Alongside looking at income taxes for individuals, we will also focus on other forms of tax, including for firms and on capital gains taxes.
Whilst it shouldn’t be considered as tax advice, it is correct as far as we are aware at the time of writing.
If you are looking for portable expat tailored investment solutions, which is what we specialise in, you can contact me on this form.
Often it is far more tax-efficient to invest overseas, in a portable structure, as an expat, as opposed to sending money home.
Papua New Guinea, commonly referred to as PNG, is a country in Oceania that occupies the eastern half of New Guinea.
It is located in the Southwest Pacific, north of Australia, and its capital is Port Moresby. The western half of New Guinea forms the Indonesian provinces of Papua and West Papua.
PNG has a population of over 7 million and there are over 852 known languages in the country! Only 18% of the population lives in urban centers and much of the country is unexplored.
Papua New Guinea has recorded high levels of economic growth for a number of years, mainly thanks to the PNG liquefied natural gas (LNG) project, which began production in mid-2014.
The country’s abundance of natural resources has also led to the entry of many of the world’s largest oil, gas and mining companies. While economic signs continue to be positive, the main challenge facing the PNG government is the provision of quality services to the country and its people, especially in the areas of health and education, and quality infrastructure.
*About National Budget
In the 2014 budget, the government pledged its commitment to improving the country’s future by making key investments in multiple sectors of the economy and focusing on inclusive and sustainable growth for all.
To ensure increased tax revenue, the Treasury, with technical support from the International Monetary Fund (IMF), will conduct a tax review of the mining and oil industries in 2014.
The purpose of the survey is to determine the appropriateness of the mining and petroleum taxation arrangements compared to similar resource-rich countries. In addition, the government has set up its own committee to review the tax system and report prepared by the IMF.
The 2014 budget also proposes a range of medium to long term tax-related measures that are designed to increase revenue over the next five years. These measures include;
- Increased focus on tax compliance.
- Tax Review: A review of the PNG tax system is required.
- Improving the integrity of the tax base. Improving the integrity of the tax base is needed to reverse the decline in resource revenues.
PNG’s tax regime is based on the Income Tax Law, the Goods and Services Tax Law, the Customs Law and the Excise Tax Law, and is supported by the relevant laws and regulations.
Under the Income Tax Act, taxpayers working in the natural resources sector (namely the mining, gas and oil segments) are subject to a specific set of rules, while the general provisions of other laws apply to all other taxpayers as well as these taxpayers are engaged in mining, oil or gas operations.
Types of taxable subjects
As a rule, it can be stated that all types of compensation and benefits received by an employee for services rendered constitute taxable income, regardless of where they were paid. Typical elements of an expatriate compensation package that are fully taxable are as follows:
- salary or salary
- refund of foreign taxes and / or taxes of the country of residence / territory
- subsistence allowance
- benefit from loans at a reduced or zero interest rate provided by the employer
- round sum discount
- discounts to market value applied when exercising stock options
- providing the employee with accommodation, vehicles and food
Working in PNG
To work in PNG as an expatriate, you must have a work permit and a work visa, which must be obtained prior to your arrival.
The application for a work permit is submitted by your new employer and at the time of application you must provide a signed employment contract as proof of the length of work.
Please note that you cannot use the PNG format while your work permit application is being processed.
But who is considered as a resident of PNG?
The Income Tax Law defines a Papua New Guinea resident for tax purposes a person residing in Papua New Guinea and includes a person with the following characteristics:
- whose permanent residence is in Papua New Guinea, unless the Commissioner General is satisfied that their permanent residence is outside Papua New Guinea
- who have actually been in Papua New Guinea, permanently or intermittently for more than half a year of income, unless the Commissioner General is satisfied that their usual residence is outside Papua New Guinea and that they do not intend to settle in Papua New Guinea
- who contributes to the established pension fund or is the spouse or child under the age of 16 of such contributor.
- Individual Taxes in Papua New Guinea
Like in every country, in PNG taxation applies to individuals. However, the applicable scope and tax rates depend on the resident status of the individual and the source from which the income is derived. For individuals who are PNG residents, the PNG tax is applied to their worldwide income at marginal tax rates.
However, for non-residents, only the original PNG income is taxed in PNG format at rates different from those that apply to residents. But in Papua New Guinea, the tax size is up to 42%, which is a very high percentage in comparison with other countries.
In general terms, an individual will be considered a PNG resident in a given income year if they spend, permanently or intermittently, more than six months in the country that year. Estimated income: Each resident is estimated separately; no joint assessment for husbands and wives.
Taxpayers who have only earned income and are fully taxed with withholding tax by virtue of payroll or payroll tax do not need to file an annual tax return.
Taxpayers with other income such as interest, dividends, rental income, trust distribution, or partnership income must disclose this on their annual tax return. Employee Benefits: Some employee benefits are taxable in the hands of employees at a “specified value”.
