Brunei : Doing Business In Brunei Darussalam

Brunei Darussalam has enormous business potential that has yet to be exploited. The country has the advantage of peace and political stability, which is favourable for business activities.

Foreign investment: are always welcome in Brunei and foreign investors are invited to actively engage in the current economic diversification programme.

The Ministry of Industry and Primary Resources, which was established in 1989, is the main Government agency that promotes and facilitates investment, business and trade activities in the country.

Competitive investment incentives are ready and available for investors throughout the business cycle of start up, growth, maturity and expansion. The Investment Incentive Act 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.

Why invest in Brunei Darussalam?

• Brunei Darussalam is a stable and prosperous country that offers not only excellent infrastructure but also a strategic location within the Asean grout of countries.
• No personal income tax is imposed in Brunei. Businesses are also not imposed sal{os tax, payroll, manufacturing and export tax. Approved foreign investors can enjoy a company tax holiday of up to eight years.
• The regulations relating to foreign participation in equity are flexible. In many instances there can be 100% foreign ownership.
• Approval of foreign workers, ranging from labourers to managers, can be secured.
• The cost of utilities is among the lowest in the region.
• The local market, while relatively small, is lucrative and most overseas investors will encounter little or no competition.
• The living conditions in Brunei Darussalam are among the best and most secure in the region.
• On top of all, His Majesty's Government genuinely welcomes foreign investment in almost any enterprise and will ensure that you receive speedy, efficient and practical assistance on all your inquiries.

Supportive Environment

Brunei Darussalam offers vast land and a variety of facilities throughout all the four districts in the country. The majority of the 12 industrial sites presently developed are ready and available for occupation. Large expanses for agro forestry 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's philosophy is sustainable development. Therefore, all polluting industries are banned and one of the continuing criteria for engaging in any industry's participation is the impact on the environment.

Infrastructure

The country's infrastructure is well developed and ready to cater to 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 situated 29 km from the capital was opened in 1973 and has since been considerably developed. It has 12,542 sq metres of transit sheds.

Container yards have been increased in size and a container freight station handles unstuffing operations.

Meanwhile, Pulau Muara Besar is being developed as a centre for dockyard, ship salvaging and for other related industries.

The recently expanded Brunei International Airport in Bandar Seri Begawan can now handle 1.5 million passengers and 50,000 tonnes of cargo a year. The 2,000 km 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 of entry at one end, to Belait, the oil producing district at the western end of the state.

Brunei Darussalam has one of the best telecommunication systems in South-East Asia and has major plans for bringing it on par with the rest of the world with the 3G mobile telephony system soon.

With an estimated population of about 348, 800 the rate of telephone availability is currently one telephone for every three persons. And this is being continually upgraded.

Economy

This small, wealthy economy encompasses a mixture of foreign and domestic entrepreneurship, Government regulation, welfare measures and village tradition. Crude oil and natural gas production account for nearly half of GDP. Per capita GDP is far above most other

Third world countries and substantial income from overseas investment supplements income from domestic production.

The country's exports consist of three major commodities namely crude oil, petroleum products and liquefied natural gas. Exports are destined mainly for Japan, the United States and Asean countries.

In the current Eighth National Development Plan, which is the last phase of Brunei's 20-year National Development Programme, the Government is allocating a total of B$1.1 billion for commerce and industry.

The Brunei International Financial Centre (BIFC) set up in 2000, is another effort undertaken by the Government to diversify the country's economy.

Seven bills have been passed to govern the establishment and supervision of BIFC, including the establishment of international Islamic banks in Brunei whose legal framework has been provided under the International Banking Order 2000.

Brunei Darussalam has the potential to become an international financial centre and the capability to provide similar facilities as those available in other successful financial centres.

Brunei Economic Development Board (BEDB) Responsible for assisting local businessmen through the provision of loans at favourable rates of interest for both start-up and expansion of business. The scheme provides loans for a maximum amount of B$1.5 million at a 4% interest rate repayable within a maximum period not exceeding 12 years.

