Papua New Guinea

General deduction provisions provide that all losses and expenditures, to the extent incurred in gaining or producing the assessable income, are allowable deductions. Deductions are not allowed to the extent a loss or expenditure is an outgoing of capital, or of a capital, private, or domestic nature, or incurred in relation to the gaining or production of exempt income. 

Preliminary expenditure 

Expenditure incurred before the commencement of deriving assessable income is generally not deductible under the general deduction rule. However, preliminary expenditure that constitutes a marketing intangible (such as expenditure on developing brands, trademarks, customer lists, or similar marketing-related intangibles) qualifies as a business intangible and is eligible for tax depreciation (see the Depreciation of Depreciable Assets section for rates and rules, including accelerated treatment for certain preliminary expenditure).  

Depreciation

ITA2025 provides a streamlined framework for tax depreciation on depreciable assets used to generate assessable income. Depreciable assets are classified into five categories, and a taxpayer must use the prime-cost method unless an election is made to use the diminishing-value method, which can only be used on a pooled basis. 

The asset classes and rates are below. 

Class 5 Business intangibles — straight-line only (no DMV): 

• Preliminary expenditure: 25% 

• Useful life > 10 years (other than preliminary): 10% 

• Other business intangible: 100% divided by useful life (in years) 

Business intangibles include patents, copyrights, trademarks, technical information, brand names, customer lists, secret formulas, contractual rights, certain long-term benefit expenditures, and preliminary expenditure (including marketing intangibles such as brand development, trademarks, or customer lists incurred before deriving assessable income). Qualifying preliminary expenditure is treated as a business intangible, allowing systematic recovery via depreciation (often at the accelerated 25% rate for preliminary items) rather than being non-deductible upfront. 

Key features of the tax depreciation regime: 

• Straight-line is the default method for all classes. 

• Diminishing value (accelerated) is elective (irrevocable once made) and applies only on a pooled basis for Classes 1–3. 

• Low-value assets (cost < PGK 1,000) qualify for 100% immediate write-off.  

• Solar power heating equipment qualifies for 100% immediate depreciation regardless of cost. 

• An initial allowance of 20% applies to qualifying plant/machinery used solely in manufacturing (one-time deduction when put into service).     

Goodwill

A deduction is not available for goodwill or the amortisation of goodwill in Papua New Guinea (this being an amount not deductible under ordinary concepts and an item for which there is no specific deduction provision). Goodwill arising on business acquisitions (eg. in M&A transactions) forms part of the cost base of the acquired business but cannot be depreciated or deducted over time. 

Interest expenses

A deduction is generally available for interest incurred on an arm’s-length basis, subject to meeting the general principles for deductibility and the requirements under the thin capitalisation rules (see Thin capitalisation in the Group taxation section). Where interest is incurred in connection with the construction or acquisition of a plant or capital asset, that interest is not immediately deductible. Rather, such interest is deemed to form part of the cost of that asset (and in the case of a plant will then form part of the base from which future depreciation deductions may be claimed). 

Bad debt

Bad debts are deductible if they have previously been included in assessable income and written off by year-end or if the bad debt was in respect of money lent in the ordinary course of the taxpayer's business of money lending. 

Donations

Under Section 33 of the Income Tax Act 2025, donations made by a corporate taxpayer to qualifying recipients are deductible, subject to specific rules, minimum thresholds, and overall limits. Deductions are available for donations to approved charitable bodies, amateur sporting bodies, the Government in response to official emergency appeals (such as those relating to national defence, natural or man-made disasters, epidemics, or pandemics), the Central Fund, registered political parties, or candidates for political office, with minimum donation amounts applying to most specified categories. The total charitable deduction in a tax year is capped at 10% of the taxpayer’s assessable income. For donations of property other than money, a deduction is allowed only if the property was acquired in the 12 months immediately preceding the donation, and the deductible amount is the lower of the taxpayer’s cost or the fair market value at the time of donation. 

Pension expenses

Contributions paid to an authorised superannuation fund are tax-deductible to the extent that they do not exceed 15% of the relevant employee’s gross taxable salary. Contributions to non-resident funds are not tax-deductible. See the Other taxes section for more information. 

Taxes

A deduction is not allowable in respect of payments of income tax, salary and wages tax, capital gains tax or additional profits tax including any additional tax, penalty and late payment interest payable on the tax liability.  

Net operating losses

Domestic

Net losses are calculated separately for business income (Section 23) and property income (Section 24), with employment income excluded from the calculation. Losses in one class can only be offset against future income in the same class (ring-fencing). 

Net losses can be carried forward for up to seven years. Losses may not be carried back against prior years’ profits. Primary production losses and resource project losses may be carried forward without a time limitation, although, again, they may not be carried back (see the Tax credits and incentives section for more information). 

Note that the carryforward of losses is subject to a 50% or more continuity of shareholding and control test, or a continuity of business test where there is a breach of the ownership test. 

Foreign

Losses incurred by a resident taxpayer from a source outside Papua New Guinea (other than in relation to export market development) cannot be offset against PNG source income. Foreign losses are calculated separately for foreign business income and foreign property income, and can be carried forward for up to seven years and offset against foreign income in the same class. 

Payments to foreign affiliates

Payments to foreign affiliates for administrative, management, technical, professional, or consultancy services (collectively referred to as technical fees under the Act) are deductible to the extent they are incurred in producing assessable income and satisfy the general deduction rules (Section 29). Such payments must also comply with the arm's length principle under the transfer pricing provisions (Section 73). 

Where the recipient is a non-resident without a permanent establishment in PNG, the payment is subject to non-resident tax at 15% on the gross amount).  See the section (“Taxation of Non-Residents) for more details.