Papua New Guinea - Income Tax

Papua New Guinea - Income Tax

Taxation of international executives

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Tax returns and compliance

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?

31 December.

What are the compliance requirements for tax returns in Papua New Guinea?

Residents and non-residents

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 requires tax agents to lodge taxable returns as follows:

  • 30 percent of returns by 30 April
  • 50 percent of returns by 31 May
  • 75 percent of returns by 30 June
  • 90 percent of returns by 31 July and the balance by 31 August.

Tax rates

What are the current income tax rates for residents and non-residents in Papua New Guinea?

Residents

Income tax table for 2014

Taxable income over (PGK) Tax rate (Percent)
10,000 22
18,000 30
33,000 35
70,000 40
250,000 42

Non-residents

The rates for non-residents are the same as for residents (in the table above) but non-residents do not benefit from the tax-free threshold.

Residence rules

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:

  • whose domicile is in Papua New Guinea, unless the Commissioner General is satisfied that his/her permanent place of abode is outside Papua New Guinea
  • who has actually been in Papua New Guinea, continuously, or intermittently, during more than one-half of the year of income, unless the Commissioner General is satisfied that his/her usual place of abode is outside Papua New Guinea, and that he/she does not intend to take up residence in Papua New Guinea
  • who is a contributor to a prescribed superannuation fund or is the spouse or child under 16 years of age of such a contributor.

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.

Termination of residence

Are there any tax compliance requirements when leaving Papua New Guinea?

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 considered a resident of Papua New Guinea.

Communication between immigration and taxation authorities

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 Internal Revenue Commission.

Filing requirements

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, then there would not be any filing requirement in Papua New Guinea.

Economic employer approach

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.

De minimus number of days

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?

Not applicable.

Types of taxable compensation

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:

  • reimbursements of foreign and/or home country taxes
  • cost-of-living allowances
  • the benefit of loans at reduced or zero interest rates provided by the employer
  • round sum expense allowances
  • share option exercises
  • Accommodation, motor vehicles and meals provided to the employee. These benefits may be concessionally taxed where certain requirements are met.

Tax-exempt income

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):

  • education allowances for children
  • annual leave airfares to home country.

Education allowances

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.

Annual leave airfare to home country

A benefit provided to an employee by way of the following:

  • one annual leave fare for himself/herself and his/her family paid from the place of his/her employment to the employee’s place of origin or recruitment
  • recreational fares and accommodation within Papua New Guinea, not exceeding the value of the benefit above
  • is exempt from income tax provided the benefit is applied exclusively for the purposes referred to above and it is not given as a cash allowance to the employee.

Concessional benefits

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)
High cost house or flat 700 500 0
Medium cost house or flat 400 300 0
Low cost house or flat 160 150 0
Mess/Barracks accommodation 60 50 0
Government mess/barracks accommodation 7 7 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 petrol is supplied by the employer and PGK95 per fortnight where no petrol is supplied.

Expatriate concessions

Are there any concessions made for expatriates in Papua New Guinea?

None.

Salary earned from working abroad

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.

Taxation of investment income and capital gains

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.

Dividends, interest, and rental income

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 individuals.

Foreign exchange gains and losses

Exchange gains/losses are taxable/deductible when realized.

Principal residence gains and losses

Not applicable.

Capital losses

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.

Personal use items

There is no income tax applicable.

Gifts

There is no gift tax in Papua New Guinea.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Papua New Guinea? If so, please discuss?

No.

Are there capital gains tax exceptions in Papua New Guinea? If so, please discuss?

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

General deductions from income

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 calculated as follows:

  • first dependent: 15 percent of gross tax with a PGK450 maximum and PGK45 minimum
  • second and third dependents: 10 percent of gross tax, with a PGK300 maximum and PGK30 minimum for each dependent.

A maximum of three dependents may be claimed. Dependent rebates are available to residents only.

Tax reimbursement methods

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.

Calculation of estimates/prepayments/withholding

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.

This tax is assessed on a fortnightly rather than an annual basis and is remitted by all employers (including foreign companies operating through a permanent establishment or a permanent representative) to the Commissioner General of Internal Revenue 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 30 days after receipt of the assessment. The provisional tax paid is allowed as a credit in the following year.

Pay-as-you-go (PAYG) withholding

As detailed earlier.

PAYG Installments

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.

Relief for foreign taxes

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.

General tax credits

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 is the amount that bears to the Papua New Guinea tax of the tax payer 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.

Sample tax calculation

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

  2012

USD
2013

USD
2014

USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing rental paid by employer 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 0 20,000 20,000
Home leave 5,000 0 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = PGK2.05

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Papua New Guinea.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

Year ended 2012

PGK
2013

PGK
2014

PGK
Days in Papua New Guinea during year 366 365 365
Earned income subject to income tax      
Salary 205,000 205,000 205,000
Bonus 41,000 41,000 41,000
Cost-of-living allowance 20,500 20,500 20,500
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
Home leave 0 0 0
Education allowance 0 0 0
Total earned income 273,910 273,910 273,910
Other income 12,300 12,300 12,300
Total income 286,210 286,210 286,210
Deductions 0 0 0
Total taxable income 286,210 286,210 286,210

 

Calculation of tax liability

  2012

PGK
2012

PGK
2012

PGK
Taxable income as above 286,210 286,210 286,210
Papua New Guinea tax thereon 106,664 106,334 106,334
Less:      
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.

footnotes

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.

© 2016 KPMG, a Papua New Guinea partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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