Major Tax Amendments In Brunei Darussalam

Published by slang July 17th, 2008 in Asia-Pacific

On 5 th March 2008, it was announced that there were certain major amendments to the Income Tax Act (Cap 35) effective from 1st January 2008

Of important concerns are the reduction of corporate tax rate, certain tax threshold for SMEs and the introduction of witholding tax. Previously, companies have been using management fee to extract profits from Brunei but now it seems that the witholding tax for management fee is 20% which is quite hefty.

Extracted from the website:http://www.mof.gov.bn are the following amendments:

1. Revision of the Corporate Tax Rate under Section 35 of the Income Tax Act (Cap 35)

The corporate income tax rate chargeable under section 35 of the Income Tax Act (Cap 35) is revised as follows:

· For the Year of Assessment 2008 – 27.5%

· For the Year of Assessment 2009 and subsequent Years of Assessment – 25.5%

2. Introduction of Income Tax Threshold - Section 35 (4)

As a measure to reduce the tax liabilities of SMEs, a new tax threshold has been introduced. With this, tax computation on the first $100,000 of the Chargeable Income, shall be computed as follows:

i) For the first $50,000 of chargeable income, only 25% shall be charged at the applicable tax rate (i.e. $50,000 X 25% X 27.5%);

ii) For the next $50,000 of chargeable income (i.e. $50,001 to $100,000), only 50% shall be charged at the applicable tax rate (i.e. $50,000 X 50% X 27.5%);

iii) The remaining balance of the chargeable income (Total Chargeable Income - $100,000), shall be taxed at the applicable tax rate, i.e. 27.5% for YOA 2008 and 25.5% for YOA 2009 and subsequent years of assessment.

Example: Chargeable Income (CI) = $500,000

Threshold	For every dollar of the first $50,000	For every dollar of the next $50,000	For every dollar exceeding $100,000
25 percent of CI	$50,000 x 25% x 27.5%
25 percent of CI	= $3,437.50
50 percent of CI		$50,000 x 50% x 27.5%
50 percent of CI		= $6,875.00
100 percent of CI			$400,000 x 27.5%
100 percent of CI			= $110,000
Total Tax Payable	$3,437.50 + $6,875 + $110,000 = $120,312.50

iv) However for newly incorporated companies in Brunei Darussalam, under section 35(5) of Income Tax Act (Cap 35), exemption will be granted for the first $100,000 of the chargeable income of the company during the first 3 consecutive Years of Assessment falling within or after Year of Assessment 2008. However, for the balance of the chargeable income (Total Chargeable Income - $100,000) shall be charged with tax at the applicable rate (27.5% for YOA 2008; 25.5% for YOA 2009 and subsequent years of assessment).

Note: First 3 years of assessment in relation to a newly incorporated company means the year of assessment relating to the basis period during which the company is incorporated or registered in Brunei Darussalam and the 2 consecutive years of assessment immediately following that year of assessment.

Example:

	YA 2008	YA 2009	YA 2010
Chargeable Income	$150,000	$350,000	$500,000
Part of Chargeable Income subject to tax
For every dollar of the first $100,000	NIL	NIL	NIL
For every dollar exceeding $100,000	$50,000 x 27.5%	$250,000 x 25.5%	$400,000 x 25.5%
For every dollar exceeding $100,000	= $13,750	= $63,750	= $102,000

3. Capping on Deductible Expenses and Capital Allowance With Respect to Motor Vehicles

With effect from 1^st January 2008, qualifying expenditure on each motor vehicle, which is constructed or adapted for the carriage of not more than 7 passengers (exclusive of the driver), and the weight of the motor vehicles does not exceed 3,000 kilograms, bought on or after 1^st January 2008, shall be restricted to a maximum limit of $50,000.00 [Section 16(4) and 16(5)].

Section 11(1A) of Income Tax Act (Cap 35) also restricts deduction on expenses incurred on motor vehicles that costs more than $50,000.00. The amount of expenses deductible for tax purposes shall be limited to the proportion that $50,000.00 bears to the actual costs of the motor vehicles.

For example, a car costs $60,000.00 and during the year incurs maintenance expenses of $10,000.00, including fuel and repair, the deduction allowable on the expenses incurred for that year of assessment shall be computed as follows:

$50,000 X $10,000	=	$8,333
$60,000

4. Addition to Deductible Expenses (Section 11(1)(fa))

Payment of zakat, fitrah or any religious dues on which is made under any written law shall be allowed as a tax deduction.

