2010 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2010
Report

The Government of Brunei continues its economic diversification efforts, seeking to move away from its long reliance on oil and gas exports. Brunei encourages foreign investement in the domestic economy through various investment incentives offered by the Brunei Economic Development Board and the Ministry of Industry and Primary Resources.

Set up in 2001, the Brunei Economic Development Board (BEDB) aims to be the major economic development agency in Brunei, marketing Brunei as an opportunity for investors in new industries and economic activities. BEDB offers investment opportunities in three major industrial areas – petrochemical industries at the Sungai Liang Industrial Park, oil refinery and storage capabilities at the deepwater port of Pulau Muara Besar, and info-communication technology at the iCenter.

The Ministry of Industry and Primary Resources (MIPR) is responsible for promoting and facilitating industrial development in Brunei mainly in the manufacturing, tourism, agriculture, fisheries, and forestry sectors. MIPR has achieved a steady flow of investments from within Brunei, ASEAN and other countries.

Despite its efforts to increase economic diversification, Brunei ranked 96 out of 183 countries in the World Bank’s "Ease of Doing Business," a significant drop from 83 to 2008.

Openness to Foreign Investment

Brunei offers generous tax incentives to foreign investors, with the production of foreign goods and services benefiting from indefinite tax holidays. The Investment Incentives Order 2001, provides guidelines for granting pioneer status to certain industries and tax relief for foreign and local investment, as well as the possibility of extending tax relief periods.

Regulations relating to foreign participation in equity are flexible. In many instances there can be 100 percent foreign ownership, except for sectors involving natural resources and national food security, where FDI is capped at 70 percent equity.

Only citizens of the country are allowed to purchase land. Foreign firms will need a local partner to purchase land. Foreign firms can apply for a long term lease but must obtain approval from the Prime Minister’s Office.

The Strata Title Act was instroduced in July 2009, which allows non-citizens to own properties on a 99 years lease. The Strata Act only applies to properties more than two stories high as well as townhouses.

Conversion and Transfer Policies

There are no foreign exchange controls but exchanges are monitored. Banks permit non-resident accounts. There is no restriction on borrowing by non-residents.

Expropriation and Compensation

There is no history of expropriation in Brunei.

Dispute Settlement

Brunei signed the U.N.-sponsored Convention on the Settlement of Investment Disputes in 2002. At the regional level, Brunei Darussalam is a member of the ASEAN Protocol on Enhanced Dispute Settlement Mechanism (2004), and the Agreement among the Government of Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand for the Promotion and Protection of Investment, 1987. The former regulates settlement of disputes on economic agreements between ASEAN Members and the latter provides for the promotion and protection of investments, which includes settlement of related disputes.The International Arbritation Order was enacted in 2009 but has yet to be ratified and legally enforced. The court system is generally transparent and fair.

Performance Requirements and Incentives

Companies producing goods and services for export can apply for a renewable 10-year tax exemption. A corporate tax relief, of up to 5 years, is available for companies that invest between B$500,000 to B$2.5 million (USD357,000 to USD1.9million) and up to 8 years for amounts exceeding B$2.5million (USD1.9 million) in approved ventures. An 11-year tax break is offered if the venture is located in a high-tech industrial park. Businesses wishing to compete in domestic markets can qualify for up to eight-year tax holidays. Sole proprietorships and partnerships are not subject to tax. Individuals do not pay any capital gains tax and profits arising from the sale of capital assets are not taxable. Brunei has a double-taxation agreement with Britain, Indonesia, China, Singapore, Vietnam, Bahrain, Oman, Japan and Pakistan. Tax on petroleum operations is codified in the 1960 Income Tax enactment containing a similar tax policy to most oil-producing nations.

Right to Private Ownership and Establishment

All businesses in Brunei must be registered with the Registrar of Companies, Attorney General’s Chambers. Except for sole proprietorships, foreign investors can fully own incorporated companies, foreign company branches or representative offices. Partnerships generally require the participation of local citizens.

Protection of Property Rights

Trademarks can be registered with relative ease under the Brunei Trademarks Act. Once registered trademarks last ten years and are renewable for ten more years. Enforcement requires direct copyright holder action.

Brunei’s local IPR law is TRIPS-consistent. However, the law is complaint based. The Criminal Justice Division at the Attorney General’s Chambers (AGC) rarely takes action against pirates or stores that sell pirated discs on its own initiative. The righholder must appeal / take action with the government, which then begins enforcement actions.

Under the Emergency Order (Copyright) 1999, Section 204, anyone who is caught infringing copyright, selling, smuggling or distributing goods, except for personal use and domestic purposes, is liable to a fine, an imprisonment for a period not exceeding two years, or both. However, pirated and fake goods originating in neighboring countries are widely sold due to a percieved lack of rightholder’s complaints. In 2009, music piracy was significantly reduced, but movie and software entertainment piracy is still rampant.

Brunei Darussalam is a full-fledged member of the Paris Convention, the Berne Convention, the WTO-TRIPS and the World Intellectual Property Organization (WIPO). It has also signed the ASEAN Framework Agreement on Intellectual Property Cooperation.

Transparency of the Regulatory System

Brunei has a transparent regulatory system.

Competition from State Owned Enterprises

Semaun Holdings, incorporated as a private limited company, is wholly owned by the Brunei Government. Its emphasis is on joint ventures with foreign investors, mainly in aquaculture, food processing, glass crystal and hi-tech manufacturing industries which are currently not open for 100% foreign ownership.

