Income Tax Brackets In Brunei: Explained

Welcome to our guide on Brunei’s Income Tax Brackets.

As an expat, understanding these brackets is essential for your financial planning.

Let’s dive in!

Living In Brunei As An Expat

Expats moving to Brunei will find a small, tropical country with a tiny population of just over 400,000 residents. Brunei has one of the world’s highest standards of living, and the country’s economy is booming thanks to its thriving oil and gas industries.

Brunei has a large expat contingent of around 40 percent of the country’s population, with the prospect of lucrative employment packages and tax-free income has enticed most foreigners. 

Expats moving from Western Europe and North America are likely to find the cost of living in Brunei relatively low.

New arrivals are sure to experience some culture shock. Brunei is a strictly Islamic country, and expats should always take the necessary steps to adhere to local standards. 

All ex-pats should dress modestly and refrain from physical contact between members of the opposite sex in public. 

It is also worth noting that any sexual contact or compromising behavior between non-Muslims and Muslims can lead to severe punishment and deportation.

While Malay is the official language of Brunei, English and particular Chinese dialects are commonly used in business. As such, most expats will experience little of a language barrier.

Brunei is generally a safe destination for expats, and crimes tend to be opportunistic rather than violent. The country has strict laws when it comes to alcohol and drugs. 

While expats are allowed to import small quantities of alcohol for their consumption, they are not allowed to possess more than their designated allowance or sell alcohol to others. 

Drugs are illegal in Brunei, and being caught in possession of any banned substance can have severe consequences. Police regularly check along busy roads to search cars for drugs and alcohol.

Brunei has one of the world’s top public healthcare systems. Locals can access public medical care at no cost, and expats are usually charged low rates. 

For expats with a comprehensive health insurance policy, several private hospitals are also of a high standard. Still, these tend to be located only in major urban areas.

Although Brunei’s public education system is relatively young, it is of a high standard and is continually improving thanks to extensive government investments. 

Expats generally send their children to international schools, most located in the country’s capital city, Bandar Seri Begawan.

Brunei Economy

Though a small nation, Brunei boasts an incredibly wealthy economy due to its international relations and oil deposits. Around 167,000 barrels of oil are produced daily, and around 25.3 million cubic meters of liquefied natural gas. 

Brunei is the fourth-largest oil producer in Southeast Asia and one of the world’s wealthiest countries. 

Substantial income from overseas investment supplements the economy, and most of these investments are managed by the Brunei Investment Agency, a department of the Ministry of Finance. 

The government uses this money to, among other things, pay for all medical services and subsidize rice and housing.

Given the makeup of its climate and environment, Brunei relies heavily on an import and export system whereby many foodstuffs are brought into the country. Around 60% of its required food is imported, with 75% coming from nearby Asian countries.

Over the next few years, Brunei’s leaders hope to increase the workforce and reduce unemployment by growing the banking and tourism sectors. 

Royal Brunei Airlines is also trying to develop the country as a modest hub for international travel between Europe and Oceania, so it is hoped that there will be a rise in tourism in the next few years.

Many expats are likely to find work in Brunei in one of the many international industries that have sprung up there over the last few decades. 

Indeed, thanks to its booming economy, there are few places in the world where anyone is likely to find a more international business hub. 

Its placement as a bridge between Europe and Oceania also means that Brunei is perfect for anybody looking to spread their business and business experiences across continents.

What Is A Tax Bracket?

A tax bracket refers to a range of incomes subject to a specific income tax rate. Tax brackets are part of a progressive tax system in which the level of tax rates progressively increases as an individual’s income grows. 

Low incomes fall into tax brackets with relatively low-income tax rates, while higher earnings fall into brackets with higher rates.

How It Works

Many countries use a progressive tax system, meaning they use a marginal tax rate to determine taxes owed. A marginal tax rate determines the tax paid on an additional dollar of income that takes a taxpayer into a higher tax bracket.

The marginal tax rate increases as a taxpayer’s income increases. There are different tax rates for various levels of income. 

In other words, taxpayers will pay the lowest tax rate on the first “bracket” or level of taxable income, a higher rate on the next level, and so on.

The Internal Revenue Service (IRS) announces any changes to tax brackets and rates annually. For tax years 2022 and 2023, there are seven federal tax brackets. 

