Brunei Introduction

Transcription

1 Introduction The Asia-Pacific region is an area of vast geographic, political and economic diversity which continues to hold great interest for investors. With the rapid economic growth of countries in the region, there is a need for complete and reliable information on which to base business and investment decisions and to operate effectively in these diverse economies. The Asia-Pacific Tax and Business Fundamentals presents a quick and easy overview of essential information on the tax systems in 19 selected countries in the Asia-Pacific region, as well as a short guide to doing business in these countries. This book aims to provide a convenient reference and a comparative context for those with an interest in these countries. The country surveys are based on information available to the IBFD up to the date indicated for each country. Each country survey is structured according to a common outline, as follows: 1. Introduction 2. Corporate Taxation 3. Individual Taxation 4. Other Taxes on Income and Capital 5. Indirect Taxation 6. Business and Investment The tables section contains an overview of corporate income tax rates, and domestic (i.e. non-treaty) and treaty withholding tax rates applicable to dividend, interest and royalty payments. More comprehensive coverage on the countries presented here as well as on other countries in the Asia-Pacific region can be found in the online collections on the IBFD Tax Research Platform. For the latest developments, see the IBFD s Tax News Service. Information about the IBFD, its activities and publications, including online services, is available on the IBFD s website at v IBFD

2 Brunei 1 1. Introduction The only tax imposed in Brunei is on the income of companies. There are no taxes on capital gains, sales tax, value added tax or social security contributions. Brunei is a sultanate that lies on the north-western coast of the island of Borneo bordering the South China Sea and Malaysia. The law governing the imposition of income tax is the Income Tax Act (ITA). The tax administration agency is the Revenue Division which is responsible for all policies and matters pertaining to revenue through taxation and customs duties, relationships with other countries through bilateral agreements as well as other special duties. The Permanent Secretary of the Ministry of Finance is the Collector of Income Tax and the Collector of Stamp. 2. Corporate Taxation 2.1. Corporate income tax Taxable persons Although the law provides for the taxation of income of individuals, companies, and other bodies of persons, Brunei only imposes tax on the income of companies, and not on the income of individuals or other bodies of persons. Partnerships are not separate taxable persons and therefore, are not subject to income tax Residence A company is resident in Brunei if the management and control of its business is exercised in Brunei. The place of incorporation is irrelevant for the purposes of determining residence Taxable income General Brunei operates a territorial system, whereby resident companies are subject to tax on any income accruing in or derived from Brunei, or received in Brunei from outside Brunei. The taxable income is determined by subtracting allowable deductions from assessable income. Assessable income includes gains or profits from any trade, 1. This chapter is based on information available up to 1 February IBFD

3 Brunei business or vocation, income from investment such as interest and rental, royalties, premiums and any other profits from properties, and dividends received from companies not previously assessed for tax in Brunei. Income is generally recognized on an accrual basis rather than a cash or receipt basis Exempt income The following types of income are exempt from tax: interest income received from loans extended to the government of Brunei, provided that the approval of the Sultan is obtained; dividend income received by a company from income which has been subject to tax in Brunei; shipping profits of non-residents in certain cases; business income of charitable organizations, to the extent that it is applied solely for charitable purposes. The organization should either carry out the organization s primary purpose or the work of the organization should be carried out to persons for whose benefit the organization was established; income of municipal and local authorities; and investment income of approved provident funds and societies Deductions All expenses wholly or exclusively incurred in the production of taxable income are deductible. Deductible expenses include interest on loans used in acquiring income, royalties, rent on land and buildings used in the trade or business, bad and doubtful debts, and contributions to approved pension or provident funds. With effect from 1 January 2008, payments of Islamic religious dues such as zakat and fitrah are tax deductible. In addition, the deduction for motor car maintenance expenses such as fuel and repairs for vehicles that cost more than BND 50,000 is limited to the proportion that BND 50,000 bears to the actual cost of the vehicle. Non-deductible items include domestic or private expenses, disbursements or expenses not wholly and exclusively laid out or expended for the purpose of acquiring business income, any capital withdrawn or sum used or intended to be used as capital, any capital improvements (other than improvements effected in the replanting of a plantation), income tax paid in Brunei, the United Kingdom or the British Commonwealth, and payment to unapproved pension or provident funds Depreciation and amortization Accounting depreciation of industrial buildings, machinery and plants is not deductible. However, capital allowances are granted for qualifying capital expenditure, which can be deducted from business income. IBFD 46

