REPUBLIC OF NAURU
Business Tax Act
No. 31 of 2016
Table of Provisions
PART 1 – PRELIMINARY MATTERS
1 Short title
2 Commencement and application
3 Definitions
4 Associate
5 Fair market value
6 Non-profit organisation
7 Permanent establishment
8 Resident individual
9 Source of income
10 Act binds the Republic
PART 2 – IMPOSITION OF TAX
11 Imposition of business profits tax
12 Imposition of small business tax
2
13 Imposition of non-resident tax
14 Imposition of international transportation business tax
15 General provisions relating to taxes imposed under this Act
PART 3 – BUSINESS PROFITS TAX
Division 1 – Taxable Income
16 Taxable income
Division 2 – Gross Revenue and Allowable Deductions
17 Gross revenue
18 Exempt income
19 Deductions
20 Non-deductible expenditures and losses
21 Depreciation of depreciable assets and business intangibles
22 Bad debts
23 Net loss carry forward
Division 3 – Tax Accounting
24 Method of tax accounting
25 Change in tax accounting method
Division 4 – Business Assets
26 Jointly owned business assets
27 Acquisition of a business asset
28 Disposal of a business asset
29 Cost of a business asset
30 Net book value of a business asset
31 Consideration for the disposal of a business asset
32 Deferral of recognition of gain or loss
33 Registration of transferred assets
PART 4 – ANTI-AVOIDANCE
34 Transfer pricing
35 Thin capitalisation
36 Tax avoidance schemes
PART 5 – PROCEDURE
37 Application of the Revenue Administration Act
38 Records
39 Tax returns
40 Payment of tax
41 Instalments of business profits tax
3
42 Collection of international transportation business tax from non-
resident ship owners or charterers
43 Collection of international transportation business tax from non-
resident aircraft owners or charterers
44 Withholding tax
PART 6 – ADMINISTRATIVE MATTERS
45 Currency translation
46 Regulations
47 Consequential amendments to Employment and Services Tax Act
48 Transitional provisions
SCHEDULE 1 – RATES OF TAX
SCHEDULE 2 – BUSINESS PROFITS TAX THRESHOLD
SCHEDULE 3 – AMENDMENT OF EMPLOYMENT AND SERVICES TAX ACT
2014
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REPUBLIC OF NAURU
Business Tax Act
Act No. 31 of 2016
An Act to provide for the taxation of business income, and for related purposes
Certified on 9 th
June 2016
Enacted by the Parliament of Nauru as follows:
PART I – PRELIMINARY MATTERS
1 Short title
This Act may be cited as the Business Tax Act 2016.
2 Commencement and application
(1) This Act commences on the date that notice of the Act is published in
the Gazette.
(2) Subject to subsections (3) and (4), this Act applies from 1 July 2016.
(3) Section 35 applies from the date specified by the Secretary in a notice
in the Gazette.
(4) Clause 3 of Schedule 3 applies from 1 October 2014.
3 Definitions
In this Act:
‘acquisition’, in relation to a business asset, has the meaning in 27;
‘amount’ includes an amount-in-kind;
‘associate’ has the meaning in section 4;
‘business’ means any activity, whether continuous or short term,
conducted for the purposes of economic gain, other than an
employment, and includes any trade, manufacture, profession, or other
commercial activity;
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‘business asset’ means an asset, whether revenue or capital in nature,
used in the conduct of a business wholly or partly to derive gross
revenue, including inventory, a depreciable asset, a business intangible,
or goodwill;
‘business intangible’ means:
(a) a copyright, patent, design or model, plan, secret formula or
process, trademark, or other like property or right that has a
limited useful life and is used wholly or partly to derive gross
revenue;
(b) a customer list, distribution channel, or unique name, symbol or
picture, or other marketing intangible that has a limited useful
life and is used wholly or partly to derive gross revenue;
(c) contractual rights (including arising as a result of a prepayment
of expenses) with a benefit for a limited period, but which
exceeds one year, used wholly or partly to derive gross
revenue;
(d) an expenditure used wholly or partly to derive gross revenue
that provides an advantage or benefit for a period of more than
one year, other than expenditure incurred to acquire any
tangible personal or real property; or
(e) preliminary expenditure;
‘business profits tax’ means business profits tax imposed under
section 11;
‘business profits tax threshold’ means the monetary amount specified
in the Second Schedule;
‘company’ means:
(a) a corporation incorporated under the Corporations Act 1972;
(b) a foreign corporation within the meaning of the Corporations
Act 1972;
(c) a statutory corporation created under Nauru law or the law of a
foreign country;
‘consideration’, in relation to a business asset, has the meaning in
section 31;
‘cost’, in relation to a business asset, has the meaning in section 29;
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‘depreciable asset’ means any tangible personal property or structural
improvement to real property that:
(a) has an ascertainable useful life exceeding one year;
(b) is likely to lose value as a result of normal wear and tear, or
obsolescence; and
(c) is used wholly or partly to derive gross revenue;
‘derived’ means:
(a) for the business profits tax:
(i) for a person accounting for tax on a accruals basis, the
arising of the right to receive; or
(ii) for a person accounting for tax on a cash basis,
received; or
(b) for any other tax imposed under this Act, received;
‘disposal’, in relation to a business asset, has the meaning in section
28;
‘distribution’ means:
(a) a dividend paid by a company to a shareholder;
(b) an allocation of profits by a partnership to a partner (including
drawings);
(c) an entitlement to income of a beneficiary of a trust; or
(d) a distribution of profits by any other body of persons to a
member of the body;
‘employee’ has the meaning in the Employment and Services Tax Act;
‘employer’ has the meaning in the Employment and Services Tax Act;
‘employment’ has the meaning in the Employment and Services Tax
Act;
‘employment income’ has the meaning in the Employment and
Services Tax Act;
‘exempt income’ has the meaning in section 18;
‘fair market value’ has the meaning in section 5;
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‘gross revenue’ has the meaning in section 17;
‘instalment period’, in relation to a person for a tax year, means the
period of three months ending on the last day of the third, sixth, ninth,
or twelfth months of the year;
‘insurance premium’ includes a premium relating to reinsurance and
any other amount payable in respect of the offshore placement of
insurance, but does not include a premium payable under a life policy;
„interest’ includes:
(a) an amount, whether described as interest, discount, premium, or
otherwise, whether periodical or a lump sum, as consideration
for the use of money or being given time to pay; or
(b) an amount, however described, that is functionally equivalent
to an amount referred to in paragraph (a);
‘international agreement” means:
(a) an agreement between the Government of Nauru and a foreign
government for the prevention of double taxation; or
(b) an agreement between the Government of Nauru and a foreign
government or an international organisation for the provision of
financial, technical, humanitarian, or administrative assistance
to the Government;
‘International Financial Reporting Standards’ means the most recent
International Financial Reporting Standards issued by the International
Accounting Standards Board or any successor entity taking over the
role of issuing International Financial Reporting Standards;
‘international organisation’ means an organisation, the members of
which are sovereign powers or governments of sovereign powers;
‘international transportation business tax’ means international
transportation business tax imposed under section 14;
‘inventory’ includes:
(a) anything produced, manufactured, purchased, or otherwise
acquired for manufacture, sale, or exchange;
(b) any raw materials or consumables used in a production or
manufacturing process; or
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(c) livestock (other than animals used as beasts of burden or
working beasts);
‘net book value’, in relation to a business asset, has the meaning in
section 30;
‘non-resident individual’ means an individual who is not a resident
individual;
‘non-resident person’ means a person who is not a resident person;
‘non-resident tax’ means non-resident tax imposed under section 13;
‘person’ means:
(a) an individual;
(b) a partnership, trust, company, or other body of persons;
(c) the Government of Nauru, a local authority in Nauru, a foreign
