Tax Structure (Taxation)

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Guide to doing Business in Brunei

The Ministry of Industry and Primary Resources in actively promoting investments, has provided the following guide to investors.

Why Invest in Brunei Darussalam?

Investors will find that Brunei Darussalam offers a favorable and conducive environment for a profitable investment. Some of the key reasons are:-

* Brunei Darussalam is a stable and prosperous country which offers not only excellent infrastructure but also a strategic location within the ASEAN group of countries;

* Brunei Darussalam has no personal income tax, no sales tax, payroll, manufacturing or export tax. Approved foreign investors can also enjoy a company tax holiday of up to 8 years;

* The regulations relating to foreign participation in equity are flexible. In many instances there can be 100 percent foreign ownership;

* There are no difficulties in securing approval for foreign workers, ranging from labourers to managers;

* The costs of utilities are among the lowest in the region;

* The local market, while relatively small, is lucrative and most overseas investors will encounter little or no local competition;

* The living conditions in Brunei Darussalam are among the best and most secure in the region.

* Above all else, His Majesty's Government genuinely welcomes foreign investment in almost any enterprise and will ensure that you receive speedy, efficient and practical assistance with all your enquires.

Infrastructure

The country's infrastructure is well developed and ready to cater for the needs of the new and vigorous economic activities under the current economic diversification programme.

The country's two main ports, at Muara and Kuala Belait, offer direct shipping to Hong Kong, Singapore and several other Asian destinations. Muara, the deep-water port, 29 kilometers from the capital, was opened in 1973 and has since been considerably developed. There is 12,542 sq. metres of warehouse space and 6.225 sq. meters in transit sheds. Container yards have been increased in size and a container freight station handles unstuffing operations.

The recently expanded Brunei International Airport at Bandar Seri Begawan included the expansion of both passenger and cargo facilities to meet an expected substantial increase in demand. The new terminal, designed to handle 1.5 million passengers and 50,000 tonnes of cargo a year, is expected to meet demand until the end of the decade.

The 2,000-kilometre road network serving the entire country is being expanded and modernised. A main highway runs the entire length of the country's coastline. It conveniently links Muara, the port entry point at one end, to Belait, the oil-production centre, at the western end of the state.

Telecommunications  

Brunei Darussalam has one of the best telecommunication systems in South-East Asia and has major plans for improving it further. With an estimated population of about 270,000, the rate of telephone availability is currently 1 telephone for every 3 persons. And this is being continually upgraded.

There are two earth satellite stations providing direct telephone, telex and facsimile links to most parts of the world. Several systems currently in operation serving the country include an analogue telephone exchange, fibre-optic cable links with Singapore and Manila, a packet switching exchange for access to high speed computer bases overseas, cellular mobile telephone and paging system. Direct telephone links are available to the remotest parts of the country through microwave and solar-powered telephones.

Economy  

Brunei Darussalam's economy is dominated by the oil and liquified natural gas industries and Government expenditure patterns. Brunei Darussalam's exports consist of three major commodities, namely: crude oil, petroleum products and liquified natural gas. Exports are destined mainly for Japan, the United States and ASEAN countries.

The second most important industry is the construction industry. This is directly the result of increased investment by the Government in development and infrastructure projects within the current series of five-year National Development Plans.

Brunei Darussalam has entered a new phase of development in its drive towards economic diversification from dependence on the oil and liquified natural gas-based economy. It is encouraging to note that the contribution from the non-oil and gas-based sector of the economy, as reflected in the contribution to GDP (Statistical Year Report 1991), has continued to increase. The private sector (other than the oil and natural gas sector) contributes 24.31 percent compared to 46.43 percent of the oil and natural gas sector. Moreover the total number of establishments (registered) in the private sector has increased from 3,591 in 1986 to 4,749 in 1990, a significant increase of 32.2 percent.

This encouraging trend was initiated by the Government's moves to diversify the economy and to promote the development of the private sector as a means to attain this goal. This strategy was solidly backed-up by the implementation of the Investment Incentive Act in 1975 and the formation of the Ministry of Industry and Primary Resources in 1989.

