card payment system is EFTPOS, owned by EFTPOS Payments Australia Ltd., which has a national network made up of seven proprietary networks.
- Only MasterCard and Visa can be used in eCommerce transactions and currently EFTPOS can only be used domestically.
- Allows consumers to pay for goods and services or transfer money via payment systems that link to a credit card or bank account.
- Common online payment options in Australia include BPay, PayPal and POLi.
- Account-linked payments and transfers, as with BPay, can be processed through online, mobile and phone banking systems.
- Similar to online payments, the use of mobile wallets has significantly increased, with smartphone penetration expected to reach 89% by the end of 2019. ANZ Bank, one of the ‘big four’ Australian banks, saw a 156% increase in mobile payments in the first half of 2018 compared to the first half of 2017, and 62% of customers used mobile wallets to pay for retail purchases in 2017.
- Local banks have teamed up with global mobile wallets – such as ANZ with Apple Pay and Westpac with Google Pay – while retailers such as Myers and Coles have launched digital wallets that connect reward and card accounts on a single app. Mobile wallets can also be found on wearable fitness devices, such as FitBit Pay and Garmin Pay, or connected through F&B order apps like the popular Hey You and Ritual.
- ASIC has a regulatory sandbox framework applied to financial technology (fintech) companies.
- The government has allocated funding to support and promote the development of the fintech industry, such as facilitating open banking and researching how to best utilise blockchain technology.
- Australia has a thriving cryptocurrency market and the government has introduced regulations which require digital currency exchanges to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC), as a means of preventing money laundering and terrorism activities.
- Cryptocurrencies are legal tender in Australia. Taxation varies depending on the amount bought or sold, the use and whether any profits have been earned.
Cash, Cheques and Money Orders
- The overall rise of cashless systems has caused both cash and ATM use to plummet. In less than ten years (from 2007-2016), according to the RBA’s Consumer Payment Methods Survey, cash payments dropped from 69% to 37% of all transactions. ATM withdrawals are 35% below the 2008 peak, declining an average of five percent per year since 2013.
- Cheque use is also in decline (dropping, on average, by 20% annually) due to the increased use of electronic payments. However, cheques are often used for commercial payments, equating to 60% of all cheques used, and for specific transactions such as property settlements.
- Processed through the APCS, with final settlement through RITS. Funds are usually available within three days.
- Australia Post offers the Western Union remittance service at its branches.
1 (Progressive) max rate for incomes over AUD180,000
Global Fintechs Eye Australia
A number of global fintech companies are understood to be considering launching in Australia when the second phase of open banking goes live in February 2020. Open banking enables customers to give permission for their data on financial products to be shared with other service providers, creating significant opportunities for fintech firms. UK software company TrueLayer, which provides application programme interfaces (APIs) to enable third party companies to access bank data securely, has announced plans to launch in Australia next year.
Read more about the development here.
Taxation Office Targets Cryptocurrency Traders
The Australian Taxation Office expects to collect AUD3 billion in fees and fines through its crackdown on cryptocurrency traders. It is working with cryptocurrency exchanges both in Australia and outside of the country to access user information and identify Australian residents who are not paying tax on the capital gains they make through trading. An estimated 4% of people in Australia are thought to have owned a cryptocoin at least once. In extreme cases, traders could face up to five years in prison for failing to pay the correct amount of tax.
Read more about the development here.
Big Four Kick Off Open Banking
Australia’s big four banks, ANZ, Westpac, Commonwealth and NAB, have made information on products such as savings accounts, current accounts, credit and charge cards available to third parties as part of the first phase of the rollout of open banking. The market will open up more fully in February 2020, when details on mortgages will become available and customers will be able to request the big four banks share their personal details with third party providers. Open banking makes it easier for consumers to compare different products and move from one provider to another.
Read more about the development here.
Real-time International Payments Trialled
Payments network SWIFT has trialled a new service under which global payments can be made in near real-time. The group is combining its SWIFT gpi with domestic real-time payment networks to enable international payments to be completed in just seconds with greater transparency on fees and exchange rates for senders. In a recent trial using Australia’s New Payments Network, a payment from Australia to China was delivered in just 18 seconds.
Read more about the development here.
This Market Profile is brought to you by DBS. Get in touch with us for further insights on doing treasury in Australia and take advantage of our innovative solutions to empower your business. Click here to find out more.
Sources: IMF, Global Finance Magazine, World Economic Forum, PwC, Australian Prudential Regulation Authority, Bank for International Settlements, Deloitte, DBS, Reserve Bank of Australia, Australian Payments Network, New Payments Platform, Venture Insights, Cognizant
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