Explaining to an Australian client why you don't need an ABN as an overseas business or freelancer
If you're living in Japan and working remotely as a freelancer for Australian clients, it's possible a client will ask you for an ABN.
If they ask for this, it's typically because their in-house accountant is trained to check every supplier has provided an ABN. They know that penalties can apply if they fail to collect this information.
They call this "compliance", which is an ominous word meaning "I worry if we don't do this, the ATO will come and get me".
Of course, ABN stands for "Australian business number". Businesses based in Japan aren't even eligible for one.
The problem then is if they ask for one, and you say you can't give them one, they may say: "if you don't provide us with an ABN, we'll be forced to withhold PAYG at a rate of 47%". That's their training.
That would mean 47% of your fee disappearing into the ATO, and you'd burn a lot of time, energy, and money, trying to getting that money back. It wouldn't be worth continuing with such a client.
The solution
The solution is to assure the client's accountant that the ATO will definitely not come and get them.
The easiest way to do this is to show them the ATO's own words on the matter, and then to follow the ATO's instructions.
Part 1. The ATO's own statements
- "You don't need to withhold from payments to suppliers who are non-residents and not operating in Australia"
- Since you are operating overseas you don't need an ABN
- "If you're hiring a foreign resident and the work is being performed in an overseas country, you have no obligation to withhold PAYG tax"
- A payee does not need to supply you with an ABN if the payee is a foreign resident and does not carry on an enterprise in Australia
Part 2. Provide a "Statement by a supplier"
The ATO provides a form called a "Statement by a supplier", that a foreign business or freelancer can provide to their Australian clients to put their mind at ease regarding ABNs, PAYG, and compliance.
The details of this are on this page, including a link to the PDF of the "Statement by a supplier" form.
Key points from that page:
Who can complete a Statement by a supplier form? An individual or a business that supplies goods or services can only complete a Statement by a supplier form if one or more of the following applies: ... they are not entitled to an ABN because they are not carrying on an enterprise in Australia.
A Statement by a supplier (PDF, 145KB) form can be used for this purpose.
Payers may choose to obtain a signed statement from the supplier containing the required information or use our form. If we conduct a review and find that the statement was incorrect, payers won't be penalised if we believe it was reasonable for them to rely on the supplier's signed statement.
Payers must withhold 47% (from 1 July 2017) from the total payment for a supply unless one of the following applies: ... one of the exceptions to withholding applies, or the supplier is not entitled to an ABN.
Conclusion
Hopefully once you provide all that, their minds will be put at ease, and you can continue working together.