Criteria for Determining Tax Residency
According to Section 2 of the Income Tax Act (ITA), an individual is considered a tax resident in Brunei Darussalam if they meet any of the following criteria:
- Physical Presence Test: Residing in Brunei Darussalam for more than 183 days in a calendar year.
- Domicile Test: Having a permanent home or principal place of abode in Brunei Darussalam.
- Employment Test: Being employed in Brunei Darussalam for more than 183 days in a calendar year.
- Business Test: Carrying on a business in Brunei Darussalam for more than 183 days in a calendar year.
For companies, tax residency is determined based on their place of incorporation or management and control. A company is considered a tax resident if it is incorporated in Brunei Darussalam or if its management and control is exercised in Brunei Darussalam.
Impact of International Tax Treaties
Brunei Darussalam has entered into several double taxation agreements (DTAs) with other countries. These DTAs may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
Key Provisions in DTAs
DTAs typically include provisions that address tax residency, such as:
- Tie-breaker Rules: If an individual is considered a resident of both Brunei Darussalam and the other treaty country under their respective domestic laws, the DTA may provide tie-breaker rules to determine their tax residency.
- Specific Exemptions: DTAs may exempt certain categories of individuals or entities from being considered tax residents in Brunei Darussalam. For example, students, diplomats, and temporary business visitors may be exempt from tax residency.
- Reduced Tax Rates: DTAs may provide for reduced tax rates on certain types of income earned by non-residents.
Objectives of Treaty Provisions
The treaty-specific modifications and exceptions aim to:
- Prevent Double Taxation: Ensure that individuals and entities are not taxed on the same income in both Brunei Darussalam and the other treaty country.
- Promote Cross-Border Trade and Investment: Encourage economic activities between Brunei Darussalam and the other treaty country by reducing tax barriers.
- Provide Clarity and Certainty: Establish clear rules for determining tax residency in cross-border situations, reducing uncertainty and disputes.
The criteria for determining tax residency in Brunei Darussalam are outlined in the Income Tax Act and may be modified or supplemented by international tax treaties. These treaties play a crucial role in preventing double taxation, promoting cross-border economic activities, and providing clarity and certainty in tax residency matters.
If you need any other informational tax guides for other countries, feel free to browse our other articles below:
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