The rules of the game: Tax updates that businesses need to know

The current tax rates in Brunei Darussalam are expected to help grow the economy. Individuals do not to pay any personal income tax, and sole proprietorships and partnerships also continue not to be subject to any form of taxes, a move designed to encourage the growth of small and medium-sized enterprises and support economic diversification in the Sultanate.

CORPORATE INCOME TAX: Under Section 8 of the Brunei Income Tax Act (BITA) the chargeable income of any person accruing in, derived from or received in Brunei Darussalam shall be liable to income tax. A “person” includes a company registered under the Brunei Darussalam’s Companies Act (Chapter 39) or any law in force elsewhere. Under the Companies Act, companies intending to have business operations in the Sultanate are required to register with the Registrar of Companies, which will automatically register them with the Collector of Income Tax for tax purposes. The usual tax deductibles – outgoings and expenses wholly and exclusively incurred in the production of income, capital allowances and tax losses from the statutory income – should be deducted in determining the chargeable income of a company. Interests on loans, zakat, fitrah or any religious dues under any written law are tax deductible. Expenses such as directors’ remunerations and entertainment are allowed so long as the amounts are reasonable. Other expenses like trade fairs, export market development, and research and development are given further deductions, whilst provisions for specific bad debts are allowed provided evidence of certain actions like legal action to recover the debt have been proven. Costs including interest on loans used to acquire assets of qualifying nature can be capitalised and can be depreciated over the estimated useful life of the asset. With the welfare of employees a major concern for the government, payments or contributions made by the company to the Tabung Amanah Pekerja (TAP) and the Supplementary Contribution Provident (SCP) in respect of employees are given further deduction in addition to the original deductions, and a 10% tax credit on the contribution in excess of the previous year’s contributions will also be made available.

CAPITAL ALLOWANCES ON PLANT & MACHINERY: undefined The tax depreciation or capital allowances for plant and machinery are now 40% initial allowances or 100% capital allowances after three years of acquisition. Also, 100% capital allowances can be claimed for computers and prescribed office automation equipment in the year of purchase. Any plant and machinery not exceeding costs of $2000 (where the aggregate does not exceed $30,000) is entitled to an allowance of 100% in respect of that capital expenditure. So long as the business carries on the same trade, the capital allowances can be carried forward. Investment expenses incurred between 2012 and 2017 on new plant and equipment will be given a tax credit of 15%, and this tax credit can be carried forward for two years.

CORPORATE OWNERSHIP & MANAGEMENT: There has been no restriction on total foreign ownership of companies incorporated in Brunei Darussalam. The Companies Act requires locally incorporated companies to have at least one of the two directors – or if more than two directors, at least two of them – to be ordinarily resident in Brunei Darussalam. The Companies Act allows the board to be totally non-resident; however, the company concerned would have to apply to the appropriate authorities for permission and show justifications for such decisions. Notwithstanding whether the company is locally or foreign owned and managed, the rates of corporate income tax is the same.

LOSS RELIEFS: A company’s other sources of taxable income of the same year can be reduced or offset by the company’s trading losses. A loss incurred in any year of assessment in any trade or business is deductible for that year or, if appropriate, in the accounting year ending in that year, provided the claim for deduction is made in writing within one year thereof. Unabsorbed losses can be carried forward and can be used in the following year or years, up to maximum of six years.

CORPORATE INCOME TAX RATE: Newly incorporated companies will be exempted from corporate income tax on their first B$100,000 ($77,880) while 50% of their next B$150,000 ($116,820) will be taxed at the rates ruling in the tax period. This special treatment will be given for the first three years of incorporation of the firm. Currently, the corporate income tax rate is at 20%. Effective from 2012, companies in the “approved export” category will be able to opt for a fixed tax of 1% of turnover. Companies having more than 20% local sales are also eligible for split computations.

TAX THRESHOLDS: The tax threshold was introduced as a measure to reduce the tax liabilities of SMEs. The 2012 tax threshold is applicable on the first BN$250,000 ($194,700) of chargeable income, where the tax computed would be 25% on the first BN$100,000 ($77,880) and 50% on the next BN$150,000 ($116,820). The remaining chargeable income will be taxed at 20%. The above threshold does not apply to companies involved in petroleum operations, which are taxed under the Income Tax (Petroleum) Act (ITPA) – Chapter 119.