government, or a political subdivision of a foreign government;
or
(d) an international organisation;
‘preliminary expenditure’ means expenditure incurred before the
commencement of a business if the income to be derived by the
business will be wholly and exclusively included in gross revenue,
other than expenditure incurred to acquire tangible personal or real
property;
‘quarter’ means the period of three months ending on 30 September,
31 December, 31 March and 30 June;
‘received’, in relation to a person, includes:
(a) applied on behalf of the person either at the instruction of the
person or under any law;
(b) reinvested, accumulated, or capitalised for the benefit of the
person;
(c) credited to an account, or carried to any reserve, or a sinking or
insurance fund for the benefit of the person; or
(d) made available to the person;
‘relative’, in relation to an individual, means:
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(a) an ancestor, a descendant of any of the grandparents, or an
adopted child, of the individual;
(b) an ancestor, a descendant of any of the grandparents, or an
adopted child of a spouse of the individual; or
(c) a spouse of the individual or of any person specified in
paragraph (a) or (b);
‘resident company’ means a company referred to in paragraph (b) of
the definition of „resident person‟;
‘resident individual’ has the meaning in section 8;
‘resident person’ means:
(a) a resident individual;
(b) a partnership, trust, company, or other body of persons that is
incorporated, formed, settled, or otherwise established or
created in Nauru; or
(c) the Government of Nauru or any local authority in Nauru;
‘royalty’ means an amount, however described, whether periodical or a
lump sum, as consideration for:
(a) the use of, or right to use a patent, invention, design or model,
secret formula or process, trademark, or other like property or
right;
(b) the use of, or right to use a copyright of a literary, artistic, or
scientific work (including films or video tapes for use in
connection with television or tapes in connection with radio
broadcasting);
(c) the receipt of, or right to receive, visual images or sounds, or
both, transmitted by satellite, cable, optic fibre, or similar
technology in connection with television, radio, or internet
broadcasting;
(d) the use of or right to use industrial, commercial, or scientific
equipment;
(e) the supply of any scientific, technical, industrial, or commercial knowledge, information, experience, or skill;
(f) the supply of assistance that is ancillary and subsidiary to, and
is furnished as a means of enabling the application or
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enjoyment of property, a right, or a supply referred to in
paragraphs (a) - (e);
(g) the right to take minerals or a living or non-living resource
from land or sea, and includes an amount calculated in whole or
part by reference to the quantity or value of minerals or a living
or non-living resource taken from land or sea;
‘Secretary’ means the Secretary responsible for revenue;
‘services tax’ means services tax imposed under the Employment and
Services Tax Act;
‘shareholder’, in relation to a company, includes any person with an
ownership interest in the company.
‘small business tax’ means small business tax imposed under section
12;
‘structural improvement’ in relation to real property, includes a
building, road, driveway, car park, pipeline, bridge, tunnel, airport
runway, canal, dock, wharf, retaining wall, fence, power lines, water or
sewerage pipes, drainage, landscaping, or dam;
‘tax’ means tax imposed under this Act and includes an instalment of
tax payable under this Act;
‘tax year’ means the period of twelve months ending on 30 June and,
in the case of a company, is the period of twelve months ending on the
date of the annual balance of its accounts (referred to as the
“substituted tax year”);
‘taxable income’ has the meaning in section 16; and
‘use’, in relation to a depreciable asset or business intangible, includes
available for use and held.
4 Associate
(1) Subject to subsection (2), two persons are associates if the relationship
between the two persons is such that one person may reasonably be
expected to act in accordance with directions, requests, suggestions, or
wishes of the other person, or both persons may reasonably be
expected to act in accordance with the directions, requests,
suggestions, or wishes of a third person.
(2) Two persons are not associates solely by reason of the fact that one
person is an employee or client of the other, or both persons are
employees or clients of a third person.
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(3) For the avoidance of doubt, an individual and a relative of the
individual are associates, except when the Secretary is satisfied that
neither person may reasonably be expected to act in accordance with
the directions, requests, suggestions, or wishes of the other.
5 Fair Market Value
(1) Subject to section 34, the fair market value of an asset, service, or
benefit at a particular time is the ordinary open market value of the
asset, service, or benefit at that time.
(2) If it is not possible to determine the fair market value of an asset,
service, or benefit at a particular time under subsection (1), the fair
market value is the consideration a similar asset, service, or benefit
would ordinarily fetch in the open market at that time, adjusted to take
account of the differences between the similar asset, service, or benefit
and the actual asset, service, or benefit.
(3) For the purposes of subsection (2), an asset, service, or benefit is
similar to another asset, service, or benefit, as the case may be, if it is
the same as, or closely resembles, the other asset, service, or benefit in
character, quality, quantity, functionality, materials, risk, and
reputation.
(4) If the fair market value of an asset, service, or benefit cannot be
determined under subsections (1) and (2), the fair market value shall be
the amount determined by the Secretary provided it is consistent with
generally accepted principles of valuation.
6 Non-profit organisation
(1) A non-profit organisation is an organisation that satisfies the following
conditions:
(a) the organisation is established solely to provide relief to those
suffering from poverty or distress, or for the advancement of
education, amateur sport, or religion;
(b) no part of the income or other funds, or assets, of the
organisation are used, or are available for use for the private
benefit of a proprietor or member of the organisation;
(c) the Secretary has certified, by notice
organisation is a non-profit organisation.
in writing, that the
(2) An organisation may apply to the Secretary, in the approved form, for
certification that the organisation is a non-profit organisation.
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(3) If an organisation that has made an application under subsection (2)
satisfies the conditions in subsection (1)(a) and (b), the Secretary must
grant the application.
(4) The certification of an organisation as a non-profit organisation takes
effect from the date specified in the notice of certification and remains
in force until withdrawn by the Secretary by notice in writing to the
organisation.
(5) An organisation certified as a non-profit organisation must
immediately notify the Secretary, in writing, if the organisation no
longer satisfies the conditions in subsection (1)(a) and (b).
7 Permanent establishment
(1) Subject to this section, a permanent establishment is a place of
business through which the business of a person is wholly or partly
conducted.
(2) The following are treated as a permanent establishment:
(a) a place of management, branch, office, factory, warehouse, or
workshop, but not an office that has representation of the
person‟s business as its sole activity;
(b) a mine site, oil or gas well, quarry, or other place of exploration
for, or exploitation of, natural resources, including a boat or
ship that provides a base for the exploration or exploitation of
natural resources;
(c) the furnishing of services, including consultancy services, by a
person, including through employees or other personnel
engaged by the person for such purpose, but only if activities of
that nature continue for the same or a connected project of the
person or an associate for a period or periods aggregating more
than ninety days in any twelve-month period;
(3) Subject to subsection (4), a building site, construction, assembly or
installation project, or supervisory activities connected with such site
or project is a permanent establishment only if the site, project, or
activities continue for more than ninety days.
