Taxation of international executives
Tax returns and compliance
Termination of residence
Economic employer approach
Types of taxable compensation
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation
All income tax information is summarized by KPMG, the Papua New Guinea member firm of KPMG International, based on the Papua New Guinea Income Tax Act 1959.
When are tax returns due? That is, what is the tax return due date?
Individuals who do not lodge an income tax return through an approved tax agent must lodge a return within two months of the end of the year of income (28 February). Individuals lodging through an approved tax agent usually lodge within six months of the end of the year of income (30 June). Where the only income derived by an individual is salary or wages, and salary or wages tax has been paid, income tax returns do not need to be lodged.
What is the tax year-end?
What are the compliance requirements for tax returns in Papua New Guinea?
An extension of time for filing income tax returns is usually obtained by written application to the Commissioner General of the Internal Revenue stating reasons for the extension. The length of extension is at the discretion of the Commissioner General.
Where a tax agent lodges income tax returns, the tax agent applies for lodgment extensions. Generally the Internal Revenue Commission (“IRC”) requires tax agents to lodge taxable returns as follows:
What are the current income tax rates for residents and non-residents in Papua New Guinea?
Income tax table effective 1 July 2012
The rates for individuals who are residents are as follows:
|Taxable income (PGK)||Tax theron(PGK)||Tax rate on excess (%)|
The rates for individuals who are non-residents are as follows:
|Taxable income (PGK)||Tax theron (PGK)||Tax rate on excess (%)|
Note that non-residents do not benefit from the tax-free threshold.
For the purposes of taxation, how is an individual defined as a resident of Papua New Guinea?
The Income Tax Act defines a resident of Papua New Guinea for taxation purposes to be a person who resides in Papua New Guinea and includes a person with the characteristics below:
Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.
There is no such requirement.
What if the assignee enters the country before their assignment begins?
The assignee is considered to be in Papua New Guinea for those days.
Are there any tax compliance requirements when leaving Papua New Guinea?
Where a person derives only salary or wages income there is no requirement. However where the person earns any other income apart from salary or wages income then annual income tax returns should be lodged and assessed. The person should be up to date with the lodgment of the tax returns and the payment of the taxes assessed.
What if the assignee comes back for a trip after residency has terminated?
If it can be proved that the person is not domiciled in Papua New Guinea, he/she will not be considered a resident of Papua New Guinea.
Do the immigration authorities in Papua New Guinea provide information to the local taxation authorities regarding when a person enters or leaves Papua New Guinea?
It is possible for the immigration authorities to provide information to the IRC.
Will an assignee have a filing requirement in the host country after they leave the country and repatriate?
If the assignee does not derive any income in Papua New Guinea after they leave, there would not be any filing requirement in Papua New Guinea.
Do the taxation authorities in Papua New Guinea adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Papua New Guinea considering the adoption of this interpretation of economic employer in the future?
No, the taxation authorities in Papua New Guinea do not adopt the economic employer approach to interpreting Article 15 of the OECD treaty and KPMG in Papua New Guinea is not aware of any plans to do so.
Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
What categories are subject to income tax in general situations?
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 paid. Typical items of an expatriate compensation package, which are fully taxable, are as follows:
Are there any areas of income that are exempt from taxation in Papua New Guinea? If so, please provide a general definition of these areas.
The following benefits are not subject to tax where the relevant conditions are met (the PNG tax office has imposed various administrative requirements to qualify for the exemptions):
Where an employer directly pays the annual fees imposed by a primary or secondary school or college for the purpose of educating a student child of an employee, the amount paid is exempt from tax. This exemption does not extend to expenses or fees relating to tertiary studies.
The legislation states that the exemption will apply to allowances or expenses paid to meet the annual fees imposed by a school or college for the purpose of educating a student child of an employee. It would therefore appear that the transport costs associated with transporting the student between home and school would also qualify for the exemption, providing the school billed the transport costs with the school fees.
A benefit provided to an employee by way of the following:
Housing allowances and housing are taxable at notional values as set out in the following table.
|Type of housing||Value of taxable benefit per fortnight|
|Area 1 (PGK)||Area 2 (PGK)||Area 3 (PGK)|
|Very high cost house or flat
|Up-market cost house or flat
|High cost house or flat
|Medium cost house or flat||400||300||0|
|Low cost house or flat||160||150||0|
|Government mess/barracks accommodation||7||0||0|
|Employees in approved low cost housing scheme||0||0||0|
The provision of a motor vehicle to an employee is taxable to the employee. The taxable amount is PGK125 per fortnight where fuel is supplied by the employer and PGK95 per fortnight where no fuel is supplied.
Are there any concessions made for expatriates in Papua New Guinea?
Is salary earned from working abroad taxed in Papua New Guinea? If so, how?
If an individual is a non-resident of Papua New Guinea the salary payments for working abroad are not taxable in Papua New Guinea, provided the payments have not been indirectly funded from Papua New Guinea.
Residents are fully taxable on foreign earnings. That is, residents are taxed on their worldwide income.
Are investment income and capital gains taxed in Papua New Guinea? If so, how?
Non-Papua New Guinea investment income is taxable when derived by a resident.