Each is assigned a different rate, ranging from 10% to 37%, and a range of taxable income per bracket. The dollar ranges in each bracket vary for single filers, married joint filers (and qualifying widow[er]s), married filing filers separately, and head of household filers.

When determining which tax bracket to use, a taxpayer should first calculate their taxable income, including earned and investment income minus adjustments and deductions.

Tax Rates Vs. Tax Brackets

Tax brackets and tax rates are both used to calculate the total taxes owed. However, while they might sound similar, they are, in fact, distinctly different from each other.

A tax rate is a percentage at which income is taxed, while each tax bracket is a range of income with a different tax rate. These rates are 10%, 12%, or 22% and higher, and are referred to as the marginal rate.

Most taxpayers—except those who fall squarely into only the minimum bracket—have progressively taxed income. This means that their income is subject to multiple rates beyond the nominal rate of their tax bracket.

For example, an annual income of $100,000 fits the 24% tax bracket for tax years 2022 and 2023. 

However, the entire $100,000 isn’t taxed at 24%. It’s taxed at the different rates aligned with the various brackets of income that cover the segments of income up to $100,000. So, ultimately a taxpayer pays less than they would if the total income were taxed at 24%.

Thus, a taxpayer’s tax bracket does not necessarily reflect the percentage of their income that they will pay in taxes. The term for this is the effective tax rate.

Pros And Cons Of Tax Brackets

Tax brackets and the progressive tax system that they create contrast with a flat tax structure, in which all individuals are taxed at the same rate, regardless of their income levels.

Pros

Higher-income individuals are more able to pay income taxes and keep a good living standard.

Low-income individuals pay less, leaving them more to support themselves.

Tax deductions and credits give high-income individuals tax relief while rewarding functional behavior, such as donating to charity.

Cons

Wealthy people end up paying a disproportionate amount of taxes.

❌Brackets make the wealthy focus on finding tax loopholes that result in many underpaying their taxes, depriving the government of revenue.

❌Progressive taxation leads to reduced personal savings.

How Do You Calculate Your Tax Bracket?

To estimate which tax brackets your earnings fall under, you could do the maths by using the tables above or by visiting the Internal Revenue Service (IRS) website.

This website provides highly detailed tax filing statuses in increments of $50 of taxable income up to $100,000.

Taxation In Brunei

Brunei is recognized as one of the most stable macro economies in the world, and the country is eager to attract more foreign investments, particularly in the non-oil and gas sector. The country also has the least number of taxes in Asia.

No personal income, export, payroll, or manufacturing taxes exist. 

However, all citizens and permanent residents, including expatriates, must contribute 5% of their annual salary to a state-managed provident fundTabung Amanah Perkerja (TAP). The employer also has to contribute the same amount to the provident fund.

In addition to paying money toward TAP, all citizens and permanent Brunei residents must contribute 3.5% of their salary to a Supplemental Contributory Pension Scheme (SCP).

As with TAP, the employer must also contribute the same amount, although both are capped up to a salary of 2,800 BND a month.

Brunei is able to afford this system due to its hydrocarbon assets, which form the backbone of Brunei’s economy and account for 60 percent of the GDP.

Further, with a population of just 444,000 people, the country’s hydrocarbon industry provides a comfortable quality of life for the local population.

A company is considered a resident if managed and controlled in Brunei. In contrast, a person physically present in the country for 183 days or more during the year is considered a resident.

Is There A Corporate Income Tax In Brunei?

The corporate income tax (CIT) rate is 18.5 percent, and all limited companies, whether registered in Brunei or overseas or registered as a foreign branch in Brunei, are subject to local taxes on income derived from Brunei.

Companies are charged the 18.5 percent rate on the following threshold:

  • 25 percent of the first BND 100,000 in assessable income (US$72,273) is charged at the 18.5 percent rate; and
  • 50 percent of the next BND 150,000 in assessable income (US$106,909) is charged at the 18.5 percent rate.

Conclusion

Congratulations! You’ve just navigated the complex landscape of Brunei’s income tax brackets. Armed with this knowledge, you can now optimize your financial strategies in the Sultanate.

Maximize savings. Enjoy!

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