All businesses must lodge an income tax return and pay tax on the profits of the business.

Individuals - a Sole Trader or Partner must lodge an income tax return showing the business profits or losses as well as any other income that the individual earned outside of the business.

Company or Partnership – a company or Partnership must lodge an income tax return showing all the business profits or losses. In the case of a partnership it must also show how the profits or losses are distributed amongst the partners. In the case of a company it must also show any dividends paid.

Generally your profits will be your total income less allowable deductions or expenses that you have incurred in producing that income. Income will include all income earned from general trading of the business such as from sales or services provided. It will also include any other income earned by the
business such as interest or lease income.

Some of the common expenses you can claim in your business include:

• hire or lease of plant or equipment
• trading stock
• depreciation
• tools
• wages
• interest on borrowed money
• telephone and electricity expenses
• bank fees and charges
• transport and freight costs

Some of the common expenses that you cannot claim include:

•  capital expenditure (eg purchase of assets)
• personal expenditure (eg food or other domestic expenses)
• expenditure incurred outside of Solomon Islands unless the Commissioner approves
• income tax (special rules apply if tax is paid on income earned overseas)

Depreciation

Depreciation is an expense that can be claimed on the fixed assets used in your business that have a useful lifespan of more than 12 months. However, not all fixed assets can be depreciated – land is a common example.

A fixed asset is something the business owns it is an asset you generally expect to use in your business for more than a year. You can’t deduct the full cost of purchasing these assets from your taxable income in the year of purchase. You can however, claim depreciation.

You need to prove the purchase and sale of any fixed asset with an invoice. You will need to keep a fixed asset register to keep track of these assets. This should show the depreciation claimed and adjusted tax value of each asset. The adjusted tax value is the asset’s cost price, less all depreciation calculated since purchase.

Depreciation rates

Depreciation is calculated by applying the depreciation rate to the adjusted tax value of each asset.
The depreciation rates for various assets are set by the IRD. A full list of rates is attached to this fact sheet.

Example

John purchases a vehicle for the business. The depreciation rate is 25%. Purchase price is $8000. In the first year John can claim an expense of $2000 in depreciation ($8000 x 25%). In the second year John can claim $1 500 ($8000 - $2000 = $6000 x 25% =$1500).

Provisional tax

Provisional tax is collected progressively throughout the year. You are required to pay an amount each quarter. When you lodge your income tax return for the year, an assessment will be made of the tax payable on the profits you have made.

The amount of provisional tax payable is one quarter of the tax assessed by the Commissioner on your last assessed return. If it is your first year in business, you will need to estimate what your profit for the year will be. Your provisional tax payments for your first year will be based on this estimate.

If during the year the profitability of your business substantially changes and the provisional tax payments are likely to be too high in relation to your likely final tax liability, you can apply to reduce the amount of provisional tax payable.

Any provisional tax payments that you have made during that year will be credited against the tax payable on assessment. If you have paid too much provisional tax you will receive a refund. If the provisional tax paid is less than your final liability you will need to make an additional tax payment for that year.

Quarterly payments are due on:

20th March
20th June
20th September
20th December

Budgeting for provisional tax

Like all business expenses, you have to budget ahead for your taxes, so it’s important to know when the provisional tax payments are due and how much they will be. A good idea that may help you budget is to use a separate bank account to put aside money to cover provisional tax payments.

If you think that your business will earn significantly more or less than your previous assessment, your provisional tax payments can be adjusted. You should talk to your accountant or Inland Revenue if you think this applies to you.

Paying income tax

If you are in business, you will need to fill in a tax return each year and send it to us. You also need to send us either a copy of your financial statements or a schedule of your income and expenses.

When is the tax return due and what form do I use?

Returns are due by 31 March following the year of income unless you have approval for an extension of time or operate on a different balance date. Penalties can apply for late lodgement of your return.
Sole Traders and Partners need to lodge an IR21 Return Form. Companies and Partnerships lodge an IR22 Form.

Balance date

For most businesses, the accounting year ends on 31 December but it may be a different month – this is the balance date. Generally returns are due within 3 months of the balance date.

How much tax will I pay?

Sole Traders/Individuals

As of January 2012, An individual is entitled to an exemption of $15080. This means that the total amount chargeable to tax is reduced by $15080 and tax is only payable on the balance. This exemption is reduced where the individual carries on business or is employed in Solomon Islands for only part of the year.

The balance of income is subject to tax at the following rates:

$1 to $15 000 11%
$15 001 to $30 000 $1650 + 23% of excess
$30 001 to $60 000 $5100 + 35% of excess
$60 001 and over $15600 + 40% of excess

Companies

Resident companies pay tax at the rate of 30% on profits. Non resident companies pay tax at the rate of 35% on profits.

Final Taxes

For some types of income, tax may be taken out by the payer at the time the payment is made. For example, if you lease a property the lessee is required to deduct tax at the time they make the rental payment to you. If you are a resident individual the tax is generally a final tax. If you are a company the amount is still included in your income and you will receive a credit for the withholding tax deducted.

Summary of Obligations

Provisional Tax – due 20 March, June, September, December
Income Tax Returns – lodge by 31 March
Income Tax Forms - IR21 (Sole Trader or Partner), IR 22 (Company/Partnership)
Income Tax Payment – any balance due by 30 September