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Talk Tax – Offshore Remittances

Talk Tax – Offshore Remittances
Fiji Revenue and Customs Service chief executive officer Visvanath Das
January 13
11:00 2018

Fiji’s import based businesses form an integral part of Fiji’s economy.

The rapid increase in offshore transactions made by individuals and businesses are directly linked to the growth in economic activities both domestically and internationally.

As we look at this offshore transactions and how offshore payments have become a common trait for individuals and businesses in Fiji, it is important to understand the process that must be followed to ensure that offshore payment is made in compliance with the tax laws and requirement of Fiji.

As such Fiji Revenue and Customs Services’s surveillance emphasis is a lot on the offshore transactions and payments.

 

Offshore Payments above $20,000

It is important for resident individuals and businesses to understand that when a payment needs to be made to a non-resident individuals or businesses whereby the gross amount paid exceeds $20,000, there is a requirement to obtain a Tax Clearance Certificate from the FRCS before remitting the funds.

Banks and other financial institutions will not facilitate offshore payment if the persons remitting does not have a Tax Clearance Certificate.

Where the nature of payment attracts taxes then the resident individual or business will be required to pay the taxes applicable first before the Tax Clearance Certificate is issued.

 

Offshore Payments less than $20,000

Whilst we understand that remittances above $20,000 requires a Tax Clearance individuals and businesses must also be reminded that offshore payments below $20,000 will still be required to be directed to FRCS for stamping of documents before payment is made.

This means that the FRCS  will still be required to clear the amount remitted offshore through the proper approval stamp known as the “Remittance Approval Stamp”.

Without the proper remittance approval stamp from FRCS the payment will not be remitted by the banks. Tax Applicable for Offshore payment of Services

Any non-resident person who derives interest, royalty, insurance premium, management fee, natural resource amount or fee for the provision of professional or other independent services from sources in Fiji is required to pay Non-Resident Withholding Tax at rates which is applicable as per their nature of transaction plus 9% VAT Reverse Charge.

However, Non-Resident Withholding Tax will not be charged if the person or company receiving the payment has a permanent establishment in Fiji.

 

Professional Services Reimbursement

Non-Resident Withholding Tax will be charged on reimbursement for expenses charged under professional services or other independent services.

Professional services or other independent services payments shall not be separated for reimbursement of accommodation, airfare, transport or allowances in order to avoid paying Non-resident Withholding Tax on the gross value of the invoice.

Where the invoice includes cost for personnel to be engaged on a particular job, airfare, allowances, accommodation, overheads plus mark-up, Non-resident Withholding Tax will be applicable on the gross invoice amount.

It has been noted that companies break up costing on the invoice so as to differentiate the service cost from the expenses to pay lesser taxes and in many cases these are related parties dealing with each other.  Calculation of Non-Resident Withholding Tax

 

Gross Up Method

Where gross amount (Invoice value) is to be remitted, then Non-Resident Withholding Tax is calculated on the grossed up value. In simple term, it would mean that the invoice value that is to be remitted is the net value  plus the tax payable. When grossing up, the invoice value is divided by .85 and is applied on the grossed up amount.

The Grossed – Up method grosses up the invoiced amount and the hundred per cent payment is remitted to the non-resident person.

The tax burden is on the resident person to settle the Withholding Tax with the FRCS.

 

Net Off Method

Where a service provider is paid the invoice amount less the taxes, the tax calculation would be on Net off method. Where the net amount is to be remitted then Non-Resident Withholding Tax and VAT Reverse Charge are to be calculated on the invoice value with Withholding Tax to be deducted from it. Hence Tax Clearance will be prepared on the net value and a withholding tax certificate will be issued showing the amount of withholding tax paid.

This withholding tax certificate will be used to claim the tax credit by the non-resident individual or non-individual.

VAT Reverse Charge will have to be calculated on the Invoice value as well and since VRC will be claimed by the VAT registered person, it is not reduced from the invoice value. Where the person remitting the funds is not registered for VAT, then VAT Reverse Charge becomes its cost.

The Net-off method nets of the invoiced   amount and the amount remitted is net of Withholding Tax.

For this method, the tax burden is on the non-resident person where the resident person withholds and remits the tax withheld to the FRCS.

Income earned out of Fiji by Non-Residents will be recorded on gross basis in respective jurisdictions and then the cost of doing business is allowed as a deduction by the relevant tax authorities.

These are the simple rules and any Withholding Tax deducted at source will be credited against taxes assessed for that income return in conjunction with the domestic taxation laws.

 

Currency Carried Offshore

Currency Declaration Rules for Travellers

Persons traveling into or out of Fiji are required to declare to Custom officials at the borders if they are carrying on themselves or in their possessions, any currency or bearer negotiable instruments of $10,000 or more (or equivalent amounts in foreign currency).

Negotiable bearer instruments include cheques, traveller’s cheques, bills of exchange, promissory notes, certificate of deposit, money orders, postal orders, bearer bonds and other debt instruments.

Travellers must make this declaration on a Fiji Immigration Departure Card for departures and also by completing a Border Currency Reporting Form which will be made available at the Customs counter at the ports or airports. For travellers arriving into Fiji, this will need to be declared on the Passenger Arrival Card and also by completing A Border Currency Reporting Form.

 

Currency reporting at the boarder

Where a person fails to report an amount in excess of $10,000 in currency or negotiable instruments to FRCS either at the time of arrival or departure commits an offence that is liable to a fine not exceeding $60,000 or an imprisonment for a term not exceeding 10 years or both.

Furthermore, under the Exchange Control Act a person is entitled to travel with maximum amount of FJD$500. This means that the FJ$500 travel allowance will not be required to be declared by the individual at our Customs counters in the airport.

However, any individual who wish to carry Fijian currency that is in excess of FJ$500 will be required to obtain prior clearance/approval from the Reserve Bank of Fiji before it is taken abroad.

Once proper clearance/approval is obtained, the individual is required to declare the total amount with Reserve Banks approval at the Customs counter prior to departure.

For example, if the individual is physically carrying FJ$600 then the FJ$600 must have RBF clearance before declaration is made at the Customs counters in the airport.

On the other hand, individuals that wish to carry foreign currency are entitled to an equivalent amount of FJ$10,000.

Where individuals are carrying Fiji currency that is in excess of FJ$10,000 then the individual is required to obtain permit from RBF before it is declared at the border.

The travellers who arrive into Fiji from a foreign port with currencies equivalent to FJD$10, 000.00 or more need to declare it on their Passenger Arrival Card and also fill out a Border Currency Reporting form. There is limitation on the amount of currencies that a traveller can bring into Fiji however Customs Officers may enquire on the purpose of the funds being brought.

 

Conclusion

The FRCS will continue its surveillance role to ensure that all individuals and non-individuals making offshore remittances comply with the tax requirements.

Everyone is responsible to correctly declare to FRCS any offshore remittances for proper clearance. As such where taxes are applicable then taxes must be settled first before remittance.

The FRCS urges individuals and businesses that remit money offshore to come on board and be tax compliant as failure to comply will result in penalties.

Feedback:  maraia.vula@fijisun.com.fj

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