There is no capital gains tax in Papua New Guinea, although income tax may be levied on profits realized from the sale of assets acquired for the purpose of reselling at a profit.
Interest and rental income are fully taxable in Papua New Guinea at the taxpayer's marginal rate of tax. Dividends which have been subject to PNG dividend withholding tax are not assessable to resident trusts or individuals, nor to any non-resident entity.
Exchange gains/losses are taxable/deductible when realized.
There is no capital gains tax in Papua New Guinea except where the asset is acquired for the purpose of profit making by sale. Where a loss is incurred, the loss is deductible provided notification of the profit making intention was made to the Commissioner by the due date of lodging the first return after acquiring the property.
There is no income tax applicable.
There is no gift tax in Papua New Guinea.
Are there additional capital gains tax (CGT) issues in Papua New Guinea? If so, please discuss?
Are there capital gains tax exceptions in Papua New Guinea? If so, please discuss?
What are the general deductions from income allowed in Papua New Guinea?
Tax rates take into account an allowance for expenses of up to PGK200. Expenses in excess of PGK200 are relieved by means of a rebate of tax payable of 25 percent of those expenses.
Additionally, standard dependent rebates are available for salary and wage earners. The individual income tax rates used for the calculation of salary or wages tax incorporate rebates for dependents as well as the blanket deduction for expenses of PGK200 per year.
The dependent rebates are very small and calculated as follows:
A maximum of three dependents may be claimed. Dependent rebates are available to residents only.
What are the tax reimbursement methods generally used by employers in Papua New Guinea?
Tax reimbursements rarely need to be considered in Papua New Guinea.
How are estimates/prepayments/withholding of tax handled in Papua New Guinea? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.
Salary or Wages Tax under the PAYE system is assessed on a fortnightly rather than an annual basis. It is remitted by all employers (including foreign companies operating through a permanent establishment or a permanent representative) to the IRC on a monthly basis. Remuneration paid as consultancy fees or for other professional services rendered in Papua New Guinea is also considered to be salary or wages income, as is any compensation for services rendered in Papua New Guinea, which is paid outside Papua New Guinea. The salary or wages tax is based on individual income tax rates and is a first and final tax on salary and wage earnings. The rates of tax used by employers to calculate the fortnightly deductions incorporate rebates for dependents (for employees) as well as a blanket deduction for expenses of PGK200 per year incurred in earning salary or wages income.
Individuals who derive non-salary or wage income are required to pay provisional tax on that income. Provisional tax is assessed on an annual basis and is payable in three equal instalments by the end of April, July and October for the relevant year.The provisional tax paid is allowed as a credit in that year’s assessment, when processed in the following year.
As detailed earlier.
When are estimates/prepayments/withholding of tax due in Papua New Guinea? For example: monthly, annually, both, and so on.
The salary and wages tax deducted for the month should be remitted by the employer to the IRC on or before the seventh day of the following month.
Is there any Relief for Foreign Taxes in Papua New Guinea? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?
A foreign tax credit is available where Papua New Guinea taxes foreign-source income. Where the income is derived from a non-treaty country, Papua New Guinea will generally allow unilateral relief for foreign taxes payable, up to a maximum of the Papua New Guinea tax payable on the same source of income.
What are the general tax credits that may be claimed in Papua New Guinea? Please list below.
In general, a credit can be claimed for all foreign taxes paid including interest, dividend, and other withholding taxes. A credit can also be claimed for the income tax paid upon the issue of assessment in respect of foreign rental income, and so on. The credit allowed is limited to a maximum of the amount that bears to the Papua New Guinea tax of the taxpayer the same proportion as the non-Papua New Guinea income of the taxpayer bears to the sum of the taxable income and salary and wages income of the taxpayer.
This calculation assumes a married taxpayer resident in Papua New Guinea with two children whose three-year assignment begins 1 January 2012 and ends 31 December 2014. The taxpayer’s base salary is USD100,000 and the calculation covers three years.3
|Housing rental paid by employer||12,000||12,000||12,000|
|Moving expense reimbursement||0||20,000||20,000|
|Interest income from non-local sources||6,000||6,000||6,000|
Exchange rate used for calculation: USD1.00 = PGK2.05
Calculation of taxable income
|Days in Papua New Guinea during year||366||365||365|
|Earned income subject to income tax|
|Prescribed housing benefit||4,160||4,160||4,160|
|Prescribed motor vehicle benefit||3,250||3,250||3,250|
|Moving expense reimbursement||0||0||0|
|Total earned income||273,910||273,910||273,910|
|Total taxable income||286,210||286,210||286,210|
Calculation of tax liability
|Taxable income as above||286,210||286,210||286,210|
|Papua New Guinea tax thereon||106,664||106,334||106,334|
|Domestic tax rebates (dependent spouse rebate)||1,050||1,050||1,050|
|Foreign tax credits*||1,230||1,230||1,230|
|Total Papua New Guinea tax||104,384||104,054||104,054|
* Assuming 10 percent foreign withholding tax paid.
1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.
2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.
3Sample calculation generated by KPMG, a Papua New Guinea member firm KPMG International, based on the Papua New Guinea Income Tax Act 1959.
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