4 Corporate Taxation There are no provisions in the law for the postponement of depreciation due to temporary disuse or for purchases made before the commencement of business. Plant and machinery With effect from 1 January 2009, an initial allowance of 40% (previously 20%) of the cost of plant or machinery is given in the year of expenditure, with an annual allowance at rates ranging from 3% to 25% on the declining value of the asset. Alternatively, instead of claiming the initial and annual allowances as above, annual allowances may be claimed over a period of 3 years, at the rate of 33.33% per year. Plant and machinery (excluding those on hire-purchase) not exceeding BND 2,000, computers and other prescribed automation equipment qualify for a 100% write-off, subject to a maximum of BND 30,000 per year. The list of prescribed automation equipment is contained in the Income Tax (Automation Equipment) Rules 2009 and includes (i) data processing equipment such as computers and peripherals, (ii) office system software, and (iii) image or graphics processing equipment such as fax machines and laser printers. Industrial buildings Effective 1 January 2008, an initial allowance of 20% of the qualifying expenditure is given on industrial buildings (including hotels) in the year of expenditure, and an annual allowance of 4% of qualifying expenditure calculated on a straight-line basis until the total expenditure is written off. Motor vehicles Effective 1 January 2008, the qualifying capital expenditure of a motor vehicle constructed to carry a maximum of seven passengers (excluding the driver) and weighing up to 3,000 kg, is limited to BND 50, Reserves and provisions Reserves are generally not deductible. A deduction is only granted when the actual liability is ascertained and not when the reserve is made for a provisional or contingent liability Capital gains There is no capital gains tax in Brunei. However, if assets have been acquired for resale rather than for a company s use, any profit from the sale is regarded as business income, and is subject to income tax. 47 IBFD

5 Brunei Losses Ordinary losses Losses arising from a trade or business may be deducted from statutory income, and can be carried forward for 6 years to be offset against future income. Losses can be carried back 1 year provided that it is claimed in writing in the year after a year of assessment. There are no requirements for continuity of trade or ownership affecting the right to carry forward. Losses in one trade or business may be set off against other sources of income in a year of assessment Capital losses As there is no capital gains tax in Brunei, capital losses are not deductible Rates Income and capital gains The rate of corporate income tax is 20% from the year of assessment Previously, the rate was 22% in the year of assessment 2011, 23.5% in the year of assessment 2010 and 25.5% in the year of assessment Effective from the year of assessment 2011, small and medium-sized enterprises are subjected to tax as follows: the first BND 100,000 of chargeable income is taxed at 25% of the applicable tax rate; the next BND 150,000 is taxed at 50% of the applicable tax rate; and the balance is taxed at the prevailing rate. Newly incorporated companies are exempt from tax on the first BND 100,000 of chargeable income during each of their first 3 consecutive years of assessment falling in or after the year of assessment The balance is taxed at the prevailing tax rate. There is no tax on capital gains Withholding taxes on domestic payments Generally, payments to other resident companies do not attract withholding tax. See section for withholding rates on payments to non-residents Incentives Various tax incentives are available in Brunei which may grant full tax exemption, investment allowances or provide for carry-forward of losses. A tax relief period of not more than 20 years is granted for companies exporting qualifying services and 8 years for companies carrying on business in the international trade of qualifying manufactured goods. IBFD 48

6 Corporate Taxation Companies awarded the pioneer service and post-pioneer status are exempt from income tax and may carry forward losses and allowances. The tax relief period may not exceed 11 years. Companies granted incentives for the expansion of established enterprises are exempt from income tax for a period not exceeding 15 years. Since the establishment of the Brunei International Financial Center (BIFC) in 2000, Brunei introduced a number of additional forms of corporate entities available for business operations in the International Financial Centre, including International Business Companies, International Limited Partnerships and International Trusts which are exempt from corporate taxation Administration Taxable period The tax year is the calendar year. However, if the annual accounts are prepared to a date other than 31 December, and the Collector is satisfied that accounts are made up to that date regularly, he will generally accept that period as the basis period Tax returns and assessment Brunei operates a self-assessment system whereby all companies, whether or not resident, which carry on a trade or business in Brunei are required to file a tax return within 3 months from the issuance of the form in January of each year. Regardless of the company s year-end, the tax return must be filed by 31 March of the calendar year following the financial period. A company is also required to submit its estimated chargeable income to the Collector of Income Tax within 3 months after the end of the accounting period relating to that year of assessment Payment of tax Advance tax on the basis of estimated chargeable income is payable on or before the due date for furnishing the estimated chargeable income, i.e. within 3 months after the end of the accounting period relating to that year of assessment. Tax on the basis of the income tax return is payable on or before 30 June. Tax on the basis of additional assessments is payable within 30 days from the date of service of the notice of assessment Rulings There are no provisions for advanced rulings. 49 IBFD