(4) When a person operates a building site, or conducts a project or
activity referred to subsection (3), any connected activities conducted
by an associate will be added to the period of time during which the
first-mentioned person has operated the building site or conducted the
activities for the purpose of determining whether the ninety-day period
is exceeded.
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(5) Despite subsections (1) and (2), when a person (referred to as
“agent”) acts on behalf of another person (referred to as
“principal”), the agent shall be a permanent establishment of
principal if the agent:
the
the
the
(i) regularly negotiates contracts on behalf of the principal,
whether the contracts are concluded in the name of the
principal or the agent; or
(ii) maintains a stock of goods from which the agent
regularly delivers goods on behalf of the principal.
8 Resident individual
(1) Subject to subsection (2), an individual is a resident individual if:
(a) the individual is a citizen of Nauru, except when the individual
has a permanent home outside Nauru; or
(b) the individual resides in Nauru as a resettled refugee.
(2) Despite subsection (1), a citizen of Nauru who is an employee of the
Government of Nauru posted abroad is a resident individual.
9 Source of income
(1) An amount derived by a resident person in conducting a business is
derived from sources in Nauru except to the extent that it is attributable
to a business conducted by the person through a permanent
establishment outside Nauru.
(2) An amount derived by a non-resident person in conducting a business
is derived from sources in Nauru to the extent that it is attributable:
(a) to a business conducted by the person through
establishment in Nauru;
a permanent
(b) to sales in Nauru of goods or merchandise of the same or
similar kind as those sold by the person through a permanent
establishment in Nauru; or
(c) to any other business activity conducted in Nauru of the same
or similar kind as that conducted by the person through a
permanent establishment in Nauru.
(3) Despite subsections (1) and (2), the following amounts
from sources in Nauru:
are derived
(a) rental income from the lease of real property in Nauru;
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(b) a gain arising on the disposal of real property in Nauru;
(c) a gain arising on the disposal of an interest in a company,
partnership, or trust, if the value of the interest is derived,
directly or indirectly through one or more interposed entities,
solely or principally from real property in Nauru;
(d) interest or a royalty when it is:
(i) paid by a resident person, other than as an expenditure
of a business conducted by the person through a
permanent establishment outside Nauru; or
(ii) paid by a non-resident person as an expenditure of a
business conducted by the person through a permanent
establishment in Nauru; or
(e) an insurance premium for the insurance of a risk in Nauru.
(4) In this section, ‘real property’ includes:
(a) an exploration, prospecting, development, or similar right
relating to real property; or
(b) information relating to a right referred to in paragraph (a).
10 Act binds the Republic
This Act binds the Republic.
PART 2 – IMPOSITION OF TAX
11 Imposition of business profits tax
(1) Subject to this Act, a tax to be known as “business profits tax” is
imposed for each tax year at the rate or rates specified in Schedule 1 on
a person conducting business that has taxable income for the year.
(2) The business profits tax imposed under subsection (1) on a person for a
tax year is computed by applying the business profits tax rate or rates
specified in Schedule 1 to the taxable income of the person for the
year.
(3) This section does not apply to the following:
(a) a non-resident individual subject to small business tax;
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(b) a non-resident person conducting a fishing business in Nauru
under an agreement with the Nauru Fisheries and Marine
Resources Authority.
12 Imposition of small business tax
(1) Subject to this Act, a tax to be known as “small business tax” is
imposed for each quarter on a non-resident individual conducting
business who satisfies the following conditions:
(a) the individual conducts the business solely in Nauru;
(b) the individual was not subject to the business profits tax for the
previous tax year;
(c) the total gross revenue of the individual for the previous tax
year did not exceed the business profits tax threshold specified
in Schedule 2.
(2) The small business tax imposed under subsection (1) on a non-resident
individual for a quarter is computed by applying the rate specified in
Schedule 1 to the total gross revenue derived by the individual for the
quarter.
(3) In determining the total gross revenue of a non-resident individual for
a tax year for the purposes of subsection (1)(c), the Secretary may have
regard to the total gross revenue of an associate or associates of the
Individual for the year.
(4) A non-resident individual subject to small business tax may apply, in
the approved form, to the Secretary for section 11 to apply to the
individual instead of this section.
(5) The Secretary may approve an application under subsection (4) if
satisfied that the non-resident individual will keep proper records as
required for the purposes of the business profits tax.
(6) An approval under subsection (5) applies from the commencement of
the first tax year of the non-resident individual after the approval is
granted and remains in force indefinitely or until the Secretary permits
the individual to be subject to this section under subsection (9).
(7) Subject to subsection (8), a non-resident individual who:
(a) was subject to business profits tax for a tax year; and
(b) the total gross revenue of the individual for the year did not
exceed the business profits tax threshold,
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may apply, in writing, to the Secretary for permission for the
individual to be subject to the small business tax.
(8) A non-resident individual who has been granted permission under
subsection (5) for section 11 to apply to the individual cannot make an
application under subsection (7) within three years of the date of
service of the notice granting the individual permission for section 11
to apply.
(9) The Secretary may approve an application under subsection (7) if
satisfied that there is reasonable cause to do so and the approval
applies from the date specified in the notice of approval.
(10) An approval under subsection (5) or (9) may be subject to such
conditions as the Secretary may specify by notice in writing to the
applicant.
13 Imposition of non-resident tax
(1) Subject to this Act, a tax to be known as “non-resident tax” is imposed
at the rate specified in Schedule 1 on a non-resident person who has
derived interest, a royalty, or insurance premium from sources in
Nauru.
(2) The non-resident tax payable by a non-resident person under
subsection (1) is computed by applying the rate of tax specified in
Schedule 1 to the gross amount of the interest, a royalty, or insurance
premium derived by the person.
(3) Subsection (1) does not apply to:
(a) an amount that is exempt income;
(b) interest, a royalty, or insurance premium that is attributable to a
business conducted by the non-resident person through a
permanent establishment in Nauru and, in that case, the amount
is taxable under section 11; or
(c) an amount subject to services tax.
(4) The tax payable under subsection (1) is discharged if the tax has been
paid to the Secretary in accordance with section 44.
14 Imposition of international transportation business tax
(1) Subject to this Act, a tax to be known as “international transportation
business tax” is imposed at the rate specified in Schedule 1 on the
gross amount derived by a non-resident person for the carriage of
passengers, livestock, mail, merchandise, or goods embarked or loaded
in Nauru and destined for a place outside Nauru.
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(2) This section does not apply to the following:
(a) an amount that is exempt income;
(b) an amount derived in respect of the following:
(i) a passenger who is in Nauru as a result of being in
transit between two places outside Nauru;
(ii) the transhipment of livestock, mail, merchandise, or
goods.
(3) The tax payable under this section is discharged if the tax has been
paid in accordance with section 42 or 43, as the case may be.
15 General provisions relating to taxes imposed under this Act
The following applies to tax imposed under sections 12, 13, and 14:
(a) the tax is a final tax on the income in respect of which it is
imposed;
(b) in computing the taxable amount, no deduction is allowed for
any expenditure or loss incurred by the person in deriving the
income.