BEDB has also announced a two-pronged strategy expected to draw into the Sultanate by 2008 US$4.5 billion to attract foreign direct investments to develop downstream and manufacturing industry, power supply and infrastructure in the major industrial sites in Sungai Liang and Pulau Muara Besar - as a global mega hub port for container handling.

Industries Industrial activities are classified into four categories:

• Industries related to national food security
• Industries for local market
• Industries based on local resources
• 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 type of industry and situation.

Only activities relating to national food security and industries for total export can be totally foreign owned. Overall, in Brunei Darussalam, any industrial enterprise will be considered.

Finance, Bank and Insurance

Monetary issues have been carried out by selected departments within the Government,
under the jurisdiction of the Ministry of Finance (MoF).

The Brunei Currency Board (BCB), the Financial Institution Division (FID), the Treasury Department and the Economic, Planning and Development, Department of Prime Ministers Office perform some functions of a central monetary authority though in a segmented
manner. The MoF regulates banking institutions and ensure a stable and financially sound business environment.

Brunei Darussalam operates a Currency Board system and has no Central Bank. The Government under the Banking Acts and Finance Companies Act regulates the banking industry.

The Ministry of Finance through the Financial Institutions Division closely regulates all banking activities to ensure a stable and fiscally sound business environment.

The Brunei Currency Board is responsible for issuing and managing the currency, whereas Brunei's Banks Association determines the daily interest rates.

There are nine banks that are providing full banking services in the country. Eight are commercial banks and one is a development bank. Two of these are locally incorporated. International banks such as Citibank NA, Hong Kong and Shanghai Banking Corporation 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. Among the banks are Baiduri Bank Berhad, Development Bank of Brunei Bhd, Islamic Bank of Brunei, Malayan Banking Berhad, Overseas Union Bank Ltd and United Malayan Banking Corporation Berhad. Interest rates are set by the Association of Banks.

Currently, there are five finance companies namely Baiduri Finance Berhad, IRB Finance
Berhad, Mortgage and Finance Berhad, Standard Chartered Finance (Brunei) Berhad and Tabung Amanah Islam Brunei. The authorities have been preparing to implement a comprehensive financial regulatory system via the proposed new Banking Act.

In 2000, it was recorded that there were 85 financial institutions including, banks, financial companies, security companies, conventional insurance companies, Takaful companies, remittance companies and moneychangers.

Currency

Currency matters are under the jurisdiction of the Brunei Currency Board (BCB), which manages and distributes currency notes and coins in the country with the main mission of ensuring the integrity of the currency issued to safeguard public interest.

In September 2000, the money supply comprising currency in circulation and demand deposits amounted to B$2,295 million compared to B$3,366 million, B$2,430 million, B$2,493 million and B$2,727 million in 1996, 1997, 1998 and 1999 respectively.

Foreign Exchange

There is no restriction in foreign exchange. Banks permit non-resident accounts to be maintained and there is no restriction on borrowing by non-residence.

Taxation

Brunei Darussalam has no personal income tax. There are no exports, sales, payroll or manufacturing taxes. Companies are subject to tax on the following types of income:

• Gains or 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.

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.

• Scope of Income Tax A resident company in Brunei Darussalam is liable to income tax on its income derived from or accrued in Brunei Darussalam or received from overseas. A non resident company is only taxed on its income arising in Brunei.
• Concept of Residence A company, whether incorporated locally or overseas, is considered as resident in Brunei Darussalam for tax purposes if control and management of its business is exercised in Brunei Darussalam.

The control and management of a company is normally regarded as resident in Brunei Darussalam if, among other things, its directors' meetings are held in Brunei Darussalam.