7 Brunei 2.2. Transactions between resident companies Group treatment There are no specific provisions for the taxation of groups of companies Intercompany dividends Dividends derived from a corporation which is taxable in Brunei are excluded from the recipient s computation of income. Dividends received by a company must be included in the taxable income of the recipient if the corporation paying the dividends is exempted from tax. There are no other specific provisions for the taxation of intercorporate dividends. Brunei does not levy any withholding tax on dividends International aspects Resident companies A company is resident in Brunei if the management and control of its business is exercised in Brunei. The place of incorporation is irrelevant for purposes of determining residence Foreign income and capital gains Resident companies are generally taxed on the income of companies accruing in, derived from or received in Brunei. As such, foreign income is taxed only when it is received in Brunei. The tax treatment for foreign income is generally the same as for Brunei-sourced income (see sections to ). Dividends paid out of income liable to tax in the United Kingdom or another Commonwealth country is grossed up to include such tax, regardless of whether or not it has actually been paid. A credit is then given for the tax paid in these countries. Other foreign-sourced dividends are included net of tax in the tax computation and no foreign tax credit is available Double taxation relief Unilateral relief is granted, in respect of tax paid in a Commonwealth country with which Brunei has no treaty arrangement. The maximum relief cannot exceed one half of the Brunei tax rate. In the case of residents, if the Commonwealth rate of tax does not exceed one half of the Brunei tax rate, the full amount of the Commonwealth tax is allowed as a relief. In the case of non-residents, if the Commonwealth rate of tax does not exceed the Brunei tax rate, one half of the Commonwealth tax rate is given as relief. If IBFD 50

8 Corporate Taxation the Commonwealth tax rate exceeds the Brunei tax rate, the difference between the Brunei tax rate and one half of the Commonwealth tax rate is given as relief. The relief may be obtained on income arising from Commonwealth countries that provide reciprocal relief Non-resident companies A non-resident company is a company that is not a resident of Brunei (see section ) Taxes on income and capital gains The business income of non-residents is subject to tax if derived through a permanent establishment in Brunei, and are generally subject to tax under the normal rules and rates (see sections to ). The domestic definition of a permanent establishment is a fixed place where a business is wholly or partly carried on including: a place of management; a branch; an office; a factory; a warehouse; a workshop; a farm or plantation; a mine, oil well, quarry or other place of extraction of natural resources; and a building or work site or a construction, installation or assembly project. Without prejudice to the generality of the above, a person is deemed to have a permanent establishment in Brunei if that person: carries on supervisory activities in connection with a building or work site or a construction, installation or assembly project; or has another person acting on that person s behalf in Brunei who: has and habitually exercises an authority to conclude contracts; maintains a stock of goods or merchandise for the purpose of delivery on behalf of that person; or habitually secures orders wholly or almost wholly for that person or for other enterprises controlled by that person. Non-residents without a permanent establishment in Brunei are taxed only on income sourced in Brunei. See section for withholding taxes Administration If income received is subject to final withholding tax only and the tax is properly withheld, there should be no filing requirements (see section ). Otherwise, 51 IBFD

9 Brunei the requirements for non-residents to file tax returns are the same as for residents. See section for tax compliance and administration Withholding taxes on payments to non-resident companies Dividends There is no withholding tax on dividends paid by a Brunei corporation Interest Interest, commission, fees and other payments relating to loans paid or credited to a non-resident company are subject to final withholding tax at a flat rate of 15% (previously 20%) with effect from 1 January The tax is set off against the company s ultimate liability for the relevant year of assessment Royalties Royalties, lump-sum payments for the use of movable properties, know-how payments for the use of scientific, technical, industrial or commercial knowledge or information paid to non-residents on or after 1 January 2008 are subject to a final withholding tax of 10% Other Rent or other payments for the use of movable property paid to non-residents on or after 1 January 2009 are subject to a final withholding tax of 10% (15% in 2008). Management fees, technical assistance and service fees paid to non-residents on or after 1 January 2008 are subject to a final withholding tax of 20% Anti-avoidance General The Collector has the discretion to disregard transactions which are, in his assessment, sham transactions Transfer pricing There are no transfer pricing rules Thin capitalization There are no thin capitalization rules Controlled foreign company There are no controlled foreign company rules. IBFD 52