PETROLEUM COMPANIES: The ITPA –Chapter 119 governs the tax administration for those companies involved in petroleum operations, which is defined as the exploration and/or recovery of any mineral oil or relative hydrocarbons and natural gas existing in its natural condition in Brunei Darussalam by or on behalf of a company, excluding any transportation of petroleum, process of refining and any dealings with refined products. The chargeable profits of such company after deductions allowed, e.g., royalties, rents and expenses wholly and exclusively incurred for the purpose of those operations, would be charged at the rate of tax of 55%.

WITHHOLDING TAX: Withholding tax will arise if the following payments are made and such expenses are borne by a person resident in Brunei Darussalam, or having a permanent establishment in Brunei Darussalam, or which are deductible against any income accruing in or derived from Brunei Darussalam:

• Interest, commission, fees and other payments relating to loans or indebtedness;

• Royalties or other lump payments for the use of or the right to use moveable property;

• Payments for use of or the right to use scientific, technical, industrial or commercial knowledge or information;

• Payment for management or technical assistance;

• Rent or other payments for the use of any moveable property; and

• Any payment of remuneration to any director who is not resident in Brunei Darussalam. Withholding tax rates for payments made to a non-resident person are published by the collector of income tax in the “Guidelines to Withholding Tax”. Tax withheld must be paid to the collector within 14 days of payment, otherwise late payment penalties will be imposed. Failure to give notice to the collector after such deductions is an offence that would be liable to a penalty of three times the amount deducted and will also be liable to a fine not exceeding BN$10,000 ($7788) and/or imprisonment not exceeding three years.

Double taxation agreements for those companies registered in the countries that have treaties with Brunei Darussalam may reduce withholding taxes suffered by the non-resident companies. Additionally, branch profits being remitted and payment of dividends to nonresident are not subject to withholding tax.

DIVIDENDS: Dividends accrue to shareholders on the date they are declared payable. Dividends paid out of profits that have been taxed will not attract any further form of taxes and so can be excluded from the taxable income. Dividends from abroad are taxable only if they are received in Brunei Darussalam. Tax relief may be claimed by companies receiving dividends from overseas that had suffered tax if tax treaties are in place between the country where the dividends originate and Brunei Darussalam, or the relief under the Commonwealth tax relief may be applied.

REPORTING REQUIREMENTS & PAYMENTS: Whether dormant or active, and if active whether operating at a profit or loss, all companies carrying on trade or business in Brunei Darussalam are required to file the annual tax return form online. Audited financial statements and tax payments, where applicable, are required to accompany the tax returns.

Although the official deadline to submit the online tax returns for 2012 was moved from June 30 to September 30, online filing will revert back to June 30 from 2013 onwards. All completed returns will be accepted under self-assessment and any tax adjustments will have to be submitted separately to the tax authority.

Companies are also required to submit their estimated chargeable income (ECI) returns online within three months of their financial year-end in addition to the annual tax returns. Tax payments, where applicable, are required upon submission of the ECI, although audited statements are not required at this stage.

It should be noted that any arrangement made by a company that is believed by the collector to be tax avoidance may be disregarded by the collector, who may impose tax. Any person found to assist another person to evade tax or any wilful intent to evade tax may face a penalty of four times the amount of tax undercharged and a fine not exceeding BN$50,000 ($38,940) or imprisonment not exceeding five years or both.

Companies are required to keep books of accounts, including complete and accurate records of opening and closing stocks, purchases, sales, receipts, invoices, bill of ladings and all other documents relating to the business for seven years from the year of assessment to which the income relates.

STAMP DUTIES: The stamp duties levied on certain types of documents attract an ad valorem duty, whereas with other documents the duty varies with the nature of the documents in question.

TAX INCENTIVES: Incentives mentioned in the Investment Incentives Order in the form of tax exemption between five and 20 years may be given by the Ministry of Industry and Primary Resources (MIPR). Pioneer status may also be given to companies within certain categories, such as the export of services, production for export and new technology firms. Companies must fulfil certain criteria, which are clearly laid out by MIPR, before being given such incentives.