These benefits include accommodation, housing allowance, transportation, education, vacation, food, telephone, cash benefits, and employer’s contributions to an approved or overseas pension fund. Other fringe benefits, such as entertainment, club passes, electricity and personal services, are not deductible by your employer for income tax purposes.
- Corporate Taxes in Papua New Guinea
PNG resident companies are responsible for paying income tax on their worldwide income. Companies that are not PNG residents are required to pay tax only on income generated in PNG.
Non-resident passive income derived from PNG, including dividends, interest, and royalties, is generally subject to WHT only. Typically, the payer of dividends, interest or royalties must withhold the corresponding tax amount and translate it into IRC PNG.
CIT of APG is levied from companies at a flat rate. The rate applied to taxable income is determined by the operations of the company, not by the level of taxable income.
Typically, trading profits and other income (excluding income that is not specifically taxed) of resident companies in PNG is taxed at a rate of 30%, while non-resident companies operating in PNG are taxed at a rate of 48%.
However, there are different tax rates on profits derived from mining, oil and gas operations carried out in the country.
Trading profits and other income from PNG operations are taxed at different rates depending on the source of income:
- Taxable income: Taxable income is defined as the amount of taxable income minus allowable deductions. In practice, profit is calculated for tax purposes with reference to the profit recorded in the financial statements. The accounts must be prepared in accordance with PNG accounting principles, which are in line with International Financial Reporting Standards (IFRS).
- Dividend Income: Dividends are included in the estimated income of the shareholder of the resident company, unless otherwise exempt from CIT.
- Interest income. Unless exempt from tax under special provisions, any interest paid or credited by a financial institution, central bank or company to a person who is a resident in PNG is included in income, and the institution or person paying interest on the account is subject to withholding and tax on the amount.
- Exchange Rate Gains: Generally, foreign exchange gains realized and received on debts arising on or after November 11, 1986 and denominated in a currency other than PNG are included in the estimated income. Realized exchange differences by revenue are also included in the estimated income.
- Foreign income. APG resident companies are responsible for paying CIT from all sources, including income received from foreign sources. However, a foreign tax credit may be available to offset the foreign tax paid against the tax payable in PNG.
PNG thin capitalization rules apply to PNG companies in all industries with a debt to equity ratio of 3: 1 for taxpayers in the natural resources sector (namely, mining, oil and gas) and a ratio of 2: 1 for all other taxpayers. Thin capitalization rules do not apply to licensed financial institutions. If this ratio is violated, part of the interest paid will be rejected as a tax deduction.
- Other Taxes in PNG
Goods and Services Tax (GST). In general, PNG goods and services tax is imposed at a rate of 10% on the supply of most PNG goods and services.
The GST Act, which came into force in 2003, defines the term “supply” to include all forms of supply such as the sale, transfer, lease or lease of goods, and the provision of services. Supply for GST purposes falls into one of the following three categories:
- Taxable supply – attracts GST at a rate of 10%;
- Zero-rate offer – attracts 0% goods and services tax; or
- Exempt delivery not subject to GST. If the delivery is taxable or at a zero rate, the registered person is entitled to a credit for the provisional tax paid on the goods or services used in the delivery. If a tax-exempt delivery is made, no GST will be charged in respect of that delivery. However, there is no right to a refund of any input tax paid for the goods or services used in the delivery.
Companies with annual turnover of 250,000 PGK (US $ 101,625) or more must register for GST, while businesses with annual income of less than 250,000 PGK (US $ 101,625) can register voluntarily.
Unregistered individuals or companies are not allowed to charge GST. Tuition Fee: All businesses with an annual salary in excess of PGK 200,000 ($ 81,300) are subject to a 2% tuition fee, which is calculated on the taxable salary, including benefits, of all staff.
The fee is charged annually. The levy payable is reduced by the cost of qualification training incurred in training civil servants. Customs Duties: Customs duties are levied on the value, insurance, and freight (CIF) of imported goods at different rates.
With the introduction of the tax on goods and services, most of the productive resources are not subject to duty. Currently, the duty is primarily charged on goods that are produced locally in PNG.
The duty may be deferred if the goods must be imported and re-exported within 12 months (or another period approved by the customs collector) subject to the approval of the customs collector.
Bail must be provided. Excise taxes. Excise taxes at different rates are levied on certain locally produced and imported goods (mainly alcohol, tobacco and fuel products), as well as goods that are considered luxury goods.
Stamp duties apply at different rates to documents and certain transactions. Of particular note is the real estate transfer fee, which rises to a maximum of 5% if the value of the transferred real estate exceeds 100,000 Polish crowns (40,650 USD).
The duty is paid by the buyer, and a 5% duty on the unencumbered land value may also be payable in the event of a transfer of shares in certain land holding companies.
