A company shall be a resident company for a fiscal year if the company:
- is incorporated, created, or formed in Tonga;
- has the centre of its administrative management in Tonga at any time during the fiscal year; or
- is a partnership with a partner who is a resident person at any time during the year.
A company that satisfies one of the three alternative tests described above is a resident company for the whole of the year. Test 1 and 2 cover partnerships and unincorporated associations of persons. Test 3 is an additional rule for partnerships and means that if one partner is a resident person, the partnership is a resident company even when all the other partners are non-residents.
Business Income and Business Tax
- receives business income for the goods and services it sells
- can claim business expenses against its business income to arrive at its net profit (the net profit includes drawings taken from the business) pays income tax on its net profit
If you require more information about income see Publication – Income Provisions of the Income Tax Act 2007.
When operating a business, you pay income tax on your net profit for the year, including any net gain on the disposal of a business asset. To work out your net profit, add up all the income that comes into your business, and take away all allowable business expenses.
Business income is income earned from the goods and services you sell (including invoices you’ve issued but have yet to receive payment for).
If you are in a partnership, you will usually be managing your own business and be responsible for all business income and debts.
An important point to remember is that you pay income tax on your net profits. The taxable income is the net profit that the business makes after deducting all allowable expenses and before any drawings are taken into account. Under the new Income Tax Act a partnership is treated as a company. So partners can pay themselves a wage. Any net profit/income left is treated as dividends and if paid by a resident company to resident partners is tax free.
Business as a separate company
If your business is a limited liability company and pays you a salary, you personally are taxed on your salary. The company must pay tax on its profit, which are the gross takings minus all the business expenses (including your salary). This is because any profits that are made belong to the company and are taxed at the company tax rate.
Business Income Tax Rates
Both resident and non-residents companies pay 25% on their chargeable income.
If you are registered for Consumption Tax please click here to go to the Consumption Tax section for more details of your CT obligations.
PAYE of Employees
IF you have employees, please click here to go to the PAYE section for more details of your tax obligations for your employees.
Changed your contact detail
It is important that we hold your correct details so we can provide you with the information you require. Please inform the Ministry of Revenue and Customs if you have changed your contact details by visiting your nearest Tax Office.