Papua New Guinea

A company will be deemed a resident for CIT purposes if it meets either the (i) incorporation test or (ii) the management and control test.

Incorporation test

A company incorporated in Papua New Guinea is automatically regarded as a PNG tax resident. However, the operation of the law of another country and a relevant double taxation treaty (DTT) may result in a company also being treated as resident in another country.

Management and control test

A company is a PNG tax resident if it is managed and controlled in Papua New Guinea, regardless of where it is incorporated. Generally, a company is managed and controlled in Papua New Guinea if key decisions affecting the company are made at directors’ meetings held in Papua New Guinea. This also includes a company incorporated outside Papua New Guinea that trades in Papua New Guinea and has its voting power controlled by resident shareholders.

Dual residence

An entity may be a tax resident of both Papua New Guinea and another country by application of domestic legislation. A DTT entered into between Papua New Guinea and another country may contain a tiebreaker test to determine the country of residence for the purposes of the DTT.

Permanent establishment (PE)

The concept of 'permanent establishment' has limited significance in the domestic taxation law of Papua New Guinea and is defined to mean a place at or through which a person carries on any business. Under domestic taxation law, Papua New Guinea will seek to tax the PNG-sourced income of a non-resident irrespective of whether or not that income is derived at or through a PE in Papua New Guinea.

Where PNG has entered into a DTT, the concept of PE becomes more important as it will then be one of the factors determining Papua New Guinea’s taxing rights over income sourced in Papua New Guinea, particularly with respect to the business profits of a non-resident company. In general terms, Papua New Guinea’s DTTs:

• define a PE to be a fixed place at or through which the business of an enterprise is wholly or partly carried on, and
• deem a PE to exist in various circumstances, including those relating to the presence of substantial equipment in the contracting state and the time spent by personnel of an enterprise furnishing services in a contracting state.