10 Other Taxes on Income and Capital 3. Individual Taxation Although the ITA provides for the taxation of income derived by individuals, this income is nonetheless exempt from tax (First Schedule (1)(a) of the ITA). Non-resident individuals are also not subject to tax in Brunei. However, remuneration paid to non-resident directors on or after 1 January 2008 is subject to a withholding tax of 20%. A person is resident in Brunei if he resides in Brunei and is physically present or exercises an employment (other than as a director of a company) in Brunei for 183 days or more in the preceding year of assessment. Profits arising from the sale of capital assets by individuals are not subject to income or capital gains tax. There is neither sales tax nor value added tax. 4. Other Taxes on Income and Capital 4.1. Other taxes on income Petroleum income tax Income derived from petroleum operations is subject to petroleum profits tax under the Income Tax (Petroleum) Act Tax is imposed at the rate of 55% Other There are no other taxes on income Taxes on payroll Payroll tax There is no payroll tax levied on employers Social security contributions Brunei does not impose social security taxes. However, employers are required to contribute 5% of the salary of each employee to the Tabungan Amanah Pekerja (TAP) or the Employee Trust Fund. Contributions are mandatory for salaries in excess of BND per month. Late payment penalties of 1% per month (minimum BND 10) are imposed on employers with effect from 1 January Employees are also required to contribute 5% of their salary to the TAP. Employees who are citizens or permanent residents of Brunei, and their employers, are also required to contribute a minimum of 3.5% of their monthly salary to a Supplementary Contribution Pension (SCP) Board. The minimum contribution is BND a month for both employees and employers and the 53 IBFD

11 Brunei maximum contribution by the employer is capped at BND 98 a month. If an employee is unable to make the minimum contribution of BND 17.50, the government will top-up any additional contribution required to meet this amount Taxes on capital Net worth/wealth tax There is no net worth tax or any other similar recurrent taxes on property or wealth Real estate tax There are generally no taxes on capital and property. However, with effect from 1 April 2009, a 12% building tax is imposed on all commercial buildings in Bandar Seri Begawan (BSB). Residential buildings in the BSB area may be levied with the tax from The tax on commercial buildings that are rented out is 12% of the annual rental value as per the tenancy agreement, whereas the tax on commercial buildings that are owned and operated for own use is 12% of the total area in square metres for 12 months, according to a rate set by the municipal authority. Tax rebates are available for buildings that have been vacant for more than 30 days, or if the building owner provides certain existing facilities encompassing services that are provided by the municipal authority such as access roads and street lighting. The tax is paid in two instalments and revenues from the taxes will go towards providing services such as police control posts, fire stations, street light maintenance, town maintenance, access roads, water supply and waste and sewage management Value added tax There is no value added tax Miscellaneous taxes Stamp duty 5. Indirect and Miscellaneous Taxes Stamp duties are levied on a variety of documents. The duties are either ad valorem or fixed, depending on the nature of the documents. Ad valorem duties apply to, among others, instruments of transfer of property including marketable securities, shares of other companies and of non-tangible property including legal rights and goodwill. IBFD 54

12 Business and Investment The ad valorem duty of transfer of shares, whether on sale or otherwise, is to be computed on the price or value thereof on the date of the transfer of such shares. When the name of the transferee is filled in, the ad valorem duty is BND 0.10 for every BND 100 or part thereof. When the name of the transferee is not filled in, the duty is BND 0.30 for every BND 100 or part thereof. Fixed duties apply to a number of other legal, commercial, mercantile or capital market instruments and to duplicate or collateral instruments Customs duty Custom duties are assessed on a specific or ad valorem basis. Import duty is not levied on cigarettes and tobacco, alcohol, motor vehicles, food items, non-alcoholic beverages and industrial machinery. With effect from 1 April 2011, import duty on computers, bicycles and their related accessories is abolished. There are no export duties. Requests for advance customs rulings may be submitted along with a sample of the product in question and descriptive literature to the Controller of Customs and Excise for classification Excise duty Excise duty is levied on certain imported goods such as cigarettes and tobacco, alcohol and motor vehicles, at rates generally ranging from 10% to 35%. Excise duty is also imposed in the manufacture and sale of liquor and tobacco. The collection of excise duties is administered by the Controller, subject to the general control of the State Financial Officer. 6. Business and Investment 6.1. Introduction Business and investment environment Brunei is generally an investor-friendly country where investments in the economic development of the country are welcomed, especially private sectors. Policies are flexible in relation to foreign investments, e.g. there can be a full foreign ownership in certain investments. Brunei is a member of the WTO (World Trade Organization), Commonwealth, ASEAN (Association of Southeast Asian Nations), APEC (Asia-Pacific Economic Cooperation) and PECC (Pacific Economic Cooperation Council) Regulatory framework The main legislation for the incorporation and registration of a company in Brunei is the Companies Act. Although Brunei ceased to be a British Protectorate in 55 IBFD

