Residents

A person shall be a resident person at a particular time if, at that time, the person is a resident individual, resident company, resident trust, or the Government.

Individuals

A person who is not a resident person at a particular time shall be a non-resident person at that time.

An individual shall be a resident individual for a fiscal year if the individual:

• Has his home in Tonga at any time during the year;

• Is present in Tonga for a period of, or periods amounting in accurate to, one hundred eighty three (183) days in any twelve month period that commences or ends during the year or

• Is an employee of the Government posted abroad at any time during the year.

The above provides three alternative tests for working out whether an individual is a resident individual for a fiscal year. The first test means that an individual An individual may be a resident of Tonga under the first test even though they are not physically present in Tonga for any part of the fiscal year. Thus, a person who previously was a Tongan resident but who is living abroad for a period of years remains a resident individual if, during that time, they have a home in Tonga.

The second alternative test provides that an individual is a resident individual for a fiscal year if the individual is present in Tonga for 183 days in any twelve-month period that commences or ends during the year. This test is primarily relevant to foreign citizens working on assignment in Tonga. Such persons will normally have a home outside Tonga, but are considered to be Tongan residents if they are present in Tonga for the 183-day period. The 183-day period may be consecutive days or the aggregate of several periods of presence within the relevant twelve-month period.

The 183-day period is tested by reference to any period of twelve months commencing or ending during the fiscal year. This ensures that an individual can be a Tongan resident even though the period of their assignment straddles the end of the fiscal year. For example, an individual may be assigned to Tonga for the period May 1 - October 312007. The individual is present in Tonga for 184 days, but the presence straddles the end of the fiscal year so that 61 days are in the 2006/07 year and 123 days are in the 2007/08 year.

If the 183 day period were tested by reference to a fiscal year, the individual would not be a resident for either the 2006/07 or 2007/08 fiscal years as there is not 183 days of presence in either year. However, under this alternative test, the individual will be a resident for both fiscal years. This is subject to the part year residence rules described below.

The third alternative test provides that an employee of the Government of Tonga posted abroad is a resident individual during the period of the posting. This will apply to Tongan diplomats, consular and trade officials, and the like.

If an individual satisfies any of the three alternative tests for a fiscal year, the individual is treated as a resident for the whole of the year. This is subject to the part year residence rules described in  below.

An individual who is a resident individual under the current fiscal year but who was not a resident individual for the preceding fiscal year shall be treated as a resident individual in the current fiscal year only for the period commencing on the day on which the individual was first present in Tonga.

An individual who is a resident individual for the current fiscal year but who is not a resident individual for the following fiscal year shall be treated as a resident individual in the current fiscal year only for the period ending on the last day on which the individual was present in Tonga.

COMPANY (INCLUDING A PARTNERSHIP)

A company shall be a resident company for a fiscal year if the company:

1.   is incorporated, created, or formed in Tonga

2.    the centre of its administrative management in Tonga at any time during the fiscal year

3.    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.

TRUST

A trust shall be a resident trust for a fiscal year if:

the trust was settled or established in Tonga
a trustee of the trust is a resident person at any time during the year
If there is more than one trustee of the trust, the trust is a resident trust if one only of the trustees is a resident person.

NON-RESIDENTS

A non-resident person is any person who is not a resident person as described above. Thus, any person not satisfying any of the tests in the paragrap hs above is a non-resident person, including a foreign Government, a political subdivision of a foreign Government and a public international organisation.

Tax obligations of a non-resident?

A non-resident is liable for Tongan tax on:

• income for personal services performed in Tonga

• other payments from Tong an sources.

Tax on Non-residents

Income tax shall be imposed on a non-resident person who has received Tong an source:

• interest income

• royalties

• technical services fees

• dividends

• natural resource amount

• rent

• management fee

• insurance premiums

It should be noted that received includes constructive receipt. For example, if a foreign company has lent money to its Tongan subsidiary and the interest payable under the loan is credited to the foreign company in an inter-company loan account, the parent company will be treated as having received the interest at the time the amount is so credited.

Whilst the tax is imposed on the non-resident receipt of the Tongan source income described in paragraph 16 above, the tax is collected by withholding from the person paying the income at the time of payment. Thus, a non-resident person E28099s liability for tax is satisfied to the extent that the tax payable is withheld by the payer from the amount paid to the non-resident person.

The income tax imposed shall be:

• 5% of the gross amount of the insurance premium

• 15% of the gross amount  of the interest, royalty, dividend, or technical services fee, rent, natural resource payment, management fees

As tax is imposed on the gross amount no deductions are allowed for expenses incurred by the non-resident person in deriving the income. In addition, the taxable amount cannot be reduced any loss or tax credits (if any) allowed to the non-resident person.

Non-resident contractors

Withholding tax needs to be deducted from payments for specified contract  activities or services that you make to:

non-resident individuals who are not your employees
non-resident companies.
The income tax imposed shall be 10% of the gross amount paid to a non-resident person rendering independent services.

Income from shipping and air transport of a Non-resident person
There is a separate tax on a non-resident person who operates a ship or aircraft. The tax is worked out by applying the rate of tax (3%) to the gross amount derived by the non-resident for the carriage of passengers, livestock, mail, merchandise, or goods embarked in Tonga, whether for carriage out side or within Tonga. No deductions are allowed for expenditure incurred by= the non-resident person in deriving the income. No loss can be claimed nor any tax payable reduced by any tax credits allowed to the non-resident person. However, no tax is imposed on any exempt income

Income from Tongan source

Non-residents are only liable for Tongan tax on income from a Tongan source.

You will probably not have to file a tax return if your only income was from interest, dividends or royalties, and non-resident withholding tax was deducted at the correct rate.

If you were a non-resident for the full year and received income from Tonga, such as:

• interest, dividends, or royalties (where the correct rate of tax was not deducted)

• rental income

• income from self-employment

• salary or wages earned while personally present in Tonga

• directors' fees for services performed in Tonga

• income from an estate, trust, or partnership

• superannuation 

you must file an Income Tax return as a non-resident taxpayer.

Withholding tax

A resident company or permanent establishment in Tonga of a non-resident company paying interest to a resident person, other than a financial institution, shall withhold tax from the gross amount of the interest paid at the  rate of 10%.

If rent has been paid to the Minister of Lands in accordance with the Land  Act for the lease of land, the Minister shall withhold tax from the gross amount paid at the rate of 3%.

A person paying a Tongan-source royalty, interest, technical services fee,dividend, natural resource amount, rent, management fee, or insurance premium to a non-resident person shall withhold tax from the gross amount paid at the rate of:

• in the case of an insurance premium, 5%;

• in the case of rent, 7.5% or

• in any other case, 15%.

A person paying an amount of Tongan-source business income to a non-resident person rendering independent services shall withhold tax from the gross amount paid at the rate of 10%.

A person shall not withhold tax from an amount that is exempt income of the recipient.

A person required to withhold tax from an amount paid by the person shall withhold the tax at the earlier of:

• the time the amount is credited to the account of the recipient or

• the time the amount is actually paid.

Tax required to be withheld by a person shall be paid to the Chief Commissioner within 28 days after the end of the month in which the person was required to withhold the tax.