Papua New Guinea Personal Income Tax

Residents of Papua New Guinea (PNG) are subject to PNG Salary and Wages Tax (SWT) on worldwide income. Nonresidents are subject to SWT on PNG-source income only.

PNG’s domestic law contains the following definition of a “resi­dent” or “resident of Papua New Guinea:”

“(a) in relation to a person, other than a company, means a person who resides in Papua New Guinea, and includes a person

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

If an individual does not satisfy the above definition, he or she is considered to be a nonresident of PNG. The residency of an indi­vidual may be affected if PNG has entered into a double tax treaty with a relevant country.

The residence tests, and in particular, the overriding “resides” test (see paragraph [a] of the definition above) can potentially be met relatively easily. The PNG Internal Revenue Commission (IRC) may consider a person who is in PNG for employment purposes for as little as six months to be a resident of PNG for domestic tax purposes. For purposes of the residency tests, a person’s facts and circumstances should be weighed and consid­ered appropriately. For example, whether a person has a usual place of abode outside PNG should also be considered. Because PNG has a relatively limited treaty network, the residency test under PNG domestic law can be very important.

Income subject to tax. Except for salary and wages, income is calculated by subtracting deductible expenses and losses from the assessable income of the taxpayer. The taxability of various types of income is discussed below.

Employment income. Salary, wages, allowances and most cash compensation is included in the employee’s assessable income in the year of receipt. Non-cash benefits are either taxed in the employee’s hands (often at concessional rates) or are exempt from tax. No specific PNG tax is imposed on employers with respect to the provision of non-cash benefits. However, SWT withholding obligations exist for employers to the extent that employees are taxed on such benefits.

Self-employment and business income. Taxable income from self-employment or from a business is subject to PNG tax. Each partner in a partnership is taxed on his or her share of the partner­ship’s taxable income.

Directors’ fees. Directors’ fees are included in assessable income as personal earnings and are taxed in the year of receipt.

Dividends. Dividends paid to both residents and nonresidents by a PNG company are subject to a 17% dividend withholding tax. For nonresidents, the rate may be reduced by a relevant treaty.

Dividends received by PNG resident individual taxpayers from PNG companies are exempt from tax.

Dividends paid, whether directly or indirectly, out of the assess­able income of petroleum or gas operations are exempt from dividend withholding tax.

For dividends derived from nonresident sources, a foreign tax credit (FTC) may be allowed for foreign taxes paid. The FTC allowed is equal to the lesser of the foreign tax paid or the amount of PNG tax payable on that income.

Interest, royalties and rental income. Interest, royalties and rental income derived by residents are included in assessable income with a deduction allowed for applicable expenses.

If tax is paid in the foreign country on foreign income, the resi­dent may be able to claim an FTC. If the foreign investment results in a tax loss (that is, deductible expenses exceed assessable income), the tax loss is quarantined and can only be offset against other foreign-source investment income.

Interest paid by residents to nonresident lenders is generally sub­ject to a final withholding tax of 15% (subject to any reductions available under an applicable double tax treaty).

Accrued foreign company income. The PNG tax law does not currently contain controlled foreign company rules or any similar measures. Accordingly, income or gains accumulating in foreign companies or foreign trusts are typically only taxed on a receipt basis.

Converting transactions denominated in foreign currency into PNG kina amounts. Taxpayers are generally required to convert income amounts denominated in foreign currency into PNG kina (PGK) amounts at the time of derivation of the income. Likewise, taxpayers must convert expense amounts into kina amounts at the time of payment.

Realized foreign-exchange gains are assessable and realized foreign-exchange losses are allowable deductions, to the extent they relate to the derivation of income assessable in PNG.

Concessions for individuals on short-term assignments. PNG tax legislation does not contain concessions with respect to living away from home allowances. Any such allowances paid in cash are fully taxable to employees.

Taxation of employer-provided stock and stock options. The PNG tax law does not contain any specific rules that deal with the taxation of employer-provided stock options. However, discounts provided to employees on stock or options acquired under an employee stock scheme are generally taxed as ordinary income in the employees’ hands.

Capital gains and losses. Capital gains are generally not subject to tax in PNG. However, the disposal of a capital asset may be subject to tax to the extent the disposal takes place as part of a profit-making scheme or is part of the ordinary business of the taxpayer.

Deductions

Deductible expenses. To claim deductions, an individual must file an income tax return (see Section C). Expenses of a capital, private or domestic nature, and expenses incurred in producing exempt income are not deductible.

Some employment-related expenses may be rebated.

Dependent rebates and personal tax offsets. If a dependent’s declaration has been furnished, a resident individual taxpayer is allowed a rebate for a maximum of three “dependents.” A depen­dent is a person who is related to the taxpayer, whose separate net income during the year does not exceed PGK1,040, and who is one of the following:

  • A spouse
  • An unmarried child who is less than 16 years old
  • A full-time student child over 16 years old but under 25 years old
  • An invalid relative
  • A parent of the taxpayer or of his or her spouse, if the parent is a resident of PNG

For an individual earning salary or wage income, the rebates are built into the SWT tax rate schedule published each year by the IRC. The following are the fixed amounts of the fortnightly rebates:

  • One dependent: PGK17.31
  • Two dependents: PGK28.85
  • Three or more dependents: PGK40.38

Business deductions. Losses and expenses are generally fully deductible to the extent they are incurred in producing assessable income or are necessarily incurred in carrying on a business for that purpose.

Deductions are allowed for salaries and wages paid to employees, as well as for interest, rent, repairs, commissions and similar expenses incurred in carrying on a business.

Specific records must be kept for all business expenses incurred.

Expenditure for the acquisition or improvement of assets is not deductible, but depreciation deductions may be claimed.