13 Brunei 1971, the United Kingdom retained some responsibility for foreign affairs and defence matters until Brunei became a fully sovereign independent state in As such, Brunei inherited a legal system and judiciary based on English common law, and many of its basic and substantive laws are systemized in statutes that attempt to embody English common law. The Companies Act is therefore common law based. The Companies Act contains some provisions for companies which are incorporated outside Brunei but conducting business in Brunei. Also relevant to company legislation is the Business Name Act which provides the rules for the registration of unincorporated businesses. The regulatory bodies relevant to handling both foreign and domestic investments are, among others, the Ministry of Finance through the Registries of Companies or Business Names, the Ministry of Industry and Primary Resources and the EDB. The Ministry of Industry and Primary Resources is the agency which is responsible for promoting and facilitating industrial development in Brunei. The industrial activities are classified into four groups, namely: industries related to national food security (i.e. policies to ensure that residents have the physical and economic access to safe and nutritious food to meet their dietary needs to ensure a healthy life); industries for the local market; industries based on local resources; and industries for the export market Forms of business The forms of business available in Brunei are private and public limited companies, sole proprietorship, partnership and branches of foreign companies. All businesses must be registered with the Registrar of Companies and Business Names. Each business or company must first propose the name of business or company for the approval of the Registrar of Companies and Business Names. For each name proposed, a fee of BND 5 is imposed Private limited company In order to incorporate a private limited company in Brunei, two or more persons must apply to the Registrar of Companies and Business Names for approval of the company name. The Memorandum of Association, Articles of Association and certain other documents must be lodged with the Registrar. A private limited company must have the words Sendirian Berhad at the end of its name. The company must also have its registered office in Brunei. The registration fees are based on the authorized share capital of the company and the maximum fee is BND 35,000. Upon approval of the name of the com- IBFD 56

14 Business and Investment pany, the certificate of registration is issued and a fee of BND 25 is imposed. The registration process usually takes 1 to 2 months. The Companies Act does not specify a minimum capital requirement, but each subscriber must take at least one share. The minimum and the maximum number of shareholders are 2 and 50 respectively. Shareholders need not be Brunei citizens or permanent residents. A private company must restrict the right of members to transfer shares and disallow any invitation to the public to subscribe for shares or debentures. A private company must have at least 50% of the directors to be Brunei citizens or permanent residents. Companies are required to prepare profit and loss accounts and balance sheets and have these statements audited by auditors who are registered in Brunei. The company must also submit accounting data annually to the Economic Planning Unit, Ministry of Finance and file annual returns containing information on directors and shareholders Public limited company The procedures for the incorporation of a public company are similar to that of a private company. A public company must only have the word Berhad at the end of its name. A public company may be limited by shares, guarantee or both by shares and guarantee or unlimited. The Companies Act does not specify a minimum capital requirement. The public company may issue freely transferable shares to the public. It must have at least seven shareholders and the shareholders need not be Brunei citizens or permanent residents. However, 50% of the directors in a public company must be Brunei citizens or permanent residents. A public company must prepare the profit and loss account and balance sheet and have these statements audited by auditors who are registered in Brunei. The company must also submit accounting data annually to the Economic Planning Unit, Ministry of Finance and file annual returns containing information on directors and shareholders. Public and private companies have the similar record keeping requirements Sole proprietorship Sole proprietors are not subject to tax in Brunei. However, they are personally liable for the obligations of their business. Professionals, e.g. doctors, lawyers and auditors, must be registered with the Registrar of Business Names before they are allowed to practice in Brunei unless the full name of all individuals involved is used for the business. In that event, the registration at the Registrar of Business Names is not necessary. Upon approval, a business name certificate is issued and a fee of BND 30 is imposed. 57 IBFD

15 Brunei Partnership A partnership may comprise individuals or companies. The maximum number of members permitted in a partnership is 20. In general, at least one partner in the partnership must be a Brunei citizen or a Brunei permanent resident. A partnership must be registered with the Registrar of Business Names. Upon approval, a business certificate is issued and a fee of BND 30 is imposed. A partnership is not a separate legal entity in Brunei Branch See section for branch of a foreign company Brunei International Financial Centre Brunei introduced a number of additional corporate forms in the Brunei International Financial Centre (BIFC), as follows: International Business Companies (IBCs) Under the International Business Companies Order (IBCO) 2000, an IBC is incorporated by trust companies subscribing to the issued share capital of the IBC. A certificate of due diligence must be submitted by the trust company confirming that the IBC has complied with the applicable provisions of the IBCO and that due diligence in respect of beneficial owners and the source of funding has been conducted. This certificate is also submitted annually for the renewal of the licence. An IBC must use the suffix Limited or its abbreviation Ltd to denote limited liability. IBC also must have its official name in the Roman alphabet. Chinese or Japanese characters, Arabic or Cyrillic script, or other characters, alphabet or script may be adopted in addition to the Roman alphabet upon arrangement with the Registrar of Companies and Business Names. The alternative names and documents which are in foreign languages should be presented upon registration with a certified translation. An IBC can select its own minimum capital, and all shares must be fully paid when allotted. An IBC may not create different classes of shares. Although bearer shares cannot be issued, the IBC may issue, among others, options, warrants or convertible securities. The IBC in the form of a private company must have at least 2 and not more than 50 shareholders. The shareholders need not be Brunei citizens or permanent residents and may be individuals or bodies corporate. Directors may be individuals or bodies corporate of any nationality. A resident secretary, who can be an individual or a corporation, provided by a trust company is mandatory. A minimum of one director and one secretary is required. A register of directors must be held at the registered office in Brunei. IBFD 58