PART 3 – BUSINESS PROFITS TAX
Division 1 – Taxable Income
16 Taxable income
The taxable income of a person for a tax year is the gross revenue of
the person for year reduced by the total amount of deductions allowed
to the person for the year.
Division 2 – Gross Revenue and Allowable Deductions
17 Gross revenue
(1) Subject to subsection (2), the gross revenue of a person for a tax period
is the sum of the following amounts derived by the person during the
period from sources in Nauru:
(a) the gross receipts from the conduct of a business, including the
gross proceeds from the disposal of inventory, the gross fees as
compensation for providing personal services (other than
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employment income), interest, rent, royalties, or other proceeds
of a business however designated;
(b) a gain on disposal of a business asset, other than inventory dealt
with under paragraph (a);
(c) the amount of an expenditure, loss, or bad debt previously
allowed as a deduction that has been reimbursed or recovered
by the person.
(2) The gross revenue of a person does not include the following amounts:
(a) a distribution by a company, partnership, or trust;
(b) exempt income;
(c) an amount subject to tax under section 13 or 14;
(d) an amount subject to services tax.
(3) For the purposes of subsection (1)(b), a gain on disposal of a business
asset is the amount by which the consideration for the disposal of the
asset exceeds the net book value of the asset at the time of disposal.
(4) In this section, ‘tax period‟ means:
(a) for business profits tax, the tax year;
(b) for small business tax, the quarter; or
(c) for instalments of tax, the instalment period.
18 Exempt income
(1) The following amounts are exempt income:
(a) an amount exempt from tax to the extent provided for under an
international agreement;
(b) an amount exempt from tax to the extent provided for under the
Consular Privileges and Immunities Act 1976, the Diplomatic
Privileges and Immunities Act 1976, or the Special Missions
Privileges and Immunities Act 1976;
(c) an amount derived by a non-profit organisation other than
income from a business conducted by the organisation that is
not directly related to the core function of the organisation;
(d) an amount exempt from tax to the extent provided for under a
provision (referred to as an “exemption provision”) in an
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agreement, other than an international agreement, entered into
by the Government when the following conditions are satisfied:
(i) the agreement is for the provision of financial,
technical, humanitarian, or administrative
assistance to the Government;
(ii) the Cabinet has concurred, in writing, with the
exemption provision; and
(iii) the name of the person benefitting from the exemption
provision is included in a notice published in the
Gazette within thirty days after the agreement comes
into effect;
(e) interest paid by a resident company to a non-resident person in
respect of debentures issued by the resident company if the
following conditions are satisfied:
(i) the company issued the debentures outside Nauru;
(ii) the debentures were issued with a view to public
subscription or other wide distribution;
(iii) the company issued the debentures for the purpose of
raising funds for use by the company in a business
carried on in Nauru;
(iv) the interest is paid outside Nauru;
(f) an amount derived by a non-resident person from the operation
of a ship or aircraft in international traffic if the Secretary is
satisfied that an equivalent exemption is provided to a resident
person by the country in which the non-resident resides.
(2) A provision in another law providing that an amount is exempt from
tax does not have legal effect unless also provided for in this Act.
19 Deductions
(1) Subject to this Act, the total amount of deductions allowed to a person
for a tax year is the sum of the following amounts:
(a) expenditures or losses to the extent incurred by the person
during the year in deriving amounts included in gross revenue;
(b) the cost of inventory disposed of by the person during the year
as determined under international financial reporting standards;
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(c) the total amount by which the depreciable assets and business
intangibles of the person have declined in value during the year
from use in deriving amounts included in gross revenue as
determined under section 21;
(d) a loss on disposal of a business asset by the person during the
year, other than inventory dealt with under subsection (1)(b);
(e) any other amount allowed as a deduction to the person under
this Act.
(2) For the purposes of subsection (1)(d), a loss on disposal of a business
asset is the amount by which the net book value of the asset at the time
of disposal exceeds consideration for the disposal.
(3) The Regulations may provide rules for the deduction of expenditures
relating to mining operations.
20 Non-deductible expenditures or losses
(1) Except as provided for in this Act, no deduction is allowed for the
following:
(a) an expenditure or loss to the extent to which it is of a domestic
or private nature;
(b) a distribution, an amount of capital withdrawn, or a sum
employed as capital;
(c) an expenditure or loss of a capital nature except as allowed
under section 19(1)(c) or (d);
(d) an amount that a person has transferred, in its financial
accounts, to a reserve or provision for expenditures or losses
not yet incurred but expected to be incurred in a future tax year;
(e) an expenditure or loss to the extent recovered or recoverable
under a policy of insurance or a contract of indemnity,
guarantee, or surety;
(f) business profits tax, and any penalty or interest payable in
respect of a business profits tax liability;
(g) a fine or penalty imposed for violation of any law or regulation;
(h) interest payable to an associate other than interest included in
the gross revenue of the associate or subject to non-resident tax;
21
(i) a service fee, royalty, or insurance premium paid or payable to
a non-resident associate except when the service fee, royalty, or
insurance premium is:
(i) included in the gross revenue of the associate; or
(ii) subject to non-resident tax or services tax; and
(j) a contribution made to a retirement or savings fund, including a
contribution made by an employer for the benefit of an
employee, except when the contribution has been subject to the
employment tax.
(2) If a person is allowed a deduction for a payment from which the person
is required to withhold tax under a withholding tax provision, the
deduction is not allowed until the tax year in which the withholding tax
has been paid to the Secretary.
(3) In this section:
‘service fee’ has the meaning in the Employment and Services Tax
Act; and
‘withholding tax provision’ means:
(a) section 44; or
(b) section 17 or 18 of the Employment and Services Tax Act.
21 Depreciation of depreciable assets and business intangibles
(1) Subject to this section, a person is allowed a deduction for a tax year
for the amount by which the person‟s depreciable assets and business
intangibles have declined in value during the year through use in
deriving amounts included in gross revenue.
(2) The amount of the decline in value of a depreciable asset or business
intangible of a person for a tax year is computed in accordance with
international financial reporting standards.
(3) If a person uses a depreciable asset or business intangible in a tax year
partly to derive gross revenue and partly for another use, the amount
allowed as a deduction under subsection (1) is the proportion of the
amount computed under subsection (2) that relates to the derivation of
gross revenue.
(4) If a depreciable asset or business intangible is not used for use by a
person in deriving gross revenue for the whole of the tax year, the
amount allowed as a deduction under subsection (1) is the amount
22
computed in accordance with subsections (2) and (3) reduced by the
proportion of the year that the asset was not so used or held.
(5) If a depreciable asset or business intangible that has been used by a
person partly in deriving gross revenue and partly for another use is
disposed of during a tax year, the amount of the gain or loss on
disposal to which section 17(1)(b) or 19(1)(d) applies is the fair
proportional part of the gain or loss that relates to the derivation of
gross revenue.
22 Bad debts
(1) A person is allowed a deduction for a tax year for a bad debt if the
following conditions are satisfied:
(a) the amount of the debt:
(i) has been included in the gross revenue of the person; or
(ii) is money lent by the person in the normal course of
carrying on a business of money lending;
(b) the debt or part of the debt is written off in the person‟s
financial accounts for the tax year; and
(c) there are reasonable grounds for believing that the debt is
irrecoverable.
