Papua New Guinea

Taxation of Non-Residents 

The key concepts relevant to a non-resident deriving PNG source income are: 

• PNG Source Income 

• Permanent Establishment 

• Non-Residents Tax 

PNG Source Income 

Section 9 of the Income Tax Act 2025 defines PNG source income, which establishes the territorial scope of PNG’s taxing rights over non-residents. 

In broad terms, PNG source income includes: 

• Business income attributable to a permanent establishment (PE) in PNG, or from sales in PNG of goods/merchandise of the same or similar kind as those sold through a PE, or from similar business activities carried on in PNG; 

• Passive income such as dividends, interest, royalties, technical fees, annuities, natural resource amounts, insurance premiums relating to PNG risks, rent from PNG real property, and gains on disposal of PNG assets; and 

• Any income that PNG has the right to tax under an applicable tax treaty.   

The taxation outcome for a non-resident deriving PNG source income therefore depends critically on whether the non-resident has a PE in PNG under Section 8. 

Permanent Establishment 

A PE exists where a non-resident carries on business through a fixed place in PNG, including the following specific types of PE: 

• Fixed place PE — office, branch, factory, warehouse, workshop, place of management, mine site, oil/gas well, quarry, or similar location (excluding a mere representative office); 

• Service/consulting PE — furnishing of services (including consultancy) through employees or personnel for more than 183 days in any 12-month period; 

• Construction PE — building, construction, assembly, or installation project (including supervisory activities and connected work by associates) continuing for more than 90 days in any 12-month period; 

• Substantial equipment PE — use, maintenance, or installation of substantial machinery/equipment for more than 90 days in any 12-month period; 

• Agent PE — dependent agent who habitually negotiates or concludes contracts, or maintains stock for regular deliveries on behalf of the principal. 

Importantly, Section 8(6) of ITA2025 provides that if a non-resident has a PE in PNG under the terms of an applicable Double Tax Agreement (DTA) to which they are resident, but does not meet the domestic PE criteria under the other subsections of Section 8, they will nonetheless be treated as having a PE for the purposes of the Act. This means the DTA's PE definition can expand (but not contract) the domestic scope in cases where a treaty applies. 

In practice, foreign investors and service providers must therefore assess their activities not only against Section 8's domestic triggers but also against the specific PE article in any relevant DTA (typically Article 5 in PNG's treaties with Australia, Canada, China, Fiji, Indonesia, Korea, Malaysia, New Zealand, Singapore, or the United Kingdom). 

The implications of having a PE in PNG 

Where the non-resident has a PE in PNG, the attributable business profits are taxed on a net income basis under the ordinary income tax rules at the corporate income tax rate of 30%. In addition, the repatriated profit of the PNG PE (calculated under Section 71 as a notional remittance based on accounting profits adjusted for assets/liabilities) is subject to non-resident tax at 15%. This creates a potential combined effective rate of approximately 40.5% on fully repatriated profits, the same effective tax rate for a non-resident shareholder receiving a dividend from its PG subsidiary. 

This brings into focus of checking whether the non-resident has a PE under the terms of a DTA, as a broader treaty PE (e.g., a shorter service PE threshold) could trigger net-basis taxation (30% corporate income tax on attributable profits plus 15% branch profits tax on repatriated amounts) even where domestic rules alone would not. 

Non-Resident (Withholding) Tax 

Non-resident tax (NRT) under Section 14 of the Income Tax Act 2025 imposes a final tax (via withholding under Part 10) on specified categories of PNG source income derived by non-resident persons (individuals or corporations) where the income is not attributable to a permanent establishment (PE) in PNG. This streamlined regime consolidates previous separate withholding taxes into a uniform framework, effective from 1 January 2026, with rates applied to gross amounts as set out in Schedule 1, Part 1. 

The complete list of PNG source income types subject to NRT under Section 14(1)(a), together with the applicable domestic rates (as final tax), is as follows:  

• Dividends — 15% (standard); 30% for dividends paid by a non-profit body or former non-profit body out of exempt income. 

• Interest — 15%. 

• Royalties — 10% (non-associate recipient); 30% (associate recipient). 

• Technical fees (including administrative, management, technical, professional, and consultancy services) — 15%. 

• Annuities — 15%. 

• Natural resource amounts — 15%. 

• Insurance premiums (on gross premiums for risks in PNG) — 3%. 

• Entertainment fees (payments to non-resident entertainers or entertainment groups) — 10%. 

Royalties 

The definition of “royalty” is broad and includes periodic or lump-sum payments as consideration for the use of, or right to use, any copyright, patent, trademark, design, model, plan, secret formula or process, as well as payments for the use of, or right to use, industrial, commercial or scientific equipment (covering equipment leases). 

The Royalty definition also extends to various intangibles and, depending on the facts and nature of the arrangement, software-as-a-service (SaaS) and similar digital/cloud services. 

Double Tax Agreements 

A double tax agreement (DTA) may provide a different (typically lower) tax outcome for certain items where the non-resident qualifies under the treaty (e.g., resident in a treaty country, beneficial owner, and no PNG PE attribution per Section 75). PNG's treaties (Australia, Canada, China, Fiji, Germany, Indonesia, Korea, Malaysia, New Zealand, Singapore, United Kingdom, plus the MLI) generally focus on dividends (capped at 15%), interest (often 10%, or 15% in some cases like Malaysia), royalties (often 10%, or 15% under Fiji), and technical fees (0% in many treaties, or 10–15% in others). 

DTAs do not typically reduce rates for annuities, natural resource amounts, insurance premiums, or entertainment fees – PNG retains the full domestic rate on these.

Notes

1. There is no WHT on interest when:
   • interest is paid or credited to a licensed financial institution in Papua New Guinea, the Bank of Papua New Guinea, or the state, or
   • the interest income is otherwise exempt income in the hands of the recipient.
2. A royalty paid to a non-resident associate of the payee will suffer a 30% WHT. Where the non-resident is not an associate of the payee, the WHT rate will be 10% (or 48% of the taxable income derived from the royalty if the non-resident chooses to lodge an income tax return in Papua New Guinea).
3. The treaty with Germany has not yet been ratified by Germany.

Business income WHT

Business income payments WHT 

Income derived by local contractors in certain industries is covered by the business income payments WHT regime. The industries affected include: 

• Building and construction. 

• Road transport. 

• Motor vehicle repairs. 

• Security services. 

• Construction of items of joinery. 

Businesses affected are required to have a nil withholding authority and to produce it when entering into contracts with their customers. A nil withholding authority will be issued by the Commissioner General upon satisfaction of certain requirements and will remain in force for a period specified in the authority unless revoked earlier. Payers are required to deduct a 10% WHT if payees do not produce a nil withholding authority.