16 Business and Investment The records of an IBC may only be searched if certain consents are obtained, except in circumstances where criminal activity is adjudged by the Registrar to have arisen. This applies to the records held by the Registrar and also those held at the registered office of the IBC. International Limited Partnerships (ILPs) Under the International Limited Partnership Order (ILPO) 2000, an ILP consists of one or more general partners (one of which must be a trust company or subsidiary thereof, an IBC or another ILP) and any number of limited partners. An ILP may be formed for any lawful purpose, undertaken in or from within Brunei or elsewhere. The ILP does not carry on business with any persons resident in Brunei, and prospectus provisions may apply to offers of securities. A general partner is personally liable for all the debts and obligations of the ILP, except for a limited partner if provided for in the partnership agreement or ILPO. At the time of becoming a limited partner, a limited partner contributes, or undertakes to contribute, a stated amount (or property valued at a stated amount) to the capital of the partnership. Except as permitted or required under the ILPO, a limited partner shall not participate in the conduct of the business of an ILP, and all letters, contracts, deeds, instruments or documents whatsoever must be entered into by the general partner on behalf of the ILP. If a limited partner, other than a trust corporation acting in such capacity for the purposes of the ILPO, takes part in the conduct of the business of the ILP in its dealings with persons who are not partners, then, in the event of the insolvency of the ILP, the limited partner may be liable as though he or she were a general partner. An ILP must have a name which includes the words International Limited Partnership or the letters ILP. The ILP also must maintain a registered office in Brunei (normally the registered office of a trust corporation) and keep at its registered office such accounts and records as are sufficient to show and explain the ILP s transactions and to disclose with reasonable accuracy, at any time, the financial position of the ILP at that time. International Trusts (ITs) Under the International Trust Order (ITO) 2002, an IT must be in writing, settled by a non-resident of Brunei, declared in its terms to be an international trust (on creation or migration to Brunei), and at least one trustee must be licensed under the Registered Agents and Licensed Trustees Order (RATLO) 2000, or an authorized wholly owned subsidiary of a licensee. In general, only non-residents may be beneficiaries when an IT is first established. The retention of certain powers (specified in the ITO) by the settlor will not invalidate an IT. Such powers are not, however, deemed to exist in the absence of specific provisions in the Trust Instrument. 59 IBFD

17 Brunei Trustees are able to seek advice for investment, but they will not be liable for acts taken pursuant to such advice. There are powers to appoint agents and to delegate. Trustees may be charged in the court of law, and similar provisions appear for enforcers and protectors. Powers of maintenance and advancement are wide, spendthrift and protective trusts are recognized. Arrangement for the appointment of, or a change of trustees follow generally accepted lines. The Court is given wide powers to interpret, assist, and amend. Trustees may pay funds into a court for the determination of matters arising in the course of administering the fund, and there is power to apply to the court for an opinion, advice, or a direction relating to trust assets. Purpose trusts are provided for, whether charitable or non-charitable. Without prejudice to the generality, a trust for the purpose of holding securities or other assets is by statute deemed a purpose trust. The purpose must be reasonable, practicable, not immoral nor contrary to public policy. The trust instrument must state that the trust is to be an authorized purpose trust at creation or on migration to Brunei. Provision must be made for the disposal of surplus assets (although no perpetuity period applies), and an enforcer is required. On completion or due to the impossibility of achieving the purpose of the trust, further trusts may be activated. RATLO restricts the provision of international business services to companies licensed under that Order. All establishment and compliance documents are filed by the licensed trustees Foreign investment Regulation of foreign investment A branch of a foreign company must be registered with the Registrar of Companies and Business Names, and the following documents are required for the registration of the branch: a certified copy of the Charter, Statues, Memorandum and Articles of Association or other instruments defining the constitution of the foreign company(in English); an original copy of the Board Resolution approving the registration of a branch in Brunei; and a list of directors, the particulars of the directors and the names and addresses of one or more persons residing in Brunei authorized to accept notices on the company s behalf. The branch must also satisfy the following requirements: have a registered office in Brunei; appoint a local agent and auditors who are registered in Brunei; prepare annual profit and loss accounts, balance sheet and director s report; submit accounting data annually to the Economic Planning Unit, Ministry of Finance; IBFD 60

