Hiring a developer in Manila or a designer in Vietnam can save money and widen your talent pool. The payment itself is the easy part. The tax and compliance questions around it are where Australian businesses get caught out.
This guide explains what applies when you pay contractors who work overseas: PAYG and no-ABN withholding, foreign resident withholding, GST reverse charge, super, sham contracting and record keeping. It covers the 2025-26 and 2026-27 years, and the rules were checked against ATO and Fair Work guidance on 7 October 2026.
It is for small and medium businesses using offshore freelancers or contractor firms. If you are GST registered, read it alongside our activity statement guide, because reverse charge GST is reported on your BAS.
Key takeaways
- Foreign resident withholding only applies to specific payments: entertainment and sports, construction and casino gaming junkets.
- No-ABN withholding of 47% can be avoided where the supplier is not carrying on an enterprise in Australia and gives a Statement by a supplier.
- GST reverse charge may apply if you are GST registered and the purchase is partly private or relates to input taxed supplies.
- The ATO says no super is payable for non-resident employees who work outside Australia.
- Keep contracts, invoices and work-location evidence for 5 years.
Overseas contractor obligations at a glance
| Obligation | Work done wholly overseas | Work done partly in Australia |
|---|---|---|
| PAYG withholding (foreign resident) | Only for listed payment types | Check: entertainment, sport and construction payments may be caught |
| No-ABN withholding (47%) | Avoided with a Statement by a supplier if no enterprise in Australia | May apply if they carry on an enterprise here and do not quote an ABN |
| GST reverse charge | Possible if purchase is partly private or input taxed | Depends on whether the supplier is GST registered in Australia |
| Super guarantee | Not for non-resident employees working outside Australia | May apply if the contract is mainly for their labour |
| Payroll tax (state) | Generally outside the base | Contractor payments can be subject to payroll tax |
| Record keeping | 5 years, in English | 5 years, in English |
Source: ATO foreign resident withholding, ATO Statement by a supplier, ATO reverse charge GST, ATO work out if you have to pay super, checked 7 October 2026.
Do you need to withhold tax from overseas contractors?
Foreign resident withholding
The ATO’s foreign resident withholding rules apply to particular payment types: entertainment and sports activities, construction and related activities, and casino gaming junket activities. For construction and related activities the rate is 5%, and for gaming junkets 3%. A software developer or bookkeeper working from home overseas does not fall into these categories.
No-ABN withholding
If a supplier does not quote an ABN, you normally withhold 47% from payments over $75 excluding GST. An overseas contractor usually has no ABN because they are not carrying on an enterprise in Australia. In that case they can complete a Statement by a supplier giving that reason, and you do not have to withhold. Ask for it before the first payment.
Is GST payable on imported services?
An offshore contractor will not usually charge you Australian GST. The question is whether you owe reverse charge GST. For services done outside Australia and not sold through a business the supplier carries on here, it applies when all of these are true:
- you buy the service solely or partly for a business you carry on in Australia
- the purchase is partly private or domestic, or relates partly or solely to making input taxed supplies
- the sale to you is for payment
- you are registered, or required to be registered, for GST
Businesses most affected are those making input taxed supplies, such as financial services or residential rents. Where it applies, you report the GST at 1A and the purchase price multiplied by 1.1 at G1, and claim any credit you are entitled to at 1B. Not registered yet? See our GST registration guide.
Do you pay super for overseas workers?
The ATO says you do not have to pay super for non-resident employees who work outside Australia. Genuine contractors paid to achieve a result are not employees for super purposes anyway.
The position changes if the person is effectively your employee. Under the contractor rules, someone paid mainly for their labour, for their personal skills and who cannot delegate the work can be an employee for super guarantee, even with an ABN. If they come to Australia to work, check again. Our super guarantee guide covers the penalties for getting it wrong.
What about payroll tax and sham contracting?
Payroll tax is a state tax. The Victorian SRO notes that payments to contractors can be subject to payroll tax, so if an overseas contractor starts working in Australia, check your state’s contractor provisions and grouping rules.
Calling someone a contractor does not make them one. Sham contracting under the Fair Work Act carries maximum penalties per contravention of $19,800 for individuals, $99,000 for businesses with fewer than 15 employees, and the greater of $495,000 or three times the underpayment for larger businesses. If you need employee-level control, get advice on how to structure the engagement.
