Frequently Asked Questions

We hope to clarify a number of general tax issues that would be of interest to potential investors in PNG, or to persons who may be seeking employment in PNG, by providing our comments on the following questions.

Our comments are not intended to cover exhaustively the subjects they address but rather to answer some broad issues that may arise. They should not form the basis of any specific decision without seeking proper accounting and legal advice.

Salary and Wages Tax
Foreign contractors
How are companies taxed in PNG?
How are charities taxed in PNG?
What tax treaties does PNG have?

Salary and Wages Tax

How much salary or wages tax would I pay on my income if I were working in PNG?

Personal tax rates

The personal tax rates for the year ending 31 December 2008.

From 1 January 2008 the rates for residents are as follows:

From 1 January 2008 the rates for non-residents are as follows:

Dependant rebates can be claimed for up to four dependants. The annual rebate available for one dependant is K450, and K300 for each additional dependant.

"dependant" means a person who is:
(a) a spouse of the taxpayer; or
(b) an unmarried child less than 16 years of age; or
(c) a student child; or
(d) an invalid relative; or
(e) a parent of the taxpayer or of his spouse, where the parent is a resident of Papua New Guinea;

Salary packages

Where employees are provided with accommodation and/or unrestricted use of a motor vehicle free of charge or at a subsidised cost, they will be taxed on the prescribed taxable value of those benefits. The taxable values for accommodation and the provision of a motor vehicle for the year ending 31 December 2008 are:

Prescribed Housing Benefits



Area 1 includes Goroka, Lae, Madang, Mount Hagen and Port Moresby

Prescribed Motor Vehicle Benefits

As the taxable values are low, it is good tax planning to ask your employer to provide you with those benefits rather than giving you a cash allowance in lieu of the benefit.

Other ways to structure your package in an efficient manner are to ask your employer to provide an annual leave fare to your place of origin or recruitment, and/or to pay your children’s school fees. Further details are set out below.

One annual leave fare for the employee and his dependants (i.e. spouse and children) to the employee's place of origin or recruitment is tax-free. Additional non-business related airfares provided by the employer will be subject to tax (although there are some exemptions for employees living in remote areas or working on mining, petroleum or gas projects).

An employee will not be taxed on school fees paid directly by his employer in respect of the employee’s children, and a tax deduction in respect of the school fees paid will be allowed to the employer. However, if instead the employee is given a cash allowance for school fees, then in general the employee will be fully taxed on the allowance (although an education rebate of up to K750 per child may apply on lodgement of a tax return).

Foreign contractors
How will I be taxed if I am a non-resident company engaged by a PNG resident company?

Papua New Guinea relies fairly extensively on foreign (non-resident) companies to carry out works on major development projects and to provide expertise. Accordingly, withholding tax provisions have been included in the Income Tax Act to facilitate collection of tax from visiting foreign contractors.

A person carrying on business in Papua New Guinea entering into contracts for prescribed purposes (see below) with a non-resident company is required to forward a copy of the contract to the Commissioner General of Internal Revenue within 14 days of signing the contract. The Commissioner General will generally instruct the payer to withhold tax at the rate of 12% from all amounts payable to the foreign contractor and remit the withholding to the Tax Office unless prior arrangement has been made by the non-resident to pay tax on the income derived under the contract. This rate may differ if PNG has a double tax treaty with the country in which the contractor is resident (refer Question 6 in this section).

Alternatively, the foreign contractor can request approval to file an annual PNG tax return and pay tax on an actual profits basis. Only the PNG sourced income of the non-resident company is liable to tax in PNG.

Where the foreign contractor is a resident of a country with which PNG has a double tax treaty, the withholding tax applies only if the contract income is attributable to a permanent establishment held by the foreign contractor in Papua New Guinea.

“Prescribed purposes” means purposes for or in connection with the following:

(a) the installation, maintenance or use in Papua New Guinea of substantial equipment or substantial machinery; or

(b) the construction in Papua New Guinea of structural improvements or other works, including—

(i) the construction of roads, including bridges, culverts or similar works forming part of a road;
(ii) the erection of buildings, fences or similar improvements;
(iii) the clearing or draining of land;
(iv) the construction of ports or port facilities;
(v) the construction of facilities for the provision of water, light, power or communication; and
(vi) the provision or improvement of transport facilities of any kind; or

(c) the use of, or right to use, in Papua New Guinea, any industrial, commercial or scientific equipment including any machinery or apparatus or appliance, whether fixed or not, and any vehicle, shipping vessel or aircraft; or

(d) the provision in Papua New Guinea of professional services or services as an adviser, consultant or manager, including services in conjunction with the purposes set out above in (a), (b) or (c).

How are companies taxed in PNG?

General Trading Companies

Resident companies are taxed on worldwide income at the rate of 30%. Withholding tax is applicable to the payment of dividends by the resident company to non-residents at 17% and therefore, the effective tax rate for profit repatriation to non-resident investors through a resident subsidiary is 41.9%.

Companies that operate in PNG as non-resident companies are taxed on PNG sourced income at 48%.

A resident company is defined as:

“a company which is incorporated in Papua New Guinea, or which, not being incorporated in Papua New Guinea, carries on business in Papua New Guinea, and has either its central management and control in Papua New Guinea, or its voting power controlled by shareholders who are residents of Papua New Guinea”

Mining Companies

Taxable income derived by resident mining companies is taxed at 30%. Withholding tax is also applicable to the payment of dividends by the resident company carrying on mining operations to non-residents at 10%, and therefore, the effective tax rate for profit repatriation to non-resident investors through a resident subsidiary mining company is 37%.

Taxable income derived by non-resident mining companies is taxed at the non-resident tax rate of 48%.

Petroleum Companies

Taxable income derived by both resident and non-resident petroleum companies is taxed at 50%, although in some instances the rate will be 45% or 30%. Withholding tax does not apply to the payment of dividends (being income from petroleum operations) by the resident company to non-resident investors.

Gas Companies

Taxable income derived by both resident and non-resident gas companies is taxed at 30%. Withholding tax does not apply to the payment of dividends (being income from gas operations) by the resident company to non-resident investors.

How are charities taxed in PNG?

Charities are exempt from income tax in PNG.
 

In order to qualify for the above exemption, a charity has to meet the following criteria:

  • it is evidenced by an irrevocable trust deed duly executed; and
  • no benefit accrues to the settler of the trust, or to the trustee; and
  • not less than 80% of its income is utilised for the purpose for which the trust was established; and
  • regular books of account are maintained.

An organisation that meets the above conditions is required to apply to the PNG tax office for income tax exemption. Renewal of the tax-exempt status of an organisation is required every 5 years.

What tax treaties does PNG have?
The following table summarises the countries that PNG has tax treaties with, and the applicable withholding tax rates under those treaties.

* Germany has yet to ratify this treaty
** The PNG royalty withholding tax rate is as follows:

  • Where the recipient is an associated person, 30%.
  • Where the recipient is not an associated person, the lesser of:
    • 10% of assessable income; or
    • 48% of taxable income.