Other transactions subject to the duty include the transfer of shares (including the buyback of some shares) at a rate of 1%. When renting goods, there is also a stamp duty of up to 1% of the rent, depending on the lease term in question. Stamp duty is payable for documents issued outside of PNG that relate to property or affairs that are or should be done in PNG.
About Capital gain
There is no general capital gains tax in PNG. However, profits arising from the sale of property acquired for the purpose of resale at a profit or from the implementation of a profit-making arrangement are taxed as ordinary income.
Net operating losses
Losses from internal trading can be offset against all profits earned in the same reporting period, or carried forward and offset against future trading profits.
The limitation period for loss carry forward is usually 20 years. Losses cannot be transferred to the profit of previous years.
Initial production and resource losses from projects can be carried forward without a time limit, although, again, they cannot be carried back (see section on tax incentives and incentives).
The deduction of losses is subject to continuity and control review of 50% or more, or a business continuity review in the event of a breach of ownership.
External losses incurred by a resident taxpayer from a source outside PNG (other than those related to the development of the export market) are not deductible from the amount of taxable income received in PNG. In practice, foreign losses can be carried forward and offset by foreign income for up to 20 years.
- Are there any tax compliance requirements when leaving Papua New Guinea?
Where a person receives only a salary or wage income, there are no requirements. However, if the person earns any income other than wages or salaries, annual tax returns must be filed and assessed. The person must be aware of the time of filing tax returns and payment of assessed taxes.
- Are there tax-exempt income areas in Papua New Guinea?
The following benefits provided are no subject to tax, that the relevant conditions are met (the PNG tax office has introduced various administrative requirements for obtaining benefits):
- paid education / trainings for children
- one annual leave to the country / territory (employee plus dependents)
- Is overseas salary taxed in Papua New Guinea?
If an individual is a non-resident of Papua New Guinea, salary payments for work abroad are not taxed in Papua New Guinea, provided that the payments were not indirectly funded from Papua New Guinea.
Residents are fully taxed on foreign income. That is, residents are taxed on their global income.
- What are the general income deductions allowed in Papua New Guinea?
Tax rates include a discount on expenses up to 200 pg. Expenses in excess of PGK200 are exempt from a tax refund of 25 percent of these expenses.
In addition, standard dependents discounts are available for wages and salaries. Individual income tax rates used to calculate payroll or payroll tax include dependents discounts as well as a total expense deduction of 200 PGK per year.
Dependent discounts are very small and are calculated as follows:
- first dependent: 15 percent gross tax, maximum 450 and minimum 45 PGK
- second and third dependents: 10 percent gross tax, maximum PGK300 and minimum 30 PGK per dependent
A maximum of three dependents can be declared. Dependent discounts are available for residents only.
- How are Tax Assessment / Prepayment / Withholding done in Papua New Guinea?
Salary tax under the PAYE system is charged biweekly, not annually.
All employers (including foreign companies working through a permanent establishment or permanent representative) transfer it to the IRC on a monthly basis.
Fees paid in the form of fees for consulting services or other professional services rendered in Papua New Guinea are also considered wages or salary income, like any compensation for services rendered in Papua New Guinea that are paid outside Papua New Guinea.
Salary tax is based on individual income tax rates and is the first and last tax on salary.
The tax rates used by employers to calculate the bi-weekly deduction include dependents discounts (for employees) as well as a total deduction for expenses of 200 PGK per year incurred in receiving wages or payroll income.
Individuals who receive income not related to wages or salaries are required to pay provisional tax on that income.
The provisional tax is calculated on an annual basis and paid in three equal installments at the end of April, July and October of the respective year. The prepaid tax is allowed as credit in this year’s estimate when processed next year.
- What general tax credits can you qualify for in Papua New Guinea?
Typically, a loan can be requested for all foreign taxes paid, including interest, dividends and other taxes at the source of payment.
An offset of the paid income tax may also be claimed when assessing foreign rental income, etc.
The authorized credit is limited to the maximum amount of tax on Papua New Guinea of the taxpayer in the same proportion as the income of the taxpayer outside Papua New Guinea to the amount of taxable income; and wages and salary income of the taxpayer.
- Are there any foreign tax concessions in Papua New Guinea?
A foreign tax credit is available if Papua New Guinea taxes income from foreign sources.
If income is derived from a country / territory that is not a party to the treaty, Papua New Guinea will generally allow unilateral relief from foreign taxes paid up to the maximum amount of Papua New Guinea tax payable from the same source of income.
In this article we have collected all the information regarding PNG taxation, all the answers to popular questions.
So PNG is one of the countries that require very high taxes, when you compare PNG taxation system to other countries’ systems, you will definitely be surprised of the results.
Anyways there are many US expats living and working there, and a lot of people who are thinking about moving to Papua New Guinea.