How should you pay and record overseas contractor payments?
The common options are international bank transfers, multi-currency business accounts and online payment platforms. Compare the exchange rate margin, transfer fee and any fee the recipient’s bank charges. Whichever you choose, the tax position above does not change.
| Record | Why you need it |
|---|---|
| Signed contract | Shows a genuine contractor relationship, IP ownership and the result being paid for |
| Invoice for each payment | Supports your deduction |
| Work-location declaration | Evidence the work was done overseas |
| Statement by a supplier | Supports not withholding 47% when no ABN is quoted |
| Payment confirmation and exchange rate | Shows the AUD amount you claimed |
The ATO requires most business records to be kept for 5 years, in English or in a form that can easily be converted to English.
Worked example: a designer in the Philippines
A Melbourne marketing agency, registered for GST and making only taxable sales, pays a freelance designer in the Philippines $2,000 a month. All work is done in the Philippines and the designer has no ABN.
No-ABN withholding: the designer gives a Statement by a supplier saying they are not carrying on an enterprise in Australia. Nothing is withheld. Without it, the agency would have to withhold $2,000 x 47% = $940 a month.
GST: the service is used wholly for taxable sales, so the purchase is not partly private or input taxed. Reverse charge does not apply.
Compare: if a financial services firm bought the same $2,000 service to make input taxed supplies, reverse charge would apply. It would report $2,000 x 1.1 = $2,200 at G1 and GST of $2,000 x 10% = $200 at 1A, and could claim a credit at 1B only to the extent it is entitled.
Super: the designer is a non-resident working outside Australia under a contract for results, so no super guarantee.
Rule of thumb: Before the first payment, collect three things: a signed contract, a work-location declaration and, if they have no ABN, a Statement by a supplier.
Common mistakes when paying overseas contractors
- Withholding 47% by default: if the supplier has no enterprise in Australia, a Statement by a supplier removes the need.
- Ignoring reverse charge: input taxed businesses often miss the GST on imported services.
- Treating an offshore employee as a contractor: fixed hours, your tools and no delegation all point to employment.
- No evidence of where work was done: without it, you cannot show the overseas position.
- Paying in crypto without valuing it: disposals of crypto have tax consequences and still need an AUD value.
FAQ about paying international contractors
Do I withhold tax when I pay a contractor who works overseas?
Generally not. Foreign resident withholding applies to specific payment types such as entertainment and sports, construction and casino gaming junkets. No-ABN withholding at 47% can be avoided where the supplier is not carrying on an enterprise in Australia and gives you a Statement by a supplier. Keep that statement on file with the invoice.
Do I have to pay super for an overseas contractor?
The ATO says you do not have to pay super for non-resident employees who work outside Australia. A genuine contractor engaged to achieve a result is not an employee for super purposes either. The answer can change if the person comes to Australia to work, or if the contract is mainly for their personal labour.
Does GST apply when I pay an overseas contractor?
The contractor will not usually charge you Australian GST. You may have a reverse charge liability if you are registered for GST and the purchase is partly private or relates to making input taxed supplies. A business that uses the service wholly to make taxable sales does not usually meet that condition.
What records should I keep for overseas contractor payments?
Keep the signed contract, each invoice, evidence of where the work was done, any Statement by a supplier, payment confirmations and the exchange rate used. The ATO requires most business records to be kept for 5 years, in English or in a form that can easily be converted to English.
Can I pay overseas contractors in crypto?
You can, but the crypto you hand over is treated as a disposal of a crypto asset, which can have capital gains tax consequences for your business. You still need the AUD value of each payment for your records and your deduction. Most businesses find a standard bank or payment platform transfer easier to account for.
Talk to specialist before it costs you
15-minute discovery call. No obligation, no jargon.
Talk to a registered tax agent
Nanak Accountants can review your offshore contractor arrangements, set up your BAS for reverse charge and handle your BAS lodgement and PAYG instalments. If you are adding staff in Australia too, see our payroll registration checklist. Call 1300 626 258 or book a free 15-minute consultation.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO pages on foreign resident withholding, no-ABN withholding, Statement by a supplier, reverse charge GST, super guarantee and record keeping, the Fair Work Ombudsman sham contracting page and the Victorian SRO on 7 October 2026. Rates and thresholds change, so confirm the current position before acting.