Under the Telecommunications Order 2001, the Authority for Info-communications Technology Industry (AiTi) regulates the licensing of the telecommunications industry. The establishment, installation, maintenance, provision or operation of unlicensed telecommunication systems or services within Brunei is a punishable offence, resulting in imprisonment and large fines. AiTi has not opened up the telecommunications industry for foreign participation. The telecommunications industry is dominated by Telekom Brunei (TelBru) and Data Stream Technologies (DST) Communications, both privatised state companies. Telbru is the sole provider of fixed lines. Its subsidiary company, B-mobile, provides 3G mobile services together with DST. DST is also the sole GSM and pay-television service provider.

The Brunei Investment Agency (BIA) manages the Government of Brunei's General Reserve Fund, and their external assets. Established in 1983, its assets are reportedly worth USD$30 billion. It has holdings in corporations, real estate, & currencies. BIA’s activities are not publicly disclosed. It is ranked the lowest in transparency ratings by the The Sovereign Wealth Fund Institute.

Political Violence

There have been no cases of political violence in Brunei’s 25 years of independence.

Corruption

The Anti-Corruption Bureau (ACB) strives to ensure a corruption-free public service. Corrupt practices are punishable under the Prevention of Corruption Act. The Act also applies to Brunei citizens abroad. There are perceptions that corruption in the private sector is higher compared to the public sector, which has prompted the ACB to focus on the private sector, seeing that the sector plays a critical role in Brunei’s economic diversification.

In its inaugural entry into the Transparency International's Corruption Perception Index (CPI) 2009, Brunei is ranked 39th out of 180 countries, and 2nd in ASEAN. Having scored 5.5 out of 10 CPI points, the ACB vows to continue its efforts towards combating corruption.

Bilateral Investment Agreements

Brunei is a member of the Association of Southeast Asian Nations (ASEAN), which has FTAs with Australia and New Zealand, China, India and South Korea, and a Comprehensive Economic Partnership Agreement with Japan. Brunei is also a party to the Transpacific Strategic Economic Partnership Agreement. Brunei currently has Bilateral Investment Treaties with Oman, Germany, China, Korea and Ukraine.

Labor

Brunei relies heavily on foreign labor in lower-skill and/or lower-paying positions, with approximately 87,800 guest workers brought in to fulfill specific contracts. Brunei citizens often prefer to work for the government rather than the private sector because of better benefits such as bonuses, education allowance, interest-free loans, housing allowance and other benefits. Approximately 25% of the total workforce are employed in the public sector.

Matters relating to labor conditions are covered under the Labor Act, Employment Order 2009 and Workmen’s Compensation Act.

Foreign Direct Investment Statistics

Latest statistics (2008) indicates that Foreign Direct Investment stood at USD240 million, with the largest FDI from the European Union at 96.6%. However, FDI in the petroleum industry remained the largest, with Transport, Storage and Communications industry as the second largest sector.

Foreign Direct Investment By Country Of Origin
(USD Million)
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Country20042005200620072008
USA
0.1
0.1
35.8
21.4
0.9
Australia
0.1
0.1
0.1
0.1
New Zealand
2.5
0.1
0.3
Canada
15.0
28.4
ASEAN:
23.1
23.3
11.1
66.9
0.9
Indonesia
1.2
1.4
0.1
0.7
Malaysia
15.8
16.9
8.6
44.4
0.5
Philippines
1.4
0.3
0.4
0.1
Singapore
4.6
4.8
1.9
21.7
0.4
Thailand
0.1
0.1
0.1
Asian Countries:
35.3
56.9
46.8
122.9
5.9
China
3.5
0.1
5.4
18.6
Hong Kong
2.4
0.4
0.2
21.4
India
1.4
4.6
0.6
0.3
Japan
18.9
24.2
40.0
82.5
5.9
Rep. of Korea
7.4
27.2
0.3
Others
1.6
0.4
0.3
0.1
0.0
European Union:
170.9
238.3
344.1
40.5
231.5
Belgium
0.1
Denmark
0.2
France
5.0
95.1
Germany
0.4
Luxembourg
0.5
Netherlands
0.6
73.9
Sweden
0.6
United Kingdom
169.6
232.9
249.0
39.9
157.5
Others:
16.4
82.6
137.4
172.7
7.2
Afghanistan
0.1
Bermuda
16.4
22.3
38.0
Birtish Virgin Island
1.5
0.1
Caymen Island
0.6
Mauritius
1.8
Switzerland
0.1
Turkey
0.9
Central & South America
0.2
Total
248.4
344.2
492.6
280.1
239.6


Foreign Direct Investment by Economic Activity
(USD Million)
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2004
2005
2006
2007
2008
Agriculture, Fishing and Forestry
0.0
0.0
0.0
0.0
0.0
Mining and Quarrying
185.7
237.6
399.9
87.5
225.6
Manufacturing
32.1
75.9
79.9
81.4
0.0
Construction
5.9
3.7
3.9
1.4
0.2
Wholesale and Retail Trade
15.6
19.2
6.4
0.6
0.3
Transport Storage and Communication
0.2
4.3
0.1
0.0
12.1
Hotel and Restaurant
0.1
1.4
0.3
0.0
0.0
Real Estate, Renting and Business Activity
6.9
2.0
2.0
1.7
1.4
Financial Intermediation
1.3
0.1
0.1
107.1
0.1
Education
0.1
0.0
0.0
0.0
0.0
Health and Social Work
0.2
0.0
0.0
0.0
0.0
Other Community, Social and Personal Services Activities
0.0
0.1
0.1
0.2
0.0
Total
248.3
344.2
492.6
280.1
239.6


FDI by component breakdown
(USD Million)
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2005
2006
2007
2008
Equity
28.0
47.9
206.5
0.0
Loans
52.4
95.0
73.6
0.1
Reinvested Earnings
263.8
349.7
0.0
239.5
Total
344.2
492.6
280.1
239.6

Source: Brunei Statistical Yearbook 2008, Department of Economic Planning and Development

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