(2) The amount of the deduction allowed to a person under this section for
a tax year must not exceed the amount of the debt written off in the
person‟s financial accounts for that year.
23 Net loss carry forward
(1) If the total amount of deductions allowed to a person for a tax year
(other than a deduction allowed under this section) exceeds the gross
revenue of the person for the year, the amount of the excess is the
person‟s net loss for the year.
(2) If a person has a net loss for a tax year, the amount of the net loss can
be carried forward to the next following tax year and allowed as a
deduction in computing the person‟s taxable income for that following
year.
(3) If a net loss is not wholly deducted under subsection (2), the amount
not deducted can be carried forward by the person to the next
following tax year and applied as specified in subsection (2) in that
year, and so on until the net loss is fully deducted, but a net loss cannot
be carried forward for more than three tax years after the end of year in
which the net loss was incurred.
23
(4) If a person has a net loss carried forward under this section for more
than one tax year, the net loss of the earliest year is deducted first.
(5) If there is a change in more than 50% of the underlying ownership of
an entity, any net loss for a tax year before the change is not allowed as
a deduction in a tax year after the change unless the following
conditions are satisfied:
(a) the entity carried on the same business after the change that it
carried on before the change until the earlier of either the net
loss has been fully deducted or the period for carrying the net
loss forward under this section has expired;
(b) the entity does not, until the earlier of when either the net loss
has been fully deducted or the period for carrying the net loss
forward under this section has expired, engage in any new
business or investment if the principal purpose of the entity or
the shareholders, members, partners, or beneficiaries of the
entity is to utilise the net loss so as to reduce the business
profits tax payable on the amounts derived from the new
business or investment.
(6) In this section:
‘entity’ means a company, partnership, trust, or other body of persons;
and
‘underlying ownership’, in relation to an entity, means an ownership
interest in the entity held, directly or indirectly through an interposed
entity or entities, by an individual or by a person not ultimately owned
by individuals.
Division 3 – Tax Accounting
24 Method of tax accounting
(1) Subject to this Act, the taxable income of a person for a tax year is to
be computed in accordance with the International Financial Reporting
Standards.
(2) A person accounting on a cash basis derives an amount of gross
revenue when received and incurs expenditure when paid.
(3) A person accounting on an accruals basis derives an amount of gross
revenue when the right to receive the amount arises and incurs
expenditure when the obligation to pay the expenditure arises.
(4) If the tax year (referred to as the “previous tax year”) of a company
changes, the period from the end of the last full previous tax year to the
24
commencement of the new tax year is treated, for the purposes of the
Act, as a separate tax year.
(5) The Regulations may provide rules for the calculation of the taxable
income of insurance companies, including a deduction for the
unexpired risks reserve of such companies.
25 Change in tax accounting method
(1) A person may apply to the Secretary, in writing, for a change in the
person‟s method of accounting and the Secretary may, by notice in
writing, approve the application but only if satisfied that the change is
necessary to properly compute the taxable income of the person.
(2) If a person‟s method of accounting changes, the person must make
adjustments in the tax year of change to items of income, deduction, or
credit, or to any other items affected by the change so that no item is
omitted and no item is taken into account more than once.
Division 4 – Business Assets
26 Jointly owned business assets
(1) For the purposes of this Act, if a business asset is jointly owned by two
or more persons (other than in partnership), any income, revenue,
expenditures, or losses relating to the asset is apportioned among the
owners according to their respective interests in the asset.
(2) If the interests of the owners of a jointly owned business asset cannot
be ascertained, the owners of the asset are treated as having an equal
interest in the asset.
27 Acquisition of a business asset
(1) A person acquires a business asset at the time legal title to the asset
passes to the person.
(2) For a business asset that is a right or option, a person acquires the right
or option at the time that the right or option is granted to the person.
28 Disposal of a business asset
(1) A person disposes of a business asset at the time that the person has
sold, exchanged, or otherwise transferred legal title to the asset,
including when the asset is cancelled, redeemed, relinquished,
destroyed, lost, expired, or surrendered.
(2) If a person creates a business asset in another person being an asset
that did not previously exist, the first-mentioned person is treated as
25
having made a disposal of the asset to the second-mentioned person at
the time the asset is created.
(3) If a business asset is transmitted by succession or under a will, the
deceased is treated as having disposed of the asset at the time the asset
is transmitted.
(4) A disposal includes the disposal of a part of a business asset.
(5) The vesting of a business asset of a person (referred to as the “owner”)
in a liquidator, trustee-in-bankruptcy, or receiver is not treated as a
disposal of the asset for the purposes of this Act, and acts done in
relation to the asset by the liquidator, trustee-in-bankruptcy, or receiver
are treated as done by the owner.
29 Cost of a business asset
(1) Subject to this section, the cost of a business asset of a person, other
than a business intangible, is the sum of the following amounts:
(a) the total consideration given by the person for the asset,
including the fair market value of any consideration in kind
determined at the time the asset is acquired and, if the asset is
constructed, produced, or developed, the cost of construction,
production, or development;
(b) any incidental expenditure incurred by the person in acquiring
or disposing of the asset;
(c) any expenditure incurred by the person to install, alter, renew,
reconstruct, or improve the asset.
(2) Subject to this section, the cost of a business intangible is:
(a) in relation to a business intangible referred to in paragraph (a),
(b), or (c) of the definition of “business intangible” in section 3,
the total expenditure incurred by the person in acquiring,
creating, improving, and renewing the intangible, and any
incidental expenditure incurred in acquiring or disposing of the
intangible; or
(b) in relation to a business intangible referred to in paragraph (d)
or (e) of the definition of “business intangible” in section 3, the
amount of the expenditure.
(3) The cost of a business asset does not include any amount allowed as a
deduction under section 19(1)(a).
(4) The cost of a business asset of a person includes any amount given for
the grant of an option to the person to acquire the asset.
26
(5) The cost of a structural improvement to real property does not include
the cost of the land on which the structural improvement is located.
(6) The cost of a business asset of a person is not reduced by an
impairment write down in relation to the asset made in the financial
accounts of the person.
(7) If a person disposes of a part of a business asset, the cost of the asset is
apportioned between the part of the asset retained and the part disposed
of in accordance with their respective fair market values determined at
the time the person acquired the asset.
(8) The cost of a business asset of a person does not include the amount of
any grant, subsidy, rebate, commission, or other assistance received or
receivable by a person in respect of the acquisition of the asset, except
to the extent to which the amount is included in the gross revenue of
the person.
(9) The reference to “other assistance” in subsection (8) does not include a
loan repayable with or without interest.
(10) If the acquisition of a business asset by a person is:
(a) the derivation of an amount included in the gross revenue of the
person, the cost of the asset is the amount so included plus any
amount paid by the person for the asset; or
(b) the derivation of exempt income of the person, the cost of the
asset is the exempt amount plus any amount paid by the person
for the asset.
(11) In this section, “impairment write down”, in relation to a business asset
of a person, means the write down of the value of the asset in the
financial accounts of the person because the fair market value of the
asset is less than the cost of the asset.
30 Net book value of a business asset
(1) Subject to subsection (2), the net book value of a business asset of a
person is the cost of the asset reduced by depreciation deductions (if
any) allowed in respect of the asset or that would have been allowed
but for section 21(3).
