Papua New Guinea
Salary or wages are widely defined to include, in addition to normal employment-related receipts and benefits, any remuneration paid as consultancy fees or fees for professional services, where the remuneration is paid wholly or substantially for personal services performed in Papua New Guinea.
Payments to employees taxed at 2%
The following payments to employees qualify to be taxed at the rate of 2%:
- A distribution from a superannuation fund not exceeding the 'prescribed sum' accrued to 31 December 1992, where paid on termination.
- A distribution of amounts accrued after 31 December 1992 up to the 'prescribed sum' will be taxed at 2% in the following three circumstances:
- Where contributions have been made on behalf of the employee for 15 years.
- Where the distribution is to an employee who is age 50 years or over or who is subject to enforced early retirement, provided, in either case, contributions have been made for not less than seven years.
- Where the distribution is made as a result of the death or disablement of the employee.
- Pay-out of long service leave accrued to 31 December 1992, where paid on termination to an employee who has completed a minimum of six years of continuous service. The leave entitlement must not exceed six months per 15 years of service.
Concessional taxation of redundancy payments
Concessional taxation treatment will apply to redundancy payments made after 1 January 2012 under an approved redundancy scheme. The Commissioner General shall approve a redundancy scheme if satisfied that at least 30 employees are to be genuinely made redundant under that scheme or employees are genuinely made redundant from the public sector. The rate of tax applicable to a redundancy payment is 15% up to a cap determined by reference to years of services. Amounts in excess of the cap will be subject to tax at marginal rates.
Certain benefits provided to employees are taxed at the prescribed values listed below. The value of benefits not listed below is generally a cost to the employer.
|Taxable value per fortnight
|Accommodation owned or rented by employer
|PGK 0 to PGK 2,500 per fortnight, depending on area, market value, or market rental per week.
|The employee will be taxed on the excess of housing allowance over eligible housing expenditures and on the prescribed value of the housing. A PNG citizen who receives an allowance under an approved Low Cost Housing Scheme is not subject to tax on the allowance.
|PGK 95 per fortnight.
|PGK 125 per fortnight.
|Education expenses (except tertiary education)
|PGK 0 (a rebate may be available)
|One annual fare for the employee and family to the place of recruitment or origin is exempt from tax. Alternatively, recreational fares and accommodation for travel within Papua New Guinea equal to the value of the benefit of one annual leave fare are exempt from tax. Additional leave fares are fully taxable; however, additional leave fares within Papua New Guinea for a person employed solely in, or in connection with, most resource projects are exempt. Additional leave fares for employees serving in hardship or remote areas may be exempted from tax at the discretion of the IRC.
|PGK 30 per fortnight.
|Subject to tax at the employee’s marginal rate on the amount equal to the employer’s cost or may be treated as non-deductible entertainment by the employer.
|Public utilities, gas, domestic services, security, club subscriptions
|If paid by the employer on behalf of the employee, not taxable to the employee; however, the employer is denied a deduction for the payment. If paid in the form of an allowance, fully taxable in the hands of the employee.
|Fully taxable to the employee at the employee’s marginal rate of tax. However, the employee can claim a rebate for work-related telephone costs.
|If business entertainment expenditure is reimbursed to the employee by the employer, the reimbursement of the actual expenditure is not taxable to the employee. However, the employer is denied a deduction for the entertaining expenses. If paid in the form of an allowance, fully taxable in the hands of the employee.
|All allowances paid by the employer are to be fully taxed at the employee’s marginal rate of tax.
There are no specific rules around stock options in Papua New Guinea. As such, gains and losses derived or incurred on these instruments are determined based on ordinary concepts and common law principles.
Where stock options have been provided in the course of employment, the value of the benefit provided is likely to be subject to salary or wages tax as employment income.
As noted below, there is no capital gains tax in Papua New Guinea. Where a gain made on stock options is considered to be capital in nature, the gain will not be taxable. It follows that any capital loss incurred is not deductible.
There is no general capital gains tax in Papua New Guinea. However, profits arising on the sale of property acquired for the purpose of resale at a profit, or from the carrying out of a profit-making scheme, are fully taxable as ordinary income.
Dividends are subject to a dividend WHT at the rate of 15%.
Interest WHT of 15% must be deducted from any interest paid by a financial institution, the Central Bank, or a company to a person resident in Papua New Guinea. The WHT deducted is creditable against tax ultimately payable by a resident recipient on that income.
There are no special rules around rental income. Such income will be assessed as ordinary income and is required to be disclosed in the annual income tax return.