The profits of a company are subjected 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 accrued 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 credits claimed against the Brunei Darussalam tax liability for tax suffered either under the double tax treaty with the United Kingdom or the provision of 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 deduction 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 premises, plant and machinery
• Bad debts and specific doubtful debts, with any subsequent recovery being treated as income when received, and
• Employer's contribution to approved pensions or provident funds

Disallowable Deductions

• Expenses not allowed as deductions for tax purposes included:
• 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 improvement apart from replanting of plantation
• 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
• Payments to any unapproved pensions or provident funds.
• •Donations are not allowable but claimable if they are made to approved institutions

Allowances for Capital Expenditure

Depreciation is not an allowable expense and is replaced by capital allowances for qualifying expenditure.

The taxpayer is entitled to claim wear and tear allowances calculated as follows:

Industrial Buildings An initial allowance of 10% is given in the year of expenditure, and an annual allowance of 2% of the qualifying expenditure is provided on a straight-line basis until the total expenditure is written off.
Machinery and Plant An initial allowance of 20% 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 assets.

Balancing allowances or charges are made on disposal of the industrial building machinery of plant. These adjustments cover the shortfall or excess of the tax written down value as compared 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 Carryovers

Losses incurred by a company can be carried forward for six years or set off against future income can be carried back for 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 the 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 over $2tmillion at 3% flat rate for a person who has 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 produces, photographic materials and equipment, furniture, motor, vehicles and spare parts are levied minimum duties, while cosmetics and perfumes are subject to 30% duty. Cigarettes are dutiable items, but the rates are low compared with neighbouring countries.

Businesses and Companies

Registration and guidelines In Brunei Darussalam a business may be set up under any of the following forms:

• Sole Proprietorship
• Partnership
• Company (Private or Public Company)
• Branch of foreign Company

All businesses must be registered with the Registrar of Companies and Business Names. The proposed name of business or companies must first of all be approved by the Registrar of Companies and Business Names. For each name proposed a fee of B$5.00 is imposed.

Sole Proprietorship

• Upon arrival, a business name certificate is issued and a fee of B$30.00 is imposed.
• At the moment, it is not subject to corporate tax.
• Foreigners are not eligible to register.

Partnership

• May consist of individuals, local companies and/or branches of foreign companies.
• The maximum permitted number of partners is 20
• Upon approval, a business name certificate is issued and a fee of B$30 is imposed
• Application by foreign individuals is subject to prior clearance by the Immigration Department, Economic Planning and Development Unit and the Labour Department
• before they are registered
• At the moment, it is not subject to corporate tax

Private Company

• May be limited by shares, guarantee or both by shares and guarantee or unlimited.
• Must have at least two and not more than 50 shareholders. Shareholders need not be Brunei citizens or residents.
• Restrict the right of members to transfer shares and prohibit any invitations to the public to subscribe for shares and debentures.
• A subsidiary company may hold shares in its parent company.
• Memorandum and Articles of Association must be filed with the Registrar of Companies and Business Names with other incorporation documents in the prescribed form.
• Upon arrival, a Certificate of Incorporation will be issued and a fee of $25 is imposed.
• The registration fees are based on a graduates scale on the authorised share capital of the company.
• No minimum share capital is required.

Private Companies are required to do the following:

1. Appoint auditors who are registered in Brunei Darussalam
2. Prepare a profit and loss account and balance sheet, accompanied by
the Director's Report annually.
3. Submit accounting data annually to the Economic Development and Planning
Department of the Ministry of Finance.
4. File annual returns, containing information directors and shareholders. Keep the
following records

a. Minute Book of Members' Meetings
b. Minute Book of Directors' Meetings
c. Minute Book of Managers' Meetings
d. Register of Members
e. Register of Directors and Managers
f. Register of Charges

Subject to corporate tax of 30% of the gross yearly profit.

Public Company

• May be limited or unlimited.
• May issue freely transferable shares to the public.
• Must have at least seven shareholders. Shareholders need not be Brunei citizens or residents. Subsidiary company may hold shares in its parent companies.
• Half the directors in the company must be either Brunei Citizens or ordinary residents in Brunei Darussalam.
• Memorandum and Articles of Association must be registered with other incorporation documents in the prescribed forms. Upon approval, Registration of Companies Certified will be issued and a fee of $25.00 is imposed.
• The registration fees are based on a graduated scale on the authorised share capital of the company.