(2) If section 29(7) applies to a business asset, the net book value of:
(a) the part of the asset disposed of is the cost apportioned to that
part of the asset under section 29(7) reduced by depreciation
deductions (if any) allowed, or that would have been allowed
27
but for section 21(3), that relate to the cost apportioned to that
part of the asset; and
(b) the part of the asset retained is the cost apportioned to that part
of the asset under section 29(7) reduced by depreciation
deductions (if any) allowed, or that would have been allowed
but for section 21(3), that relate to the cost apportioned to that
part of the asset.
31 Consideration for the disposal of a business asset
(1) The consideration for the disposal of a business asset by a person is the
total amount received or receivable by the person for the asset,
including the fair market value of any consideration-in-kind
determined at the time of disposal.
(2) The consideration for the disposal of a business asset by a person
includes the consideration for the grant of an option in relation to the
asset, but only if the person has not been subject to tax in respect of
any gain made on the grant of the option.
(3) If a business asset has been lost or destroyed by a person, the
consideration for the asset includes any compensation, indemnity, or
damages received or receivable by the person as a result of the loss or
destruction, including amounts received or receivable:
(a) under an insurance policy, indemnity, or other agreement;
(b) under a settlement; or
(c) as a consequence of a judicial decision.
(4) If two or more assets are disposed of by a person in a single transaction
and the consideration for each asset is not specified, the total
consideration is apportioned among the assets disposed of in
proportion to their respective fair market values determined at the time
of the disposal.
(5) If a person is unable to provide documentary evidence of the
consideration for the disposal of a business asset by the person, the
consideration for the disposal is the fair market value for the asset at
the time of disposal.
32 Deferral of recognition of gain or loss
(1) For the purposes of this Act and subject to subsection (2), no gain or
loss is taken to arise on the disposal of a business asset:
(a) between spouses as part of a divorce settlement or under an
agreement to live apart;
28
(b) by reason of the transmission of the asset on the death of a
person to an executor or beneficiary;
(c) by reason of the loss or destruction, or compulsory acquisition
of the asset (referred to as the “replaced asset”) if the
consideration for the disposal is reinvested by the recipient in
an asset of a like kind (referred to as a “replacement asset”)
within one year of the disposal or within such further period as
the Secretary allows; or
(d) if the asset is a depreciable asset (referred to as the “replaced
asset”) and the person acquires a depreciable asset of a like
kind to be wholly used to derive amounts included in gross
revenue (referred to as the “replacement asset”) within six
months after the disposal or within such further period as the
Secretary allows.
(2) Subsection (1)(a) or (b) applies only if the person acquiring the asset
will be subject to tax under the Act on a subsequent disposal of the
asset.
(3) If subsection (1)(a) or (b) applies, the person acquiring the business
asset is treated as acquiring the asset for an amount equal to the net
book value of the asset for the person disposing of the asset at the time
of the disposal.
(4) If subsection (1)(c) or (d) applies and the cost of the replacement asset
exceeds the consideration for the replaced asset, the cost of the
replacement asset is the net book value of the replaced asset at the time
of disposal increased by the amount of the excess.
(5) If subsection (1)(c) or (d) applies and the consideration received for the
replaced asset exceeds the consideration given for the replacement
asset, the cost of the replacement asset is the net book value of the
replaced asset at the time of disposal reduced by the amount of the
excess but not below zero.
(6) Any part of the excess referred to subsection (5) that is not used to
reduce the net book value of the asset is included in the gross revenue
of the person.
33 Registration of Transferred Assets
A person required by law to register or approve the transfer of an asset
must not register or approve the transfer unless satisfied that any tax
payable under the Act in respect of the transfer has been or will be
paid, or that the gain arising from the transfer is not subject to tax
under the Act.
34
29
PART 4 – ANTI-AVOIDANCE
Transfer Pricing
(1) The Secretary shall, in respect of any transaction, domestic or cross-
border, that is not an arm‟s length transaction, distribute, apportion, or
allocate revenue, gains, deductions, losses, or tax credits between the
parties to the transaction as is necessary to reflect the revenue, gains,
deductions, losses, or tax credits that would have been realised in an
arm‟s length transaction.
(2) If a party to a transaction to which subsection (1) applies is located in,
and subject to tax in, Nauru and another party to the transaction is
located outside Nauru, any distribution, apportionment, or allocation of
revenue, gains, deductions, losses, or tax credits must be made in
accordance with the Regulations.
(3) The allocation of revenue and deductions to a permanent establishment
in Nauru of a non-resident person or to a permanent establishment of a
resident person outside the Nauru must be made in accordance with the
Regulations.
(4) In this section, “arm‟s length transaction” means a transaction between
independent persons who are dealing at arm‟s length with each other
when the outcome of the dealing results in arm‟s length consideration
being paid and received.
35 Thin Capitalisation
(1) Subject to subsection (2), if a foreign-controlled resident company,
other than a financial institution, has an average debt to average equity
ratio in excess of 2 to 1 for a tax year, a deduction is disallowed for the
interest paid by the company during that year calculated according to
the following formula:
B A x /C
where:
A is the company‟s total amount of deductible interest for the
year;
B is the company‟s excess debt for the year; and
C is the company‟s average debt for the year.
(2) If the average debt to average equity ratio of a foreign-controlled
resident company exceeds 2 to 1 for a tax year, subsection (1) does not
apply if the amount of the average debt of the company for the year
does not exceed the arm‟s length debt amount.
30
(3) This section applies to a non-resident company with a permanent
establishment in Nauru on the basis of the following:
(a) the permanent establishment is treated as a foreign-controlled
resident company; and
(b) the average debt to average equity ratio of the permanent
establishment is computed by reference to:
(i) the debt obligations of the non-resident company
attributable to the permanent establishment; and
(ii) the equity of the non-resident company attributable to
the operations of the company conducted through the
permanent establishment.
(4) In this section:
‘arm’s length debt amount’, in relation to a foreign-controlled resident
company, means the amount of debt that a financial institution that is
not an associate of the company would be prepared to lend to the
company having regard to all the circumstances of the company;
‘average debt’, in relation to a foreign-controlled resident company for
a tax year, is the amount calculated according to the following formula:
A /12
where:
A is the sum of the amount of debt of the company at the end of
each calendar month in the tax year;
‘average equity’, in relation to a foreign-controlled resident company
for a tax year, is the amount calculated according to the following
formula:
A /12
where:
A is the sum of the amount of equity of the company at the end of
each calendar month in the tax year;
‘debt’, in relation to a foreign-controlled resident company, means the
greatest amount, at any time during a tax year, of the debt obligations
of the company on which interest is payable as determined according
to International Financial Reporting Standards;
31
‘debt obligation’ means an obligation to make a repayment of money
to another person, including obligations arising under promissory
notes, bills of exchange, and bonds, but not including:
(a) accounts payable; or
(b) an obligation to make a repayment of money in respect of
which no interest is payable;
„equity’, in relation to a foreign-controlled resident company, means
the greatest amount, at any time during a tax year, of the equity of the
company as determined according to International Financial Reporting
Standards and includes a debt obligation on which no interest is
payable;
‘excess debt’, in relation to a foreign controlled resident company for a
tax year, means the amount by which the company‟s average debt for
the year exceeds the maximum average debt allowed for the year
according to the 2 to 1 ratio; and
‘foreign-controlled resident company’ means a resident company in
which more than fifty per cent of the shares or other ownership interest
in the company is held by a non-resident person either alone or
together with an associate or associates.