18 Business and Investment file annual returns containing information on directors and shareholders with the Registrar of Companies and Business Names; and the branch must keep the records of members meetings, directors meetings, managers meetings, register of members, register of directors and managers and register of charges Forms of business for foreign investment Generally, foreigners are not allowed to register a sole proprietorship or partnership. However, under special circumstances, the Registrar may grant approval to a foreign individual to register a partnership. Applications to register a partnership by foreign individuals are subject to prior clearance by the Immigration Department, Department Economic Planning and Development and the Labour Department before the partnership is registered. A foreign company may not carry on business or establish a place of business in Brunei unless it is first registered either as a local company or a branch of a foreign company. The procedure of incorporating a branch of a foreign company is similar to that of incorporating a local company but the documents required to be filled with the Registrar of Companies differ slightly. In order to register a branch, the following documents must be presented to the Registrar: a certified copy of the charter, statutes or Memorandum and Articles of the company, or other instruments constituting or defining the constitution of the company, and if the instrument is not written in the English language, a certified translation thereof; an original copy of the resolution of the board of directors approving the registration of a branch in Brunei; and a list of directors together with their particulars and the names and addresses of one or more persons residing in Brunei authorized to accept notices on the company s behalf. Any amendments to the above documents must be lodged with the Registrar within the prescribed time. The registration fees are 50% less than those for incorporating a local company and thus, the maximum fee is BND 17,500. Upon approval, a certificate of incorporation is issued and a fee of BND 25 is imposed. The Companies Act does not specify a minimum capital requirement. However, the branch must have a registered office in Brunei and must appoint a local agent. On registration, Brunei adopts a non-discriminatory treatment and grants the foreign company the same powers and authority as a local company. A branch of a foreign company is required to file a copy of its head office annual financial accounts with the Registrar of Companies each calendar year. Branch accounts, which need not be audited, should support the tax computation. The 61 IBFD

19 Brunei branch must also maintain accounting and other sufficient records to explain the transactions and the financial position arising from its operation in Brunei Repatriation of income and capital There are no restrictions on remittances abroad or the repatriation of income and capital by a foreign investor to his home country Investment restrictions Restrictions on foreign investment Brunei welcomes foreign investment. Except for public sector utilities which are of strategic importance, e.g. power and hospitals, foreign investment is permitted in most other areas Local participation requirements Brunei sets no limitation of foreign equity although some level of local participation is encouraged by the Economic Development Board (EDB). However, Brunei requires activities relating to national food security (i.e. policies to ensure that residents have the physical and economic access to safe and nutritious food to meet their dietary needs to ensure a healthy life) and those based on local resources to have some level of local participation Other restrictions Brunei maintains its philosophy of sustainable development. Therefore, all polluting industries are prohibited and one of the continuing criteria for engaging any industry s participation is the impact on the environment Investment incentives Brunei allows 100% foreign equity ownership in activities which are not based on local resources. The incentive also applies to local market industries which are not related to national food security. Since the establishment of the Brunei International Financial Center (BIFC) in 2000, Brunei introduced a number of additional forms of corporate entities available for business operations in the International Financial Centre, including IBCs, ILPs and ITs which are exempt from corporate taxation. See section for this and other tax incentives Investment guarantee and protection General To support the amelioration of its investment climate, Brunei is committed to the creation of investment opportunity for both local and foreign investors in Brunei. This includes the establishment of bilateral investment treaties with foreign governments and memorandums of understanding (MOU) between private sectors in IBFD 62

20 Business and Investment Brunei and private sectors in foreign countries. Brunei also adopts non-discriminatory treatment to all foreign investors Investment protection agreements Brunei has concluded bilateral investment protection agreements with China, Germany, India, Indonesia, Korea (Rep.), Kuwait, Malaysia, Oman, the Philippines, Singapore, Thailand and Vietnam. A multilateral investment protection agreement exists among the ASEAN members Other business and investment considerations Commercial registration and licensing requirements Banking Under the International Banking Order 2000 (IBO), four classes of licences are provided for: a full international licence for the purpose of carrying on an international banking business; an international investment banking licence for the purpose of carrying on an international investment banking business; an international Islamic banking licence for the purpose of carrying on an international Islamic banking business, granted in respect of full, investment or restricted activities; and a restricted international banking licence for the purpose of carrying on an international banking business subject to the restriction that the licensee may not offer, conduct or provide such business except to or for persons named or described in an undertaking embodied in the application for the licence. An institution desiring to carry on international conventional or Islamic banking business is required to obtain a licence from the Financial Institutions Division (IFC) of the Ministry of Finance Investment funds The Mutual Funds Order (MFO) 2001 applies to domestic and international funds and their promoters, managers and custodians. The MFO provides for the regulation of mutual funds in Brunei, the supervision and licensing of such funds and of persons promoting and providing services in connection with mutual funds. Applications for licences are made to the Minister of Finance, with the full disclosure of the participants particulars. In the case of an Islamic fund, there is a requirement for the appointment of an appropriate sharia council. 63 IBFD