Rates. The following are the rates for tax residents.

Taxable income

PGK

Tax rate

%

Tax due
PGK
Cumulative tax due
PGK
First 10,000 0 0 0
Next 8,000 22 1,760 1,760
Next 15,000 30 4,500 6,260
Next 37,000 35 12,950 19,210
Next 180,000 40 72,000 91,210
Above 250,000 42

The following are the rates for tax nonresidents.

Taxable income Tax rate Tax due Cumulative tax due
PGK % PGK PGK
First 18,000 22 3,960 3,960
Next 15,000 30 4,500 8,460
Next 37,000 35 12,950 21,410
Next 180,000 40 72,000 93,410
Above 250,000 42

 

Social security taxes

Superannuation/pension contributions. Under the Superannuation (General Provision) Act 2000 (PNG Superannuation Act), a PNG employer with 15 or more employees that has employed an employee for 3 months or more must make a minimum contribu­tion to an Authorised Superannuation Fund (ASF). An ASF is a PNG resident superannuation fund that has been authorized to operate by the Bank of PNG.

Currently, the requirement to make superannuation contributions into an ASF exists only with respect to PNG-citizen employees. Contributions are currently optional for non-citizen employees. Under certain proposals, contributions would be required with respect to non-citizens.

The compulsory employer contribution is 8.4% of an employee’s annual taxable salary. It is also compulsory for PNG-citizen employees to contribute 6% of their annual taxable salary into an ASF from their post-tax salary. This is in addition to the compul­sory employer contribution of 8.4%.

A deduction is not available for employers who make contribu­tions to nonresident superannuation funds with respect to non-citizen employees.

Training levy. All businesses that have an annual payroll exceed­ing PGK200,000 are subject to a 2% training levy. The amount payable is reduced by training expenses incurred by the employer for the benefit of PNG-citizen employees. Expenses incurred to train non-citizen are not qualifying training expenses for the purpose of the training levy.

Tax filing and payment procedures

The PNG tax year is the calendar year (1 January to 31 December).

Returns for the year must be filed by 28 February of the follow­ing year. Extensions are available if the return is filed by a regis­tered tax agent and if a request for extension of time is made. Nonresidents are subject to the same filing requirements as resi­dents. No specific additional filing requirements are imposed on persons arriving in, or persons preparing to depart from, PNG.

Married persons are taxed separately, not jointly, on all types of income. Joint filing of returns by spouses is not permitted.

Individuals who derive employment income only are not required to file an income tax return in PNG. SWT withheld by an em­ployer is a final tax. PNG national or expatriate employees who derive income other than employment income must file an income tax return in PNG. No return is required for dividend income that has been subject to PNG dividend withholding tax. An income tax return is required if any of the following circumstances exist:

  • The individual has income of more than PGK100 from other sources.
  • The individual is claiming a rebate for work-related expenses or donations.
  • The individual received a housing allowance, and a variation was granted by the Commissioner General of Internal Revenue for the individual to receive the housing allowance before tax.
  • The individual received a motor vehicle allowance, and a Section 299E variation has been granted. A Section 299E variation refers to an application to the Commissioner General of Internal Revenue to allow payment of a cash allowance to an employee without deducting SWT.
  • A school fee rebate is claimable. A school fee rebate refers to an amount paid by the government through the tax system to taxpayers who have paid school fees for dependent children. The rebate is granted per child and is limited to 25% of the net education expenses incurred or PGK750, whichever is less.

The IRC issues a tax assessment after a tax return is filed. After an assessment is issued and served on the taxpayer, the taxpayer must pay the amount of tax due within 30 days. If the taxpayer files an objection, the IRC requires that the amount of tax assessed be paid pending the review of the objection. A taxpayer may request the Commissioner General of Internal Revenue to grant an extension to pay the tax or allow the taxpayer to make the payment in installments.

Double tax relief and tax treaties

Foreign tax credit. A foreign tax credit (FTC) may be allowed for foreign taxes paid. The FTC equals the lesser of the foreign tax paid and the amount of PNG tax payable on the relevant income.

For FTC purposes, income derived from treaty and non-treaty countries are treated the same.

Double tax treaties. PNG has entered into double tax treaties with the following countries.

Australia                     Germany*                         New Zealand

Canada                       Korea (South)                   Singapore

China                          Malaysia                           United Kingdom

Fiji

* This treaty has been signed, but it has not yet been ratified.

Temporary visas

Non-citizens cannot be gainfully employed in PNG without a work permit issued by the Department of Labour and Industrial Relations (DLI). A properly completed Form, 1 Application for New Work Permit, and the applicable government fee needs to be submitted to the DLI for the approval and issuance of work per­mits.

In addition to work permits, an application for entry permits or visas for the employee and dependents (if applicable) must be filed with the Department of Foreign Affairs and Immigration. Certain government fees must accompany the application.

The following are the categories of temporary visas:

  • Visitor category
  • Business category
  • Employment category
  • Student category
  • Entertainer category
  • Special exemption category

Holders of employment visas can work in PNG. Employment is prohibited for visa holders in all other categories, but some employment may be allowed for holders of business visas in limited circumstances.

Permanent residence

Permanent residence visas may be granted to the following cat­egories:

  • Majority owner of a business
  • Skilled professional
  • Nationals from Melanesian Spearhead Group countries (Fiji, Vanuatu and the Solomon Islands)
  • Retired persons
  • Spouses and children of PNG citizen aged 19 years or more

Family and personal considerations

Spouses (including de facto spouses) and dependents of tempo­rary and permanent visa applicants are generally included in the same visa application as the primary applicant and are granted visas of the same subclass. Family members who are not included in a temporary resident’s initial visa application may generally apply for a visa at a later date.