PNG TAX OVERVIEW/MERGERS & ACQUISITIONS
5.5.4 Royalty withholding tax (RWT) RWT only applies to royalty payments to non-residents. Where the non-resident recipient of the royalty is an independent third party, the tax law provides for the payment to be taxed at the lesser of either 10% of gross income by means of RWT, or if the royalty recipient elects to lodge an income tax return with IRC, 48% of net taxable income. By contrast, royalty payments to associated parties are prima facie taxed at a flat 30% of gross income by means of RWT. Certain exceptions apply in cases where the royalty arises from a PNG resource company. As already noted, all residents of DTA partner countries are taxed at a maximum RWT rate of 10% on gross income, provided the royalty is an arms length one.
5.5.5 Management fee withholding tax (MFWT) MFWT is imposed only on non-residents who receive payments falling within the domestic tax law definition of ‘management fee’. This term, and the interpretation of it by the IRC, is quite broad in application. It includes all payments in consideration for services of a managerial or technical nature and for consultancy services. This tax applies irrespective of whether the non-resident is an associated party or an independent party, in relation to the PNG entity to whom the services are rendered. MFWT is imposed at a flat rate of 17% on all qualifying payments, under the domestic law provisions. However, in the case of genuine residents of certain countries with which PNG has a DTA, no MFWT will be levied because the relevant DTA prevents it. PNG also has a domestic limitation on the amount of management fees that may be allowed as an income tax deduction, when paid by a PNG entity to a non-resident associate. This limitation is to 2% of the lesser of total income or total allowable expenses excluding the management fees. On formal application, IRC may allow amounts that exceed this 2% threshold, but only if the recipient is resident in a DTA partner country and the amount claimed can be shown to equate to an arms length fee. Where tax deductions are limited to the 2% threshold, MFWT is only imposed on the amount that is so allowed.
5.5.6 Other withholding taxes In addition to the particular withholding taxes mentioned above, PNG has several other withholding taxes or withholding tax equivalent imposts, these are imposed on payments to: > PNG resident business entities providing certain defined contract and consulting services and which are not in possession of a current Certificate of Compliance from the IRC, which is imposed at 10% on the gross payment (known as ‘business payments tax’).
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> non-resident insurers, where 10% of gross premium income is subject to tax at the 48% non-resident company rate (or 30% for unincorporated associations). > overseas shippers, in some limited cases, where 5% of receipts for the carriage of goods or persons shipped in PNG is subject to the 48% non-resident company tax rate.
5.5.7 Stamp duty Stamp duty is essentially a tax on documents in PNG, it applies on the following: > transfers of real property > leases or rental agreements > deeds of settlement and deeds of gift > transfers of marketable securities and of mining and petroleum leases > powers of attorney > memoranda of agreement > betting tickets and lotteries. The rates of stamp duty vary widely between the types of documents listed above. A number of exemptions may exist under each of these categories and several have monetary thresholds where either no duty applies or it is levied progressively on a sliding scale. As an example, the general rate of stamp duty (above K140,000, below which reduced rates apply) for the transfer of land or shares in a land-rich company, being some of the most common transactions subject to stamp duty in PNG, is 5%. The rate is only 1% for the transfer of most other shares, but listed shares traded on the Port Moresby Stock Exchange through a registered broker are exempt.
5.5.8 Customs and excise duty PNG has in recent years generally decreased the overall number of imported items to which duties and excise apply, as it has the rates of such impositions. However, there are still a number of such items, both domestic and imported, to which significant duties still apply. For significant items that are to be re-exported within 12 months of import into PNG (temporary imports), the duty otherwise applicable can be waived provided suitable arrangements (in the form of a bond or bank guarantee) are concluded in advance with Customs Office. There is also domestic excise levied on some key products, including alcohol and petrol. Notable among these are motor vehicles, with rates for normal passenger and four wheel drive type vehicles varying from between 40% to 110%.
5.5.9 Training levy The PNG income tax legislation imposes a training levy, which is a default tax imposed at the rate of 2%. In other words, the levy is imposed to the extent that a taxpayer over the threshold of the tax, being annual payroll costs of K200,000,
THE PNG INVESTORS’ MANUAL - SECOND EDITION