21 Brunei Securities trading The Securities Order (SO) 2001 stipulates provisions in relation to financial exchanges, dealers and other persons providing advice in respect of managing or dealing in securities and for certain offences relating to securities. The Sultan of Brunei appoints the authority to administer the SO. Except as permitted pursuant to the SO, a person shall not carry on the business of a dealer or hold himself out as carrying on such a business unless he holds a dealer s licence granted under Part III of the SO. Except as permitted pursuant to the SO, a person shall not act as an investment adviser or hold himself out to be an investment adviser unless he is the holder of an investment adviser s licence granted under Part III Insurance The International Insurance and Takaful Order (IITO) 2001 prescribes the licensing requirements and regulation of persons carrying on an international insurance business and international insurance-related activities, the security and protection of long-term international insurance business and other incidental matters. The IITO deals with all classes of general and long-term international insurance and Takaful, including financial loss, all classes of captive, linked long-term, pension and annuity and reinsurance as well as re-takaful business. The IITO also introduces statutory protection (in the absence of fraud) of all long-term products and funds transferred to such contracts and redefines concepts of insurable interest and enforceability. Applications for a licence to carry on the international insurance business must be submitted to the Ministry of Finance Exchange control There are currently no exchange control regulations in Brunei Foreign ownership of land and property Brunei does not allow foreign land ownership except with the prior written approval of His Majesty in Council Arbitration law The Brunei Arbitration Act 1994 (CAP 173 Rev. 1999) governs the enforcement of arbitration agreements in Brunei. Another important legislation that may affect the enforcement of arbitral awards is the Emergency (Limitation) Order The Act applies to both domestic and international arbitrations. IBFD 64

22 Business and Investment 6.8. Economic and trade agreements Brunei has concluded economic and trade agreements with India, New Zealand and Korea (Rep.). A trade agreement has been concluded with the United States and a free trade agreement with Japan. Brunei is a member of the ASEAN Free Trade Area (AFTA), which was initiated in AFTA seeks to eliminate tariff barriers among the ASEAN countries, and the key to this is the Common Effective Preferential Tariff (CEPT) Scheme, under which tariffs are gradually reduced to 0%-5% by 2010 or Brunei is also a signatory to the ASEAN Framework Agreement on Services (AFAS), which is aimed at strengthening the cooperation among service suppliers in the ASEAN region, the reduction of restrictions to trade in services and to progressively liberalize trade in services among ASEAN counties. In addition, Brunei is also a party to the Framework Agreement on the ASEAN Investment Area (AIA), which is aimed at establishing the ASEAN region as a competitive investment area by 1 January 2010, and a liberal and transparent investment environment and free flow of investments in the region by As a member of ASEAN, Brunei is a party to the following: the ASEAN-China Free Trade Agreement, under which a zero-tariff market took effect for the ASEAN-6 on 1 January 2010, and is expected to be achieved by 2015 for the rest; the ASEAN-Korea Framework Agreement on Comprehensive Economic Cooperation, under which tariffs on 90% of products were eliminated as from 1 January A Free Trade Area for Trade in Goods is intended to be realized by 2012 for the ASEAN-6 and by 2018 for the rest; the ASEAN-Japan Agreement on Comprehensive Economic Partnership, under which tariffs on 90% of imports from Japan are expected to be eliminated by the ASEAN-6 within 10 years of the agreement taking effect. A more gradual tariff elimination table has been set for the remaining four ASEAN members; ASEAN-India Framework Agreement on Comprehensive Economic Agreement, which aims to establish an ASEAN-India Free Trade Area with five ASEAN members by 31 December 2012 and with the remaining members by 31 December 2017; and a free trade agreement between ASEAN and Australia and New Zealand. Negotiations for a European Union-ASEAN Free Trade Agreement commenced in May Negotiations for the Trans-Pacific Partnership (TPP) Agreement (a proposed free trade agreement by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam) are ongoing. The TPP Agreement will build on the Trans-Pacific Strategic Economic Partnership Agreement concluded in 2005 by Brunei, Chile, New Zealand and Singapore. 65 IBFD

23 Brunei Negotiations on the Regional Comprehensive Economic Partnership (ASEAN members, Australia, China, India, Japan, Korea (Rep.) and New Zealand) commenced in November IBFD 66