Brunei: small but rich sultanate

Advantages of doing business in Brunei

1. Strategic location – Brunei is located in the heart of Southeast Asia, making it an attractive hub for businesses looking to expand in the region. Also its proximity to major markets such as China, Japan and Australia, coupled with its developed infrastructure and transport network, makes it an ideal location for business.
2. Stable political environment – the country exists as a constitutional monarchy and the government has consistently pursued pro-business policies. The political stability, coupled with a low crime rate, makes the country an attractive destination for foreign investors.
3. Favorable tax regime – Brunei has no personal income tax and the corporate tax rate is quite low at just 18.5%. This makes it an attractive destination for businesses looking to minimize their tax liabilities.
4. Skilled workforce – Brunei has a well-educated and skilled workforce, with a literacy rate of over 95%. This is all thanks to the country’s strong education system with a number of universities and vocational schools, and an emphasis on lifelong learning. This means that businesses operating in Brunei can easily access a skilled workforce that is well-equipped to meet their needs.
5. Ease of doing business – Brunei is ranked as one of the easiest places to do business in the world, according to the World Bank’s Ease of Doing Business Index. The country has streamlined its business registration process and has implemented a number of reforms to make it easier for businesses to operate.
6. Popular areas for doing business in Brunei are mining (oil), tourism, e-commerce, telecommunications, services and light industry.
7. English is a popular language for business and finance.
8. Brunei has a well-developed infrastructure.

The challenges of doing business in Brunei 

1. Limited market size – this is because Brunei has a population of just over 430,000 people. This means that businesses operating in Brunei may face limited growth opportunities as the domestic market is relatively small.
2. Limited diversity – Brunei’s economy is heavily reliant on the oil and gas industry, which accounts for over 90% of its exports. This means that businesses operating in Brunei may be exposed to the volatility of the global oil and gas market.
3. Limited human resources – despite the fact that Brunei has a strong education system, Brunei’s population is quite small and therefore the country may face a shortage of skilled workers in certain industries.
4. Limited infrastructure – while Brunei has a well-developed infrastructure compared to other countries in Southeast Asia, there is still room for improvement. Businesses may face challenges with logistics and transportation, particularly in remote areas.

Taxation

There are no following types of taxes in Brunei

1. income tax;
2. inheritance tax;
3. wealth tax;
4. capital gains tax;
5. value added tax;
6. sales tax.

But there are types of taxes such as:

1. Corporate tax – 18.5% for resident/non-resident companies, except those involved in oil operations (55%). 
2.  Withholding tax – for non-residents: 

• dividends – 0 %;
• Interest, commissions, fees or other charges on loans or debts – 2.5%;
• royalties or other one-off payments for the use of movable property – 10%;
• fees for the use of, or the right to use, scientific, technical, industrial or commercial knowledge or information – 10%
• fees for technical services – 10%;
• management fees – 10%;
• rent or other payments for the use of movable property – 10%.

3. Export tax – 1%.

Prospects for it and crypto business 

Brunei has a small but growing IT industry, and there are opportunities for businesses looking to invest in the sector. However, it may not be the best offshore destination for businesses specifically focused on crypto due to the country’s conservative Islamic values and the government’s cautious approach to the technology.

In terms of IT business, Brunei has a well-educated and skilled workforce, and the government has made efforts to promote the development of the sector. 

The government has also implemented a number of policies and programs to support the growth of the IT sector, such as the establishment of the Brunei Economic Development Board (BEDB) and the Digital Economy Council. These bodies are responsible for promoting investment in the sector and supporting the development of local startups.

However, businesses looking to invest in the IT sector in Brunei may face challenges, such as the small market size and limited access to funding. The government has taken steps to address these issues, such as the establishment of a National Innovation System and the provision of funding through the BEDB, but it may take time for these initiatives to have a significant impact.

In terms of crypto business, Brunei’s government has taken a cautious approach to the technology. The country is a member of the Asia-Pacific Group on Money Laundering and has implemented strict anti-money laundering and counter-terrorist financing measures. The government has also issued warnings to the public about the risks of investing in cryptocurrencies.

Furthermore, Brunei is an Islamic country, and Islamic law prohibits riba (in Islam) or usury, which refers to the charging of interest. This could pose a challenge for businesses looking to operate in the crypto sector, which often involves lending and borrowing with interest.

Requirements for a company

It should be noted that Brunei cannot establish an international company and as from 2017 foreign beneficiaries can only establish a local company in the form of Public Company (Berhad) (PC (Bhd.))/Private Company (Sendirian Berhad) (PC (Sdn. Bhd.)) or a foreign company branch in the form of Foreign Company (FC), which once incorporated has the same powers as the local company.

PC (Sdn. Bhd.) – established in the form of LLC; must have at least 2 and not more than 50 shareholders, not younger than 18 years old; at least 2 directors (1 must be resident); registered office in Brunei; the most common capital structure – 2 ordinary shares of BND 1 each.

PC (Bhd.) – established in the form of LLC; must have at least 7 shareholders and can be over 50 shareholders, not younger than 18 years old; at least 2 directors (1 must be resident); registered office in Brunei; each shareholder must have one share, which is equal to BND 1.

FC – a branch of a foreign company incorporated in Brunei as an addition to its parent company incorporated elsewhere; must have a registered office in Brunei and appoint a local agent; once incorporated, receives the same powers and authority as a local company; must file a copy of the annual financial statements of the head office annually with the Registrar of Companies and prepare branch accounts for tax computation.

Results 

Overall, Brunei is an attractive destination for businesses looking to expand in Southeast Asia. Its strategic location, stable political environment, favorable tax system, and skilled workforce make it an ideal location for businesses looking to access major markets in the region. However, businesses should also be aware of the challenges they may face, such as the limited market size, limited diversity, limited human resources, and limited infrastructure. By carefully weighing the benefits and challenges of doing business in Brunei, businesses can make informed decisions about whether or not to invest in the country. Navigating the opportunities and challenges of doing business in Brunei can be complex, but our law firm has the expertise and experience to guide you through the process and help you make informed decisions about investing in the country.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.

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