Tax updates that businesses need to know

Deloitte’s recent “Asia Pacific Tax Complexity Survey” indicated that Brunei Darussalam’s tax environment is one of the least complicated and most attractive for investors. The recent announcement of the corporate income tax rate being revised down to 18.5% from year of assessment 2015 is expected to encourage the business sector to invest and help grow the economy.

Personal Income Tax

Individuals are not required to pay any personal income tax in Brunei Darussalam.

Sole Proprietorship & Partnership

Recognising the importance of small and medium-sized enterprises (SMEs) in contributing to the diversification and growth of the economy, sole proprietorships and partnerships are not subject to any form of taxes.

Corporate Income Tax

Any person having chargeable income accruing in, derived from or received in Brunei Darussalam shall be liable to income tax as stipulated under Section 8 of the Brunei Income Tax Act (BITA). A person includes a company registered under the Companies Act (Chapter 39) or any law in force elsewhere. The Companies Act requires companies intending to have business operations in Brunei Darussalam to register themselves with the Registrar of Companies, and this will automatically register them with the Collector of Income Tax for tax purposes.

In determining the chargeable income of a company the usual tax deductibles, i.e. outgoings and expenses wholly and exclusively incurred in the production of income, capital allowances and tax losses from the statutory income, should be deducted. 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, such as legal steps taken 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 lives of these assets. Training expenses and additional maternity allowances are also available if incurred for the local workforce.

With the welfare of employees a major concern to 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, whereby further deductions are allowed in addition to the original deductions and also a tax credit of 10% of the contribution in excess of the previous year’s contributions will be made available.

Capital Allowances On Plant & Machinery

The tax depreciation or capital allowances for plant and machinery are now 40% initial allowances or to claim 100% capital allowances in three years of acquisition. Capital allowances of 100% can be claimed for computer and prescribed office automation equipment in the year of purchase.

Any plant and machinery not exceeding costs of $2000 (up to an aggregate maximum of $30,000) would be entitled to an allowance of 100% in respect of that capital expenditure. So long as the business carries on the same trade, its capital allowances can be carried forward and utilised.

Investment expenses incurred between 2012 and 2017 on new plant and equipment will be given a tax credit of 15%, which 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 the Sultanate. The act allows the board to be totally non-resident, although the companies concerned would have to apply to the appropriate authorities for permission and show justifications for such decisions. The rate of corporate income tax is no different regardless of whether the company is locally or foreign owned and managed.

Loss Relief

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 are allowed to be carried forward and used in the following year or years, up to a maximum period of six years.

Corporate Income Tax Rate

Newly incorporated companies will be exempted from corporate income tax on their first BN$100,000 ($78,430), while 50% of their next BN$150,000 ($117,645) 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 company. The corporate income tax rate for year of assessment 2014 is 20% and for 2015 it is 18.5%.

Effective 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 to reduce the tax liabilities of SMEs. From the year of assessment 2012, the tax threshold is applicable on the first BN$250,000 ($196,075) of chargeable income where tax would be computed on 25% of the first BN$100,000 ($78,430) and 50% of the next BN$150,000 ($117,645) will be taxed. The remaining chargeable income will be taxed at the applicable tax rate of 20%. This tax 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 of companies involved in petroleum operations, defined as searching for or extracting petroleum, which includes mineral oil or hydrocarbon and natural gas in its natural condition in Brunei Darussalam, by or on behalf of a company, excluding any transportation or refining of petroleum or any dealings with refined products. The chargeable profits after deductions allowed, e.g., royalties, rents and expenses wholly and exclusively incurred for the purpose of those operations, are taxed at the rate 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-sum 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 (see table). 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 ($7843) and/or imprisonment not exceeding three years.

Double taxation agreements for those companies registered in the countries which have treaties with Brunei Darussalam may reduce withholding taxes suffered by the non-resident companies. Branch profits being remitted and payment of dividends to non-resident are not subject to withholding tax (see table).

Dividends

Dividends accrue to shareholders on the date they are declared payable. Dividends paid out of profits which 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 which had suffered tax if tax treaties are in place between the country where the dividends originate and Brunei Darussalam, or 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 must accompany the returns.

The deadline to submit the online tax return for each year is June 30. All completed returns will be accepted under self-assessment and any tax adjustments must 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 return. Tax payments, where applicable, are required upon submission of the ECI, although audited financial statements are not required at this stage.

It should be noted that, any arrangement made by a company which 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 ($39,215) or imprisonment not exceeding five years or both.

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 are to be kept for seven years from the year of assessment the income relates to.

Stamp Duties

The stamp duties levied on certain types of documents attract an ad valorem duty, whereas with other documents the duty varies.

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 awarded to companies in categories such as export of services, production for export and new technology. Companies must fulfil the criteria 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 certain actions if the collector is satisfied that such arrangement is to alter the incidence of any tax or to relieve any person from liability to pay tax.

Tax Residence

A resident 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 in 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 territorial 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 agreements with the UK, Indonesia, China, Singapore, Vietnam, Bahrain, Oman, Japan, Pakistan, Malaysia and Hong Kong SAR. It has also signed treaties with Laos, Kuwait and Tajikistan. These agreements provide proportionate relief from Brunei Darussalam’s income tax upon any part of the 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 domestic rate may be obtained on income arising from Commonwealth countries that provide reciprocal relief.

Other Treaties

To protect investors and investments of signatory countries, Brunei Darussalam entered into Bilateral Investment Treaties with Germany, Oman, South Korea, China, Ukraine, India and Bahrain.

As part of its commitment to the international exchange of information, Brunei Darussalam signed a Tax Information Exchange Agreement with France with the objective of promoting cooperation in tax matters through exchange of information.

As a member of ASEAN, Brunei Darussalam is a signatory to the ASEAN Agreement on the Protection and Promotion of Investment, as well as a signatory to 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 of between 5% and 30%. With the ASEAN Free Trade Agreement, which aims to remove all tariffs between ASEAN states in place, tariffs had been reduced to 0-5%.

Indirect Taxes

There are no indirect taxes such as services or goods tax and value-added or sales taxes.

Financial Centre

Under the Brunei International Financial Centre jurisdiction, international business companies (IBCs) are not liable for any taxes and the BITA does not apply. Although no tax returns are required, accounting records must be maintained whilst audit of the accounts are optional except for those with financial service licences. IBCs can only conduct business outside Brunei Darussalam and transactions with residents are not permitted without prior permission.

Exchange Control

Since 1967 the local currency has been at par and interchangeable with the Singapore dollar. There are no restrictions on currency movements or exchange controls; however, in line with international practice to deter money laundering, money brought in and out of the country must be declared.