36 Tax avoidance schemes
(1) This section applies when the Secretary is satisfied that:
(a) a scheme has been entered into or carried out;
(b) a person has obtained a tax benefit in connection with the
scheme; and
(c) having regard to the substance of the scheme, it would be
concluded that a person, or one of the persons, who entered into
or carried out the scheme did so for the sole or dominant
purpose of enabling the person referred to in paragraph (b) to
obtain a tax benefit.
(2) Despite anything in this Act, when this section applies, the Secretary
may determine the tax liability of the person who obtained the tax
benefit as if the scheme had not been entered into or carried out and
can make compensating adjustments to the tax liability of any other
person affected by the scheme.
(3) If a determination or adjustment is made under this section, the
Secretary must issue an assessment giving effect to the determination
or adjustment.
32
(4) An assessment under subsection (3) must be served within 5 years
from the last day of the tax year to which the determination or
adjustment relates.
(5) In this section:
‘scheme’ includes a course of action and an agreement, arrangement,
promise, plan, proposal, or undertaking, whether express or implied
and whether or not enforceable;
‘tax benefit’ means:
(a) a reduction in a liability to pay tax;
(b) a postponement of a liability to pay tax;
(c) any other advantage arising because of a delay in payment of
tax; or
(d) anything that causes:
(i) an amount of gross revenue to be exempt income or
otherwise not subject to tax; or
(ii) an amount that would otherwise be subject to tax not to
be taxed.
PART 5 – PROCEDURE
37 Application of Revenue Administration Act
The Revenue Administration Act applies for the purposes of the
administration of this Act but subject to this Part.
38 Records
(1) Subject to this section, a person must keep such accounts, documents,
and records as enable the computation of any tax payable by the person
under this Act.
(2) A person subject to small business tax must keep the following
records:
(a) a cash book recording daily sales, including credit sales; and
(b) if the person employs employees, a salary and wages register.
(3) The Secretary may disallow a claim by a person for:
33
(a) a deduction for an expenditure or loss; or
(b) the inclusion of an amount of expenditure in the cost of a
business asset,
if the person is unable to produce documentary evidence relating to the
circumstances giving rise to the claim for the deduction or the
inclusion of the amount in the cost of a business asset.
(4) The Regulations may specify the documents that must be maintained
by a person for the purposes of this Act.
39 Tax returns
(1) Subject to subsection (2), a person liable for business profits tax must
file a business profits tax return for each tax year within three months
after the end of the year.
(2) If no business profits tax is payable by a resident individual for a tax
year, the individual is not required to file a business profits tax return
for the year unless requested to do so by the Secretary.
(3) A person liable for small business tax must file a small business tax
return for each tax quarter within one month after the end of the
quarter.
(4) A business profits tax return or small business tax return must be in the
approved form and filed in the manner specified in the Revenue
Administration Act.
(5) A business profits tax return and a small business tax return are self-
assessment returns for the purposes of the Revenue Administration
Act.
40 Payment of tax
(1) The business profits tax payable by a person for a tax year is due on
the date that the business profits tax return for that year is due.
(2) The small business tax payable by a person for a quarter is due on the
date that the small business tax return for the quarter is due.
(3) The non-resident tax payable by a person under section 13 is due on
the date specified in section 44(2).
(4) The international transportation business tax payable by a non-resident
person under section 14 is due on the date specified in section 42 or 43,
as the case may be.
41 Instalments of business profits tax
34
(1) A person liable for business profits tax for a tax year is liable to pay
instalments of tax for the year by the fifteenth day of the month
following the end of the third, sixth, ninth, and twelfth months of the
year.
(2) Subject to subsection (3), the amount of each instalment is one-quarter
of the amount of business profits tax payable by the person for the
previous tax year.
(3) Subject to subsection (4), if a person did not conduct business in the
previous tax year, the amount of each instalment under subsection (2)
is 0.5% of the person‟s gross revenue for each instalment period.
(4) If the person referred to in subsection (3) is a resident individual, no
instalments of business profits tax are payable for the tax year if the
Secretary is satisfied that the taxable income of the person for the year
is reasonably expected to be below the tax-free threshold for the
business profits tax specified in Schedule 1.
(5) Each instalment of tax paid by a person for a tax year is credited
against the business profits tax liability of the person for the year.
(6) If the total amount of instalments of a person credited under subsection
(5) for a tax year exceeds the business profits tax liability of the person
for the year, the excess is applied in accordance with section 37(4) of
the Revenue Administration Act.
42 Collection of international transportation business tax from non-
resident ship owners or charterers
(1) Subject to subsections (2) and (4), before the grant of a clearance for a
ship owned or chartered by a non-resident person for departure from
Nauru, the captain or chief commanding officer of the ship, or the
shipping agent in Nauru for the non-resident person, must:
(a) file with the Secretary a return showing the gross amount
derived from the carriage of passengers, livestock, mail,
merchandise, or goods embarked or loaded in Nauru in respect
of the ship and the international transportation business tax
payable in relation to that amount; and
(b) pay the non-resident international transportation business tax
due in respect of the ship with the return.
(2) Subsection (1) does not apply if section 18(1)(f) applies in relation to
the ship, but the captain or chief commanding officer of the ship, or the
shipping agent in Nauru for the non-resident owner or charterer must:
35
(a) notify the Secretary, in writing, that the gross amount derived is
exempt income; and
(b) provide such evidence as the Secretary may require of the
equivalent exemption available in the country of residence of
the non-resident owner or charterer.
(3) The return required under subsection (1)(a):
(a) must be in the approved form;
(b) filed in the manner specified in the Revenue Administration
Act; and
(c) is a self-assessment return for the purposes of the Revenue
Administration Act.
(4) The Secretary may, by notice in writing, allow the return referred to in
subsection (1)(a) to be filed and international transportation business
tax paid within thirty (30) days after departure of the ship from Nauru
provided the non-resident owner or charterer of the ship has made
satisfactory arrangements for payment of any tax due in respect of the
ship.
(5) If the Secretary gives written notice to a public officer referred to in
section 37 of the Port Authority Act that an amount of international
transportation business tax is due in respect of a ship, the public officer
must not grant clearance for the ship to depart Nauru until the tax due
has been paid or has been secured to the satisfaction of the Secretary.
(6) This section does not relieve the non-resident owner or charterer of the
ship from liability to pay any international transportation business tax
due that is not paid by the captain or chief commanding officer of the
ship, or the owner or charterer‟s shipping agent in Nauru.
(7) The captain, chief commanding officer, or shipping agent in Nauru to
whom subsection (1) applies is treated as the tax representative of the
non-resident owner or charterer of the ship for the purposes of the
Revenue Administration Act.