The Government has very large foreign reserves and no foreign debt. Brunei Darussalam is, in fact, a significant international investor. The Brunei Investment Agency (BIA), formed in 1983, is entrusted with the management of the foreign reserves.

Employment

The Government sector is the largest employer, providing jobs for more than half the working population. The rest largely worked for Brunei Shell Petroleum Sdn. Bhd. and Royal Brunei Airlines. In 1992 the number of employees in the private sector has increased to 61,761 from 53,613 in 1990. Of the total, 47,125 (76.3%) are foreign workers.

The small size of the indigenous work-force and the locals preference for public sector employment is a major constraint to development. Foreign workers have helped to ease labour shortages and make up over a third of the workforce. Regulations and procedures on recruitment of foreign workers are straight-forward and Government's assistance are readily available in securing approval for foreign workers ranging from labourers to executive managers.

Finance - Policies and Regulations

Although Brunei Darussalam has no central bank, the Ministry of Finance through the Treasury, the Currency Board and the Brunei Investment Agency exercises most of the functions of a central bank. Brunei Darussalam's monetary policy has been determined by linking the Brunei Darussalam's dollar to the Singapore dollar and there is parity between the two. The Ministry of Finance feels that the Monetary Authority of Singapore exercises sufficient caution and such a link will not have detrimental effects on the economies of either country. At the same time, this agreement is not seen as inhibiting the management of the domestic economy.

Currency

Currency matters are the responsibility of the Brunei Darussalam Currency Board. It is responsible for the issuing and redemption of State banknotes and coins and the supervision of the banks. The setting up of a Central Monetary Authority is under consideration.

Money supply growth is presently around 20 percent per annum. The ratio of external assets to demand liabilities is around 110 percent - considerably more than the 70 percent laid down by the Board's governing Act.

Exchange Controls

There is no foreign exchange control. Banks permit non-resident account to be maintained and there is no restriction on borrowing by non-residents.

Banking and Insurance

There are currently eight commercial banks providing full banking services in the country. Two of these are locally incorporated. International banks such as Citibank, Hongkong and Shanghai Bank and Standard Chartered Bank have been operating branches in the state for decades. The financial sector also includes a number of locally incorporated and international finance and insurance companies. Interest rates are set by the Association of Banks.The authorities have been preparing to implement a comprehensive financial regulatory system via the proposed new Banking Act. The establishment of a development bank is also under consideration.

Economic Development Board

The Economic Development Board is responsible for directly assisting local businessmen by providing loans at favourable rates of interest for start-up and expansion of their business. The scheme provides loans for up to a maximum amount of B$1.5 million at 4 percent interest rate repayable up to a maximum period not exceeding 12 years.

Taxation

Brunei Darussalam has no personal income tax. There are no export, sales, payroll or manufacturing taxes. In fact Brunei Darussalam has the least taxes compared to other countries in the region. Sole proprietorship and partnership businesses are not subject to income tax. Only companies are subject to income tax and it is one of the lowest in the region.

Moreover tax advantages at start-up and ongoing incentives throughout growth and expansion offer investors profitable conditions that are comparable if not better than those offered by other countries in the region.

Company Taxation

Companies are subject to tax on the following types of income:-

* Gains of profits from any trade, business or vocation;

* Dividends received from companies not previously assessed for tax in Brunei Darussalam;

* Interest and discounts; and

* Rents, royalties, premiums, and any other profits arising from properties.

There is no capital gains tax. However, where the Collector of Income Tax can establish that the gains form part of the normal trading activities, they become taxable as revenue gains.

The profits of a company are subject to tax at the rate of 30%. Tax concession may be available. The profit or loss of a company as per its accounts is adjusted for income tax purposes to take into account certain allowable expenses, certain expenses prohibited from deduction, wear and tear allowances and any losses brought forward from previous years, in order to arrive at taxable profits.

Treatment of Dividends

Dividends accruing in, derived from, or received in Brunei Darussalam by a corporation are included in taxable income, apart from dividends received from a corporation taxable in Brunei Darussalam which are excluded. No tax is deducted at source on dividends paid by a Brunei Darussalam corporation.

