An Overview Of Partnership Firm Registration And Tax Requirements

Over the past years Fiji has experienced a rapid growth in the number of newly es­tablished businesses.

The continuous refinement of Fiji’s tax and customs policies and incentives have enabled individu­als and non-individuals to enter into new investment opportunities of doing business in Fiji.

As we continuously see the im­pact on local investment tax poli­cies have brought about, one can agree that the opportunity to oper­ate a business in Fiji has become more convenient and easier when compared to the past.

This represents Governments continuous commitment to en­courage new investors to enter the world of doing business.

The provision of small business grants is an example of how Gov­ernment encourages all Fijians to setup businesses from anywhere in Fiji.

Whether it be in towns, city ar­eas, villages in the main islands or maritime islands – anyone can start a business.

These policies have not just re­gained domestic and international investor confidence; they have pro­pelled it to new levels.

As such, these same policies have empowered ordinary Fijians and given them morechoices - and more control over their lives.

Whilst we note that Government is committed to encouraging new businesses, it is equally important to understand every business type is recognized based on the type of ownership or structure it adopts.

For tax purposes, it is critical to understand these important ele­ments as it will determine the manner in which each business income is taxed.

In this week’s article we look at the tax obligations of a partner­ship business and how the profits of this particular business type is taxed.

Registration of Partnership

Partnership is a popular form of business organisation in Fiji as it is relatively easy to setup and the number of statutory compliances required by a partnership is less as compared to companies.

Section 32 to 43 of Companies Act 2015 contains provisions with re­gard to firms and persons to be regis­tered. Highlights of registration process of a partnership firm is stated as below.

Firm - means an unincorporated body of two or more individuals or one or more individuals, including, but not limited to a partnership as defined under the Partnership Act (Cap. 248) and one or more Com­panies or two or more Companies who have entered into partnership with one another with a view to Carrying on Business for profit; [Section 2 of Companies Act, 2015]

Business Name – Subject to the provisions of Companies Act 2015, every firm having a place of busi­ness in Fiji and carrying on busi­ness in Fiji must have a business name. Application for registration of business name must be lodged with the Registrar of Companies in Form A12 [form prescribed un­der Companies Regulations 2015] within 28 days after the Firms.

• commences business or
• begins trading under a name which would require registration under Part 3 of Companies Act 2015.

Certificate of registration– Upon registration of the Business Name, the Registrar must issue the Firm with a certificate of registration in the prescribed form A13 certifying that the Business Name is regis­tered.

Certificate of registration to be displayed - Every registered firm to which a certificate of registration for the Business Name is issued must cause the certificate to be displayed prominently at the Firm principal place of business. Part­nership Deed – Partnership Deed refers to a document in which the respective rights and obligations of members of partnership is writ­ten. For taxation purposes, a part­nership deed should be in writing.

Capital contribution of each part­ner and the profit sharing ratio among the partners are essential clauses requiring careful consid­eration when assessing taxation of partners.

Registration of Partnership for Tax Purpose

• TIN Registration for Partnership

Unfortunately, the tax office con­tinues to find businesses operating without having a proper Partnership TIN. This in­dicates a high risk area as it con­travenes the standards of the tax law. The Fiji Revenue & Customs Service urges partnership busi­nesses to voluntary comply with the tax registration requirements as this is their first tax obligation which they must abide by.

To register for a TIN, all partnership businesses must provide the following requirements:

• Completed TIN Application Form - IRS 003 please follow link to download form:https://www.frcs.org.fj/wp-content/up­loads/2018/07/IRS003-Compa­nyRegistration1.pdf 2. Certificate of Business Registration – Form A13
• Partnership Agreement (Stamped)
• Partners Name and TIN
• VAT Supplementary Form (only if applying for VAT)

All Partnership business applica­tion can be lodged at any Revenue & Customs office Fiji wide or sim­ply emailed to info@frcs.org.fj.

• Partners Taxpayer Identification Numbers (TIN)

For registration purposes of the partnership business, the partners are also required to provide their individual TINs upon application.

This means that individual part­ners of a partnership business must first have a TIN before reg­istering for a Partnership TIN. All partners must have a TIN which must be clearly declared in the Partnership Business Registration form upon lodgment. Without part­ners TINs the Partnership busi­ness cannot be registered.