5. Increase in Capital Allowance Rate for BuildingIndustrial or Structure

As a measure to encourage and promote more investment into the manufacturing sector, the rate for claims on Capital Allowances, i.e. the Initial and Annual Allowances under section 13(1) and 13(2)(a) of the Income Tax Act, has also been revised and increased as follows:

Capital Allowance	Existing Rate	Revised Rate
Initial Allowance	10%	20%
Annual Allowance	2%	4%

6. Building Industrial or Structure to include Hotel-Keeping

In line with the Government’s effort to promote tourism sector in Brunei Darussalam, claims for capital allowance on Industrial Building or Structure under section 15(1) of the Income Tax Act (Cap 35) has now been expanded to include capital expenditure on the construction of a building or structure which is occupied for the purposes of a trade of hotel-keeping.

Therefore for any such building or structure which is in operation prior to 1^st January 2008, shall only be eligible to claim Annual Allowance at the rate of 4% per annum in accordance with section 15(3) of the Income Tax Act (Cap 35). Claims for Initial Allowance for such building or structure will only be available to the Capital Expenditure incurred or buildings or structured completed on or after 1^st January 2008.

7. Expanding the Scope of Withholding Tax

Income subject to withholding tax

With effect from 1 January 2008, withholding tax shall now be payable on the following payments which are sourced in Brunei Darussalam or deemed to be sourced in Brunei Darussalam under section 9(4) or section 9(5) of the Income Tax Act (Cap 35):

Interest, commission, fees and other payments relating to loans;
Royalties or other lump sum payments for the use of movable property;
Know-how payments for the use of scientific, technical, industrial or commercial knowledge or information;
Management fees;
Technical assistance or service fees;
Rent for the use of movable property;
Any remuneration paid by a company to a director who is not resident in Brunei Darussalam.

Withholding tax rates

Tax must be withheld from payments made to a non-resident person on or after 1 January 2008 at the following rates:

Nature of payment	Section	Withholding tax rate
Interest, commission, fee or other payment in connection with any loan or indebtedness	35(2)	15%
Royalties or other lump sum payments for the use of movable properties	35(3)	10%
Payment for the use of or the right to use scientific, technical, industrial or commercial knowledge or information	35(3)	10%
Technical assistance and Service Fees	35(6)	20%
Management Fees	37A	20%
Rent or other payments for the use of movable property	35(2)	15%
Non-resident Directors’ Remuneration	37B	20%

Date of Payment

Prior to the amendment, withholding tax is only levied on payment of interest when physical transaction is deemed to have been carried out. However, as of the effective date, section 37(7)(b) of the Income Tax Act (Cap 35) deems the interest as having been paid to the non-resident person on the date on which the interest is “reinvested, accumulated, capitalized, carried to any reserve or credited to any account however designated or otherwise dealt with on behalf of the non-resident person” although it is not actually paid over to that person.

With regards to the above paragraph, the taxpayer is required to notify and pay the tax withheld to the Collector of Income Tax within 14 days after the date of payment of income specified in section 9(4) or 9(5) of Income Tax Act (Cap 35).

Penalties for Late Payment (Section 37(4))

Any taxpayer who fails to deduct or pay withholding tax to the Collector of Income Tax within the specified period, shall be chargeable with penalties at the following rates:

(a) A penalty of 5% will be imposed on the tax withheld if it is not received by the Collector of Income Tax within 14 days after the date of payment of income to the non-resident person; and

(b) An additional penalty of 1% will be imposed for each completed month that the tax withheld remains unpaid, up to a maximum of 15% if the tax withheld is not paid over the Collector of Income Tax after 30 days from the date of payment of the income to the non-resident person.

8. Requirement of Keeping of Books

Each company is required to keep adequate records of business transactions for the 7-year period to enable the Collector of Income Tax to determine the correct amount of tax liable to the company. The required records include complete and accurate records of opening and closing stocks, purchases, sales, receipts, invoices, bills of lading, and all other documents and books of account pertaining to business.

9. Change of Time Limit to Make Objection/Appeal

A time limit for a person to lodge an objection to the assessment with the Collector of Income Tax is no longer sixty (60) days as it has now been changed to thirty (30) days from the date of the service of the notice of assessment.

10. Power to Compound

Section 78(3) of the Income Tax Act (Cap 35) allows the Collector of Income Tax to compound any offences under Section 78(1).These amendments are regulated by the following Orders:

± Income Tax Act (Amendment) Order, 2008
± Income Tax Act (Amendment) (No. 2) Order, 2008

If you found this post useful, keep updated with future posts by subscribing to FMAccounting (for free) through RSS or email.