MAJOR DEVELOPMENTS
The government introduced the following changes to the Income Tax Act:
q Tax incentives and deductions relating to approved mining companies;
q Additional profits tax for approved mining companies;
q Withholding tax on interest, dividends, payments to
contractors, subcontractors, and expatriate employees in relation to development and production of approved mining companies;
q Insurance premiums no longer exempt from withholding tax under S11 of the Insurance Act;
q Withholding tax payable on management fees to nonresidents increased from 71/2% to 35%.
INCOME TAXES ON CORPORATIONS
1. Rates
The corporation tax rates are:
For resident corporations incorporated locally 35%
For corporations incorporated overseas 50%
2. Local Income Taxes
None.
3. Capital Gains Taxes
There is no capital gains tax in the Solomon Islands. However, the capital gain arising on the sale of any business assets on which depreciation (wear and tear deduction) has been allowed is subject to tax at normal rates (applies to plant, machinery, vehicles, vessels, and business premises).
4. Branch Profits Taxes
Nonresident corporations are subject to tax at 50% on Solomon
Islands-source income, except where withholding tax is deemed to be final as in the case of dividends, arm-length interest, royalties, professional services, insurance premiums paid to overseas insurers, film rentals, professional services, payments to overseas contractors
and fishermen, or where a treaty provides for such limitations.
The Minister has the power to amend, by order, the rate of tax to be deducted from nonresident income.
5. Foreign Tax Reliefs
Income derived by a resident corporation from sources outside the Solomon Islands is taxable on the same basis as if it had a Solomon Islands source only when the funds are received in the Solomon Islands. Foreign income is ascertained according to the income tax legislation of the country in which it was derived. A foreign tax credit is allowed equal to the lesser of the foreign tax paid or the Solomon Islands tax payable on that income. The foreign tax credit must be utilized in the same fiscal period in respect of which it is paid.
6. Classification of Corporations
Corporations are classified for tax purposes as either resident or nonresident. Under the Companies Act a classification of private company exists, but for income tax purposes this distinction is not recognized. A resident corporation is incorporated in the Solomon Islands or either has its central management and control in the Solomon Islands or its voting power controlled by shareholders who are resident
in the Solomon Islands. The distinction between resident and
nonresident corporations is important in that nonresident corporations are subject to tax only on their Solomon Islands income. The distinction also affects the rate of tax (see item 4). A company
incorporated outside the Solomon Islands, even though it may be
carrying on business only in the Solomon Islands, is also liable to tax at 50%.
Corporations may be classified as prescribed companies under the Investment Act if the investment is likely to provide significant benefits to the Solomon Islands economy. Such companies are granted a tax holiday. (See item 34.)
7. Payment of Taxes
Corporations are required to pay tax in four installments during the year for which the tax liability will arise, and to settle any adjustment after the end of the year. Installments are payable in the third, sixth, ninth, and twelfth months of the calendar year and any adjustment required is payable nine months after the end of the corporation financial year. Payment of all installments is required
even where an assessment has not been issued, unless prior approval is obtained from the Commissioner of Inland Revenue to amend or dispense with installments.
8. Other Matters
Turnover Tax. A turnover tax on loss companies and low-profit companies applies to income derived after January 1, 1991, and has the following features:
q The tax is an income tax and is charged at the rate of 0.5% of income if gross income less allowable deductions (chargeable income) is nil or a loss;
?the normal corporate tax on chargeable income (35% resident, 50% nonresident) is the lesser of 0.5% of gross income or $10,000.
q The tax does not reduce the total of losses carried forward.
q
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