• Stamped Partnership Agree­ment

Partnership businesses must en­sure that they have a proper Part­nership Agreement. This is also a registration requirement that partners must furnish upon sub­mitting a TIN application at Rev­enue & Customs. Partners must understand that it’s not just any type of agreement that the tax office re­quires but more importantly it must be a ‘STAMPED’

Partnership Agreement. For this purpose, partners must ensure that their Partnership

Agreement documents are sent to FRCS for Stamp Duty purposes. The tax office will only

STAMP Partnership Agreements if Stamp Duty has been correctly paid to the tax office. All partnership agreements are sub­ject to $10 Stamp Duty and must be paid at our cashiers before obtaining the stamped Partnership Agreement from our Stamp Duty counters.

A stamped Partnership Agree­ment allows partners to use the document in the court of law during the course of a dispute and where a legal action is required to be taken.

• Partnership VAT Registration

Every partnership business that has a sales turnover of $100,000 and above is required to register for VAT.

This means that the partnership business is liable to register from the day the partnership turnover reached $100,000.

This is the only time VAT regis­tration becomes compulsory and the Revenue and Customs urges all partnership businesses to register for VAT if the business turnover is $100,000 or more. Partnerships also have the opportunity to register early if their estimat­ed gross turnover for the next 12 months is expected to exceed $100,000. Very often the tax office finds issues based on VAT registration when inspections and audits are con­ducted. Businesses that became li­able in the past periods did not comply by registering for VAT from the day they became liable and as a result have to pay huge amounts of VAT liabili­ty and penalties. This is simply the result of noncompliance. Partner­ship businesses must understand that this is what the law requires them to do. Failure to do so will result in penalties.

If the turnover is less than $100,000 then the partnership busi­ness is not required by law to register for VAT however it may opt to register on a voluntary basis. This means that partnership businesses that have a turnover less than the VAT threshold of $100,000 can still register for VAT if they wish to do so. However, partnerships must understand that once they are registered for VAT – they are required to carry out the VAT obligations.

Partnerships who supply produce in a raw and unprocessed state are not required to register for VAT even if the total value of supplies exceeds $100,000. However, produce suppliers can still opt to register voluntarily for VAT if they wish to do so.

• Other Tax Type Registrations

Partnership Businesses that meet the following registration condi­tions must ensure that they are also registered for the be­low tax types.

Taxation of Partnership

• Taxation

For tax purposes, the partnership business does not pay income tax on the profit it earns.

However, each partner is required to report their share of the part­nership profits in their own tax return.

In other words, the profit is tax­able at the hands of the partners and not the hands of the partner­ship business.

Each individual partner pays tax on their share of the partner­ship profit at the individual tax rate whilst companies who have formed joint ventures or partner companies will pay tax on their share of the partnership profit at the normal corporate tax rate.

Any profit that is not distributed will be deemed distributed by the tax office and partners will still be liable for any tax due.

The tax office wishes to advise all partners that it is important to un­derstand how the partnership busi­ness and the partners are treated when it comes to the tax applica­tion of the partnership income.

• Provision of Non-Cash Benefits

Partnerships that provide non-cash benefits to its employees must correctly account for Fringe Ben­efit Tax to the tax office.

Any Non-cash benefit provided by the employer to its employees will be subject to 20% Fringe Benefit Tax. Examples of Non-cash ben­efits provided by the employer in­clude motor vehicle, house, utility bills, mobile phones etc.

The Fringe Benefit Tax is paid by the Employer who is the provider of the non-cash benefit.

Partnership Obligations

• Partnership Tax Return

Although the Partnership busi­ness is not taxed it is still required to file a Partnership return on an annual basis in the required Form.

The Partnership tax return is basically a declaration of finan­cials that reports on the business income earned and the expenses incurred during the tax year.

Declaration of actual amount of profits distributed to each partners where successful distribution of profits has been made.

Similarly, where losses have been made by the business - it must also be reported on the partnership fi­nancials when preparing a tax re­turn.

Regardless of whether the Part­nership makes a profit or loss it will always distributed for ac­counting purposes.

Non-lodgment of Partnership re­turns continues to be an area of concern to the tax office as part­nerships do not make an effort to file returns.

Deliberately choosing not to file a tax return is an offence under the tax law and partnerships caught not lodging returns will be dealt with immediately.

On the other hand, partners must note that the tax office cannot final­ize assessments for individual partner’s returns if the Partnership return itself has not been filed. Partnerships must understand that failure to lodge an income tax return is an offence under the tax law and offenders will face the full brunt of the law if they are caught.

• Partners Tax Return

Partners are also urged to lodge the partner’s returns together with the partnership return.

For more information you can visit our website on www.frcs.org.fj or email us at info@frcs.org.fj

Feedback: maraia.vula@fijisun.com.fj