43 Collection of international transportation business tax from non-
resident aircraft owners or charterers
(1) Subject to subsections (2) and (3), before the grant of a clearance for
an aircraft owned or chartered by a non-resident person for departure
from Nauru, the pilot of the aircraft or the agent in Nauru for the non-
resident person must:
(a) file with the Secretary a return showing the gross amount
derived from the carriage of passengers, livestock, mail,
36
merchandise, or goods embarked or loaded in Nauru in respect
of the aircraft and the international transportation business tax
payable in relation to that amount; and
(b) pay the non-resident international transportation business tax
due in respect of the aircraft with the return.
(2) Subsection (1) does not apply if section 18(1)(f) applies in relation to
the aircraft, but the pilot of the aircraft or the agent in Nauru for the
non-resident owner or charterer must:
(a) notify the Secretary, in writing, that the gross amount derived is
exempt income; and
(b) provide such evidence as the Secretary may require of the
equivalent exemption available in the country of residence of
the non-resident owner or charterer.
(3) On application in writing by the non-resident owner or charterer of an
aircraft, the Secretary may allow the owner or charterer to file returns
and pay international transportation business tax quarterly with the
return and tax for a quarter due by the last day of the month following
the end of the quarter.
(4) A return required under this section:
(a) must be in the approved form;
(b) filed in the manner specified in the Revenue Administration
Act; and
(c) is a self-assessment return for the purposes of the Revenue
Administration Act.
(5) If the Secretary gives the Civil Aviation Authority of Nauru written
notice that an amount international transportation business tax is due in
respect of an aircraft, the Authority must not grant clearance for the
aircraft to depart Nauru until the tax has been paid or has been secured
to the satisfaction of the Secretary.
(6) When subsection (1) applies, this section does not relieve the non-
resident owner or charterer of the aircraft from liability to pay any
international transportation business tax due that is not paid by the
pilot of the aircraft or the owner or charterer‟s agent in Nauru.
(7) The pilot or agent in Nauru to whom subsection (1) applies is treated
as the tax representative of the non-resident owner or charterer of the
aircraft for the purposes of the Revenue Administration Act.
44 Withholding tax
37
(1) A resident person or a permanent establishment in Nauru of a non-
resident person making a payment of interest, a royalty, or insurance
premium that is subject to non-resident tax must withhold tax from the
gross amount paid at the non-resident tax rate specified in Schedule 1.
(2) A person required to withhold tax under subsection (1) must file a
withholding tax return and pay the withheld tax to the Secretary within
15 days after the end of the month in which the income was paid.
(3) A person who fails to withhold tax as required under this section or
who, having withheld tax, fails to pay the tax to the Secretary as
required under subsection (2) is personally liable to pay the amount of
withholding tax to the Secretary.
(4) A person who is personally liable for withholding tax under subsection
(3) as a result of failing to withhold the tax is entitled to recover the tax
from the recipient of the payment.
(5) If a person fails to withhold tax as required under this section, the
Secretary may recover the tax from the recipient of the payment of the
interest, royalty, or insurance premium.
(6) Despite the recovery of any tax under subsection (5), the person who
failed to withhold the tax continues to be liable for the following:
(a) any legal action in relation to the failure, including prosecution
for an offence under the Revenue Administration Act;
(b) the imposition of penalty in respect of the failure.
(7) A person required to withhold tax under this section must:
(a) keep records of the gross amount of interest, royalties, or
insurance premiums paid to non-resident persons and the
amount of tax withheld from each payment; and
(b) within 15 days after the end of the tax year or within such
further period as the Secretary may allow by notice in writing,
file with the Secretary an annual withholding tax summary in
the approved form.
(8) Income subject to withholding under subsection (1) is treated as having
been paid to a non-resident person if any of the following applies:
(a) the income is actually paid to the person;
(b) the income is applied on behalf of the person either at the
instruction of the person or under any law.
38
(c) the income is reinvested, accumulated, or capitalised for the
benefit of the person.
(d) the income is credited to an account for the benefit of the
person.
(9) In this section, ‘tax year’ means the period of 12 month ending on June
30.
PART 6 – ADMINISTRATIVE MATTERS
45 Currency translation
(1) An amount taken into account under this Act must be expressed in
Australian dollars.
(2) If an amount is in a currency other than Australian dollars, the amount
must be translated to Australian dollars at the Reserve Bank of
Australia exchange rate applying between the foreign currency and
Australian dollars on the date the amount is taken into account for the
purposes of this Act.
46 Regulations
(1) The Cabinet may make regulations under this Act, including for the
amendment of the Schedules and in relation to transitional matters.
(2) If Regulations made under this section are of a transitional nature and
are made within 6 months after the commencement date, the
Regulations may provide that they take effect from the application
date.
(3) In this section, “commencement date” and “application date” have the
meanings in section 48.
47 Consequential amendments to the Employment and Services Tax
Act
Schedule 3 amends the Employment and Services Tax Act.
48 Transitional provisions
(1) An amount is exempt from tax to the extent provided for under a
provision in an agreement entered into by the Government prior to the
commencement date.
(2) If the tax year of a company commences on a date other than the
application date, the period from the application date to the start of the
39
company‟s first full tax year under the Act is treated as a separate tax
year (referred to as the “transitional tax year”).
(3) Subject to section 41(4), the amount of an instalment of business
profits tax payable by a person under section 41 for an instalment
period during the tax year 1 July 2016 to 30 June 2017 is 0.5% of
person‟s gross revenue for the instalment period.
(4) If first tax year of a company under the Act is a transitional tax year,
the amount of an instalment of business profits tax payable by the
company under section 41 for an instalment period during the
transitional tax year and the company‟s first full tax year under the Act
is 0.5% of the person‟s gross revenue for the instalment period.
(5) A person who will be liable for business profits tax or small business
tax and who does not have a taxpayer identification number at the
commencement date of the Act must apply for a taxpayer identification
number as required by the Secretary as set out in a notice published in
the Gazette.
(6) In this section:
‘application date’ means the date specified in section 2(2); and
‘commencement date’ means the date specified in section 2(1).
40
SCHEDULE 1
sections 11, 12, 13 and 14
RATES OF TAX
[1] The rate of business profits tax:
(a) for a resident individual is:
Taxable Income for a Tax year Rate
$0 – $250,000 0%
Above $250,000 10%
(b) for any other person, is 10%.
[2] The rate of small business tax is 1.5%.
[3] The rate of non-resident tax is 10%.
[4] The rate of international transportation business tax is 2%.
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SCHEDULE 2
section 12
BUSINESS PROFITS TAX THRESHOLD
The business profits tax threshold is $250,000.
42
SCHEDULE 3
Section 47
AMENDMENT OF EMPLOYMENT AND SERVICE TAX ACT 2014
[1] Amendment of section 3
1.1 Omit the definition of ‘permanent establishment’ and substitute the
following definition:
‘permanent establishment’ has the meaning in the Business Tax Act;
[2] Amendment to section 6
2.1 Omit subsections (1) to (5) and substitute the following:
‘Non-profit organisation’ has the meaning in section 6 of the Business Tax
Act.
[3] Amendment to section 9
Omit current subsection (1)(b) and substitute the following:
(b) when the employment income or services fee is paid by, or on behalf,
of:
(i) a resident person, other than when the employment income or
services fee is an outgoing of a permanent establishment of the
resident person outside Nauru; or
(ii) a permanent establishment in Nauru of a non-resident person.