No minimum share capital is required. Public Companies are required to do the following:

Branch of Foreign Company

The following documents must be filed with the Registrar of Companies and Business Names

A certified copy of the charter, statutes or Memorandum and Articles of Association or other instruments defining the constitution of the foreign company duly authenticated and, when necessary, with English translation.
A list of directors together with the particulars and the names and addresses of one or more persons residing in Brunei Darussalam authorised to accept notices on the company's behalf.

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 14 years.

Any person who obtains a grant of a patent in the UK of Malaysia of Singapore may apply to the Ministry of Law within three years of the date of issue of such grant to have the grant registered in Brunei Darussalam under the Invention Act (Cap72).

There is no specific legislation for copyright protection, but UK legislation would apply where necessary.

Employment Regulations

All non-Brunei Darussalam citizens require a work permit which is valid for 2 years. Application must first be made to the Labour Department for a labour license. On the recommendation of the Labour Department, the Immigration Department will give permission for foreign 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 license cannot be altered for at least six months after issue.

Applications will not be accepted until the formation of a local company or branch of a foreign company has been officially approved and registered.

Industrial Relations

The Trade Dispute Act (Cap129) accords to trade unions the customary immunities and protections in respect of facts 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 employees or workers is 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 nature and cultural characteristics of the population are conducive 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 empl4ees are generally good. Existing labour laws have adequate provisions such as for termination of employment, medical care, 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.

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 can contribute to development and networking.

The areas of concern are:

• To facilitate investment into Brunei Darussalam
• To facilitate the development trade
• To enhance human resources development and technology transfer, and
• To enhance bilateral, regional and multilateral economic cooperation

In pursuing these areas, mechanism for consultations and cooperation have been established through bilateral, regional and multilateral forum such as Association of Southeast Asian Nations (ASEAN), Asia Pacific Economic Cooperation (APEC), Organisation of Islamic Countries (OIC), European Union (EU), the Commonwealth, United Nations (UN) and the Non-Aligned Movement (NAM).

Investment Promotion

Brunei is currently engaged in an Economic Diversification programme where the Government is proactively promoting investment opportunities in the country via the Ministry of Industry and Primary Resources, both for local and foreign companies.

This programme aims to improve the country's investment climate through investment treaties and memorandums of understanding with foreign Governments and private sector investors.

This involves the establishment of bilateral trade investment treaties with foreign Governments and Memorandums of Understanding (MoUs) between Brunei Darussalam's private sector and the private sectors of the countries.

Trade Development

In the area of trade development, Brunei Darussalam is facilitating market opportunities to increase market access in the region as well as globally.

Brunei Darussalam practices open multilateral trading systems which are being pursued through regional and multilateral trading arrangements such as the Asean Free Trade Area (AFTA) and General Agreement of Trade and Tariffs (GATT).

This open trade policy is consistent with Brunei Darussalam's efforts in pursuing an outward looking economic, political stance that will assist the country in expanding its industrial and primary resource-based industries.

Human Resource Development and Technology

Transfer In the area of human resource 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.

This is in view of the existing shortage of local manpower and thus the need to import foreign workers. The programme are targeted towards the development of the mid-band occupational structure in which Brunei Darussalam has the advantage in view of cost factors such as the non existence of income tax.

One-Stop Agency

As the local point for all industrial development, The Ministry of Industry and Primary Resources (MIPR) co-ordinates all industrial development activities.

For investments in Brunei Darussalam, the Ministry is a One-Stop Agency. It is relatively easy to start an industry in Brunei Darussalam.

A totally private development that does not require Government facilities needs only the approval to start. Those requiring Government facilities and assistance need only deal with the Ministry, which will liaise with other agencies and expedite applications.

The Ministry realises the importance of time frames and clear decision making processes to business. The entire procedure has only four stages. In all the four stages, the MIPR is the main contact. These are:

• Approval of the concept
• Approval of firm proposal
• Approval of physical plans
• Approval to operate