What is Taxed?

The worldwide income of resident companies and the Papua New Guinea source income of non-residents are taxed.

Residents and Computation of Taxable Income

Companies incorporated in Papua New Guinea or companies which carry on business in Papua New Guinea and whose management and control is located in Papua New Guinea are resident companies.

Papua New Guinea’s tax laws define taxable income not as accounting profit but as “assessable income less all allowable deductions”.

Since there are a number of items of both income and expense that require treatment for taxation purposes, which are different from accounting practice and convention, taxable income frequently differs from accounting profit.

The main items of difference are depreciation, mining expenditure, and valuation of inventories, provisions for such expenses as doubtful debts and deferred employee benefits, management fees, dividends, royalties, and expenses for which there is a double deduction.

Losses of a Papua New Guinea business can be carried forward to offset against future profits for twenty years; they cannot be carried back against previous years’ profits.

Specific time periods cover write-offs under the mining and petroleum provisions in the Income Tax Acts as well as a limit of 20 years in which exploration expenditure can be accumulated before a Special Mining Lease or Petroleum Development License is granted.
Income Tax

All taxpayers must lodge their tax returns based on a 31 December year-end unless they have approval from the IRC to adopt a substituted balance date. There are differences in tax rates of resident, non-resident, resident mining, non-resident mining and petroleum companies.

The rates of company tax are:

 Resident companies  
 Not engaged in mining or petroleum operations  30 per cent
 

Non-resident companies
  
 Including those engaged in mining operations  48 per cent
 
 Resident mining companies  
 Special Mining Lease  30 per cent
 Mining Lease  30 per cent
 

 Petroleum companies
  
 Resident and non-resident  50 per cent
 New Petroleum Project  45 per cent
 (or 30 per cent if incentive rate applies, as explained in Double Deduction, Special Payments...)
 

Gas companies
  
 Resident and non resident  30 per cent
 

The rate of corporate tax in Papua New Guinea for resident companies was increased from 25 per cent to 30 per cent in the 2003 Budget, and applies to income earned as from January 1, 2003.

DIVIDEND WITHHOLDING TAX

Whenever a Papua New Guinea resident company (other than a petroleum company) pays a dividend it must deduct 17 per cent dividend withholding tax (DWT) and remit it to the IRC.

From January 1, 2001, DWT payable by mining companies was reduced to 10 per cent. The DWT is legally a tax on the recipient of the dividend. Its subsequent status therefore depends on the status of the recipient, as outlined in the following:

Non-Resident Companies or Individuals - The DWT is a final tax on the dividend.

Resident Companies - The DWT may offset against liability to deduct this tax when the company recipient in its pay a dividend.

Resident Individuals - The DWT is credited against the individual’s normal tax liability on that dividend income, to the extent of such liability.