Dividends received in Brunei Darussalam from United Kingdom or Commonwealth countries are grossed up in the tax computation and credit is claimed against the Brunei Darussalam tax liability for tax suffered either under the double tax treaty with the United Kingdom or the provision for Commonwealth tax relief. Any other dividends are included net in the tax computation and no foreign tax is available. Brunei Darussalam does not impose any withholding tax on dividends.

Allowable Deductions

All expenses wholly or exclusively incurred in the production of taxable income are allowable as deductions for tax purposes. These deductions include:-

* Interest on borrowed money used in acquiring income;

* Rent on land and buildings used in the trade or business;

* Costs of repair or premises, plant and machinery;

* Bad debts and specific doubtful debts, with any subsequent recovery being

treated as income when received; and

* Employer's contributions to approved pensions or provident funds.

Disallowable Deductions

Expenses not allowed as deductions for tax purposes include:

* Expenses not wholly or exclusively incurred in acquiring income;

* Domestic private expenses;

* Any capital withdrawal or any sum used as capital;

* Any capital used in improvements apart from replanting of plantations;

* Any sum recoverable under an insurance or indemnity contract;

* Rent or repair expenses not incurred in the earning of income;

* Any income tax paid in Brunei Darussalam or in other countries; and

* Payments to any unapproved pension or provident funds.

Donations are not allowable but claimable if they are made to approved institutions.

Allowances for Capital Expenditure

Depreciation is not allowable expense and is replaced by capital allowances for qualifying expenditure. The tax payer is entitled to claim wear and tear allowances calculated as follows:-

Loss Carryovers

Losses incurred by a company can be carried forward for six years for set-off against future income, and can be carried back one year. There is no requirement regarding continuity of ownership of the company, and also the loss set-off is not restricted to the same trade.

Foreign Tax Relief

A double taxation agreement exists with the United Kingdom and provides proportionate relief from Brunei Darussalam income tax upon any part of the income which has been or is liable to be charged with United Kingdom income tax. Tax credits are only available for resident companies.

Unilateral relief may be obtained on income arising from Commonwealth countries that provide reciprocal relief. However, the maximum relief cannot exceed half the Brunei Darussalam rate. This relief applies to both resident and non-resident companies.

Stamp Duty  

Stamp duties are levied on a variety of documents. Certain types of documents attract an ad valorem duty, whereas with other documents the duty varies with the nature of the documents.

Petroleum Taxes

Special Legislation exists in respect of income tax from petroleum operations which is taxable under the Income Tax (Petroleum) Act 1963 as amended.

Withholding Taxes

Interest paid to non-resident companies under a charge, debenture or in the respect of a loan, is subject to withholding tax of 20%. There are no other withholding taxes.

Estate Duty

Estate duty is levied on an estate of over B$2 million at 3% flat rate for a person who died on or after 15th December 1988.

Import Duty

In general, basic foodstuffs and goods for industrial use are exempted from import duties. Electrical equipment and appliances, timber products, photographic materials and equipment, furniture, motor vehicles and spare parts attract duties of 20%, while cosmetics and perfumes are subject to 30% duty.

In addition, cigarettes are dutiable items.

Registration of Companies

In Brunei Darussalam a business may be set up under any of the following categories:-

* sole proprietorship

* Partnership

* company and

* branch of foreign company.

All business must be registered with the Registrar of Business Names or Registrar of Companies except those using the full name of the owner. Business premises are required to be licensed under the Miscellaneous Licences Act (Cap 127).

Books of Accounts

Each company is required under the Companies Act to prepare each year a profit and loss account and balance sheet, accompanied by a Directors' Report. The books of account should be kept at the registered office.

Audits and Accounts

All companies must appoint auditors who are Brunei Darussalam's registered auditors. The auditors are to report to the shareholders annually whether they have obtained all the information and explanations that they have required and whether the balance sheet submitted to the annual general meeting of the shareholders give a true and fair view.

Branches of foreign companies should prepare branch accounts. These accounts, which need not be audited,are required to support the tax computation.

Reporting Requirements

Companies incorporated in Brunei Darussalam, other than public companies, are not required to file their annual accounts with the Registrar of Companies. However, most business organisations are required to submit accounting data annually to the Economic Planning Unit for statistical purposes.Branches of foreign companies are required to file the annual financial accounts of the company with the Registrar of Companies.

