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Australia and Slovenia have signed a new tax treaty, which following its entry into force, will represent the first tax treaty between the 2 nations.
The new tax treaty, the Convention between Australia and the Republic of Slovenia for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance and its associated Protocol was signed on 9 September 2024 in Canberra, Australia by the Assistant Minister for Competition, Charities and Treasury, Dr Andrew Leigh MP.
A tax treaty with Slovenia will encourage cross‑border trade and investment by reducing withholding tax rates on dividends, interest, and royalties. This will create new opportunities for Australian business by making it cheaper for Australian businesses to access Slovenian capital and technology. The treaty will also provide more certainty and reduced compliance costs for Australians and Australian businesses who earn income here and in Slovenia.
Further information on the signing of the treaty is available in the media release.
Key features and benefits
Tax certainty
The treaty will reduce tax barriers by allocating taxing rights between Australia and Slovenia from cross‑border dealings. This will improve tax certainty and alleviate double taxation for businesses looking to expand into Slovenia and for other Australian taxpayers deriving income from Slovenia.
Lower withholding tax rates on dividends
The treaty will provide a withholding rate of 10 per cent on dividends (with lower rates applying for certain scenarios such as superannuation funds).
A 5 per cent rate will be provided for intercorporate dividends on other non‑portfolio holdings of at least 10 per cent.
An exemption will be provided for dividends derived by tax exempt Slovenian recognised pension funds or Australian superannuation funds and other Australian residents carrying out complying superannuation activities where they have holdings of less than 10 per cent of the paying company.
These rates will provide Slovenia businesses with at least a 20 per cent reduction from Australia’s default 30 per cent dividend withholding tax rate. This will encourage greater investment in Australia by Slovenian businesses.
The withholding tax rate on dividends will be reduced by at least 5 per cent for Australian businesses investing in Slovenia (from Slovenia’s current 15 per cent rate). This will lower the cost of conducting business for Australians in Slovenia.
Lower withholding rates on interest
The treaty will provide a rate of 10 per cent on interest (with lower rates for certain scenarios such as financial institutions, governments, central banks and superannuation funds).
A zero per cent rate will be provided for interest derived by governments, central banks, tax exempt Slovenian pension funds, Australian recognised pension funds, and other Australian residents carrying out complying superannuation activities, and specified government investment funds.
Australians investing in Slovenia will now have lower costs with withholding rates on interest to be reduced by 5 per cent (from Slovenia’s current 15 per cent rate).
Australia’s tax under the treaty will remain at 10 per cent for all other Slovenian investors.
Lower withholding rates on royalties
The treaty will provide a rate of 10 per cent.
A 20 per cent reduction from Australia’s 30 per cent rate will make it cheaper for Australians to access Slovenia’s intellectual property. In Slovenia, the rate will be reduced by at least 5 per cent (from Slovenia’s current 15 per cent rate) which will incentivise greater utilisation of Australian intellectual property by Slovenia.
Protection over natural resources
The treaty preserves Australia’s source country taxing rights over income from natural resources, including the operation of substantial equipment.
Tax certainty for pensions
The tax treaty provides that non‑Government periodic pension payments (superannuation) will be taxed only in the recipient’s country of residence. This means Australia can tax non‑Government pension payments where a Slovenian citizen has retired in Australia.
The source (paying) country may tax any pension lump sum payments from certain pension funds, retirement benefit schemes or in consequence of certain life events (e.g., retirement, invalidity, injury, disability or death), and social security payments limited to 15 per cent. This will prevent instances of tax avoidance and would also allow Australia to tax eligible termination payments paid by Australian employers and pension funds.
Preserving either country’s domestic anti‑avoidance rules
The treaty maintains the integrity of Australia’s existing laws by providing that nothing in the treaty will prevent either country from applying its own domestic laws to prevent the evasion or avoidance of taxes.
Prevention of multinational tax avoidance
The treaty incorporates important integrity provisions consistent with the outcomes of the G20/OECD Base Erosion and Profit Shifting project to prevent tax evasion and avoidance through treaty abuse.
Non‑discrimination
Australia and Slovenia will now be prevented from treating each other’s nationals and businesses less favourably. This means that Australian businesses will not be subject to any discriminatory tax measures in Slovenia and can compete on a level playing field with Slovenian businesses.
The non‑discrimination article will not apply to any law of Australia that relates to a rate of taxation for working holiday makers.
Rules relating to the exchange of taxpayer information
The treaty will ensure the rules relating to exchange of taxpayer information is consistent with Australia’s existing policies and international obligations.
Rules to resolve tax disputes
The treaty will provide mechanisms for taxpayers to present a case if they believe they are not or will not be taxed in accordance with the treaty, subject to certain criteria, and requires Australia and Slovenia to endeavour to resolve the issue by mutual agreement.
If the dispute is unresolved within 3 years, the taxpayer may request the case be submitted to independent binding arbitration.