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Allowable Deductions
All expenses wholly or exclusively incurred in the production of taxable income are allowable as deductions for tax purposes. These deductions include:
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Interest on borrowed money used in acquiring income;
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Rent on land and buildings used in the trade or business;
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Costs or repair or premises, plant and machinery;
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Bad debts and specific doubtful debts, with any subsequent recovery being treated as income when received;
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Employer’s contributions to approved pension or provident funds.
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Zakat, fitrah or any religious dues, payment of which is made under any written law.
Disallowable Deductions
Expenses not allowed as deductions for tax purposes include:
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Expenses not wholly or exclusively incurred in acquiring income;
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Domestic private expenses;
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Any capital withdrawal or any sun used as capital;
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Any capital used in improvements apart from replanting of plantations;
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Any sum recoverable under an insurance or indemnity contract;
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Rent or repair expenses not incurred in the earning of income;
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Any income tax paid in Brunei Darussalam or in other countries;
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Payments to any unapproved pension or provident fund.
Donations are not allowable but claimable if they are made to approved institutions.
Allowances For Capital Expenditure
Depreciation is not an allowable expense. However,capital allowances can be claimed for qualifying capital expenditure. The tax payer is entitled to claim capital allowances as described for particular categories of assets:
(a) Motor Vehicles
Qualifying expenditure is restricted to a maximum limit of B$50,000 on all motor vehicles bought on or after 1 January 2008, with a capacity of not more than 7 passengers (exclusive of the driver) and weighing not more than 3000kg.
The amount of expenses deductible for tax purposes on motor vehicles costing more than B$50,000 is limited to the proportion that B$50,000 bears to the actual costs of the motor vehicle.
(b) Industrial Buildings (including Hotel-Keeping)
With effect from 1 January 2008, in order to promote investment into the manufacturing sector, the initial allowance given in the year of expenditure has been increased to 20% and the annual allowance to 4% of the qualifying expenditure provided on a straight line basis until the total expenditure is written off.
Any such building which is in operation prior to 1 January 2008 shall only be eligible to claim annual allowance at the rate of 4% per annum. Claims for initial allowance will only be available to the capital expenditure incurred for buildings or structures completed on or after 1 January 2008.
(c) Machinery and Plant
As of 1 January 2009, an initial allowance of 40% (20% prior to 1 January 2009) of the cost is given in the year of expenditure together with annual allowances calculated on the reducing value of the assets. The rates prescribed by the Collector of Income Tax range from 3% to 25%, depending on the nature of the asset.
An annual allowance of 33⅓% in lieu of the above is given for a period of 3 years in respect of the capital expenditures incurred. As for computer or other prescribed automation equipment, one could opt for an allowance of 100% in respect of the capital expenditures incurred.
Balancing allowances or charges are made on disposal of the industrial building machinery or plant. These adjustments cover the shortfall or excess of the tax written down value as compare to the sale proceeds. Any balancing charge is limited to tax allowances previously granted, and any surplus is considered a capital gain and therefore does not become part of chargeable income.
Unabsorbed capital allowances can be carried forward indefinitely but must be set off against income from the same trade.
Loss Carry-Overs
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.
Withholding Taxes
As of 1 January 2009 withholding tax is payable on the following payments sourced in Brunei Darussalam and made to non-residents:
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15% on interest, commission, fees and other payments relating to loans
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10% on royalties or other lump sum payments for the use of movable property
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10% on know-how payments for the use of scientific, technical, industrial or commercial knowledge or information
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20% on management fees
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20% on technical assistance or service fees
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10% on rent or other payments for the use of movable property (15% prior to 1 January 2009)
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20% on a non-resident Director’s remuneration.
Full details on withholding taxes can be obtained from the Ministry of Finance’s website.
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