Annual returns, containing information on directors and shareholders, must be made by companies incorporated in Brunei Darussalam. There are provisions in the Companies Act for the late filing of annual and other returns.

Registration Fees

Registration fees based on a graduated scale and on the authorised share capital of the company are payable. As an example, a company with an authorised capital not exceeding $25,000 are liable to a registration fee of $300 not including charges for filing of documents.

Registration of Trademarks and Patents

Trademarks are registrable provided the requirements laid down in the Trademarks Act (Cap 98) are satisfied. Once registered, they are viable for an initial period of seven years and renewable for a further period of fourteen years.

Any person who obtained a grant of a patent in the U.K. or Malaysia or Singapore may apply to the Ministry of Law within three years of the date of issue of such grant to have such grant registered in Brunei Darussalam under the Invention Act (Cap 72). There is no specific legislation for copyright protection, but U.K. legislation would apply where necessary.

Employment Regulations

Labour policy in Brunei Darussalam is flexible. The shortage of local labour has been compensated by the recruitment of foreign workers which makes up about one-third of the total work-force. Thus an investor rarely faces difficulties in securing approval for recruiting foreign workers especially in cases where locals are not available to perform the job.

All non-Brunei Darussalam citizens require a work permit which are valid for two years. Application must first be made to the Labour Department for a labour licence. On the recommendation of the Labour Department, the Immigration Department will give permission for the workers to enter Brunei Darussalam. The Labour Department requires either a cash deposit or a banker's guarantee to cover the cost of a one-way airfare to the home country of an immigrant worker.

An approved labour licence cannot be alterted for at least six months after issue. Applications will not be accepted until the formation of a local company or a branch of a foreign company has been officially approved and registered.

Industrial Relations  

The Trade Disputes Act (Cap 129) accords to trade unions the customary immunities and proctections in respect of acts done in furtherance of trade disputes. It prescribes procedures for conciliation and, subject to the consent of the parties, arbitration in disputes where machinery within the industry concerned does not exist or has failed to achieve settlement.

Trade unionism of either the employers or workers is not extensively practised in Brunei Darussalam. As has been already observed, the industrial structure consists almost entirely of small-scale enterprises. This state of affairs and the nature and cultural characteristics of the population are conductive to accommodation and a "give and take attitude" rather than a confrontational attitude. Except in the oil industry, the system of collective bargaining has not emerged.

Relations between employers and employees are generally good. Existing labour laws have adequate provisions such as for termination of employments, medical care and maternity leave and compensation for disablement. Labour disputes are very rare. The Government has recently implemented the Workers' Provident Fund Enactment to cover workers both in the public and private sectors.

Visas

Malaysian, Singaporean and British nationals with the right of abode in the U.K. are exempted from the requirement to obtain a visa for visits not exceeding 30 days.

Visas are also waived for visits of 14 days for nationals of Thailand, Indonesia, The Philippines, Japan, France, Switzerland, Republic of Korea, Canada, The Netherlands,

Luxembourg, Belgium, Federal Republic of Germany, Sweden and Republic of Maldives. However, visas are required if nationals of these countries intend to stay in Brunei Darussalam for longer than 14 days.

American nationals are not required to obtain entry visa for a stay of 90 days or less for tourist and business purpose.

All other nationals entering Brunei Darussalam must have visas obtainable from any Brunei Darussalam diplomatic mission or representatives of other governments who are performing consular functions on behalf of His Majesty's government.

Visitors who wish to enter Brunei Darussalam to take up employment must arrange with their employers to obtain employment passes prior to their arrival. Spouses and children under 18 years of age of pass holders are required to obtain dependents' passes.

Access

Royal Brunei Airlines, the national carrier was established in 1975. Within its rapid expansion programme it operates regular services between Brunei Darussalam and London, Frankfurt, Zurich, Singapore, Jakarta, Bali, Darwin, Perth, Hongkong, Manila, Kota Kinabalu, Kuching, Kuala Lumpur, Taipei, Bangkok, Abu Dhabi and Dubai. Malaysia Airlines, Singapore Airlines, Philippine Airlines and Thai International also serve Brunei Darussalam.