TRANSFER PRICING: Currently, transfer pricing between domestic companies or between domestic and foreign companies that are related parties are not regulated in Brunei Darussalam. Notwithstanding this, the BITA allows the collector to take certain actions if the collector is satisfied that such arrangement are designed to alter the incidence of any tax or to relieve any person from any liability to pay tax.

TAX RESIDENCE: Residency in Brunei Darussalam is defined as follows:

• In relation to an individual, a person who resides in Brunei Darussalam except for reasonable temporary absences and includes a person who is physically present or who is exercising an employment (other than a director) for 183 days or more during the year preceding the year of assessment; and

• In relation to a company or a body of persons, a company or body of persons the control and management of whose business is exercised within Brunei Darussalam. It is normal to regard the control and management of a company as resident if, among other things, its directors’ meetings are held here. Permanent establishment of a company is not the criteria for residency.

With BITA being territorially based, income derived from or accrued in Brunei Darussalam by non-resident companies is taxable in Brunei Darussalam.

DOUBLE TAX TREATIES: Brunei Darussalam has entered into double taxation treaties with the UK, Indonesia, the People’s Republic of China, Singapore, Vietnam, Bahrain, Oman, Japan, Pakistan, Malaysia, Hong Kong SAR and signed with Lao People’s Democratic Republic, Kuwait and Tajikistan. These agreements provide proportionate relief from Bruneian income tax upon income that has been or is liable to be charged with the signatory countries’ income tax. Tax credits are only available for resident companies.

Unilateral relief where the maximum relief cannot exceed half the Brunei Darussalam rate may be obtained on income arising from Commonwealth countries that provide reciprocal relief.

BILATERAL INVESTMENT TREATY: To protect investors and investments of signatory countries, Brunei Darussalam entered into Bilateral Investment Treaty with Germany, Oman, Korea, the People’s Republic of China, Ukraine, India and Bahrain.

TAX INFORMATION EXCHANGE AGREEMENT: As part of its commitment towards international exchange of information, Brunei Darussalam signed the Tax Information Exchange Agreement with France with the objective of promoting cooperation in tax matters through exchange of information.

MULTILATERAL INVESTMENT TREATY: Brunei Darussalam, being a member of ASEAN, is a signatory to the ASEAN Agreement on the Protection and Promotion of Investment with all ASEAN countries and also a signatory on the Agreement on the ASEAN Investment Area.

CUSTOM DUTIES & EXCISE: Generally, basic foodstuffs and goods for industrial use are exempted from import duties. Electrical equipment and appliances, timber products, photographic material and equipment, furniture, motor vehicles and spare parts, cosmetics, perfumes and cigarettes attract duties ranging from 5% to 30%. With the ASEAN Free Trade Agreement (AFTA), which aims to remove all tariffs between the ASEAN countries, tariffs in place have now been reduced to between 0% and 5%.

INDIRECT TAXES: At present, there are no indirect taxes such as services or goods tax and value-added or sales taxes in Brunei Darussalam.

BRUNEI INTERNATIONAL FINANCIAL CENTRE: Under the jurisdiction of the Brunei International Financial Centre (BIFC), international business companies (IBCs) are not liable to any form of taxes in Brunei Darussalam and the BITA cannot be applied to them. Although tax returns are not required, accounting records must to be maintained. However, audits of the accounts are optional except for those companies issued with financial services licences such as banking, fund management, insurance and investment advisory.

In general IBCs can only conduct business outside Brunei Darussalam, and business transactions with residents of the Sultanate are not permitted unless prior permission had been given.

EXCHANGE CONTROL: Currently there are no restrictions on currency movements or exchange controls. Recently, in line with international practices to deter money laundering, the requirement to declare in full the amount of money being brought in and out of the country had been introduced. The Bruneian currency is at par and interchangeable with the Singapore dollar under the currency interchangeability agreement, which had been in place since 1967.

The information contained in this chapter was correct at the time of press, but may be subject to change. Investors should seek legal advice about specific queries. OBG would like to thank Deloitte for their contribution to THE REPORT Brunei Darussalam 2013