International Relation and Trade Development

In the perspectives of economic cooperation with foreign countries at the bilateral and multilateral levels, Brunei Darussalam seeks relevant agencies that could contribute to the developmental needs and establish networking. The areas of concern are:-

a) To facilitate investment into Brunei Darussalam;

b) To facilitate the development of trade;

c) To enhance human resources development and technology transfer; and

d) To enhance bilateral, regional and multilateral economic cooperation.

In pursuing these areas, mechanism for consultations and co-operation has been established through bilateral, regional and multilateral forum such s Association of South-East Asian Nations (ASEAN), Asia Pacific Economic Cooperation (APEC), Organisation of Islamic Countries (OIC), European Community (EC), The Commonwealth, United Nations (UN) and The Non-Aligned Movement (NAM).

Investment Promotion

In the area of investment, Brunei Darussalam is currently engaged in a programme to improve its investment climate with the view to create and enhance investment opportunities in Brunei Darussalam, both for local and foreign investors. The programme involved the establishment of bilteral investment treaties with foreign governments and memorandums of understanding (MOU's) between Brunei Darussalam's private sector and private sectors of other countries.

Trade Development

In the area of trade development, Brunei Darussalam is facilitating market opportunities to increase market access in regional markets and to monitor trading environment in the region as well as globally. Brunei Darussalam practices open multilateral trading system which are being pursued through regional and multilateral trading arrangement such as ASEAN Free Trade Area (AFTA) and General Agreement on Trade and Tariffs (GATT). These open trade policies is consistent with Brunei Darussalam's efforts in pursuing outward-looking economic policies which will assist the country in expanding its industrial and primary resources-based industries.

Human Resources Development and Technology Transfer

In the area of human resources development and technology transfer, there is a need to improve the technological capabilities of existing local industries which are mainly small and medium-scale enterprises in nature. This is in view of the existing shortages of local manpower and thus the need to import foreign workers. The programmes are targeted towards the development of the midband occupational structure in which Brunei Darussalam has the advantage in view of cost factor such as the non-existence of income tax.

Within the context of general economic cooperation, Brunei Darussalam will continue to enhance her economic linkages with other countries in the region as well as outside the region.

Ministry of Industry and Primary Resources

Brunei Darussalam welcomes foreign investment. Foreign investors are invited to actively participate in the current economic diversification programme of the country. The programme hinges on the development of the private sector. The Ministry of Industry and Primary Resources was formed in 1989 with the responsibility of promoting and facilitating industrial development in Brunei Darussalam. Brunei Darussalam offers all investors security, stability, continuity, confidence and competitiveness.

Competitive investment incentives are ready and available for investors throughout the business cycle of start up, growth, maturity and expansion. The Investment Incentive Act which was enacted in 1975 provides tax advantages at start up and ongoing incentives throughout growth and expansion that are comparable if not better than those offered by other countries in the region.

Industrial activities are classified into four categories:-

1. Industries related to national food security

2. Industries for local market

3. Industries based on local resources

4. Industries for export market

Flexible Policies

Industrial policies including manpower, ownership, government support and facilities remain open and flexible for all categories of industrial activities. Brunei Darussalam maintains a realistic approach where a variety of arrangements are feasible. Policies relating to ownership allow for full foreign ownership, majority foreign ownership and minority foreign ownership, as per the type of industry and situation. Only activities relating to national food security and those based on local resources require some level of local participation. Industries for the local market not related to national food security and industries for total export can be totally foreign owned. Overall, in Brunei Darussalam, any industrial enterprise will be considered.

Supportive Environment

Brunei Darussalam offers vast land and a variety of facilities throughout all four districts of the country. The majority of the 12 industrial sites presently developed are ready and available for occupation. Large expanses for agroforestry and aquaculture are also available. Rental terms and tenancy agreements are competitive and the sites offer a range of facilities, infrastructure and resources.Brunei Darussalam gives priority to ensuring the stability of the natural environment. As such, all sites are free from pollution and are ecologically well balanced. The Government philosophy is for sustainable development. Therefore, all polluting industries are banned and one of the continuing criteria for engaging any industry's participation is the impact on the environment.

One-Stop Agency

As the focal point for all industrial development, the Ministry of Industry and Primary Resources coordinates all industrial development activities. For investments in Br