of assessable income derived from PNG sources or 2% of allowable deductions excluding management fees paid. In addition, for resource companies, to the extent that management fees exceed 2% of the allowable exploration or capital expenditure (other than management fees) incurred during the year, the excess is not allowable exploration or capital expenditure, respectively. However, a full deduction is allowed if the management fee can be supported as an arm’s-length transaction. The above limit does not apply with respect to payments made to non-associates.
Incentives. Several specific incentives are available with respect to taxpayers operating in certain industries, including resource taxpayers (mining, oil and gas) and taxpayers engaged in primary production. These incentives range from general concessions with respect to the calculation of taxable income to concessions with respect to specific types of expenditure. Although some investors have been able to negotiate specific incentives for particular projects, the government now aims to include all tax concessions in the domestic legislation and make any concessions available on an industry basis with the goal of developing a more neutral and equitable treatment of projects.
Capital gains. Capital gains are not subject to tax in PNG. The disposal of a capital asset may be subject to tax to the extent the disposal takes place as part of a profit-making scheme or is part of the ordinary business activities of a taxpayer.
Although capital gains on the disposal of depreciable plant and equipment are generally not subject to tax, a calculation of any gain or loss on disposal must be performed. If the amount received exceeds the tax written-down value, an amount of income may be derived (up to the amount of depreciation deductions previously claimed). Alternatively, if the amount received on disposal is less than the tax written-down value, the taxpayer may be able to claim a deduction.
Administration. The PNG tax year is the calendar year. However, for most companies, a substituted accounting period is permitted on written request to the Commissioner General of Internal Revenue. Tax for any fiscal year is payable in three installments on a provisional tax assessment basis according to the following schedule:
• First installment: 120 days after the end of the preceding tax year
• Second installment: 210 days after the end of the preceding tax year
• Third installment: 300 days after the end of the preceding tax year
Provisional tax is generally assessed by the Commissioner General of Internal Revenue based on the latest information available. Accordingly, provisional tax does not generally become payable until after a taxpayer has filed its first tax return, and installments may be revised following the filing of returns.
Any balance must be paid within 30 days after the assessment is issued and served on the taxpayer. Any overpayment of provisional tax is refundable to the taxpayer. The Commissioner General of Internal Revenue does not pay interest on overpaid tax. Penalties apply for underestimation of provisional tax.
Companies are required to file tax returns within two months after the end of the fiscal year (that is, by the end of February of the following year). However, for returns filed by registered tax agents, extensions of an additional four, six or eight months are possible, depending on the level of taxable income. The income and expenses of taxpayers must be expressed in Papua New Guinea currency, unless permission is granted by the Commissioner General of Internal Revenue to report in a currency other than Papua New Guinea currency.
Companies carrying on business in PNG, or deriving income in PNG, must appoint a public officer to act as the representative of the company in all dealings with the IRC. The public officer need not be an employee or shareholder of the company but must be tax resident in PNG.
Dividends. Dividends received by resident companies from other resident companies are fully rebatable; that is, although dividends received by corporate taxpayers from other PNG corporations are fully assessable, the taxpayers may claim a credit of 30% (corporate tax rate), thereby reducing the effective tax rate to nil. Dividends paid out of profits arising from the sale or revaluation of assets that were acquired for purposes other than resale at a profit are exempt if the dividend is distributed through the issuance of non-redeemable shares. Effective from 1 January 2017, dividends paid out of profits derived from petroleum or gas operations are no longer exempt unless a fiscal stability agreement applies.
Effective from 1 January 2017, dividends paid or credited by resident companies to nonresident shareholders (other than superannuation funds) are generally subject to a final 15% dividend withholding tax, which is deducted at source from the gross amount of the dividend.
Foreign tax relief. A resident deriving foreign-source income that has been subject to foreign tax is entitled to a credit equal to the lesser of the following:
• The foreign tax paid
• The amount of PNG tax payable on that income
For purposes of the foreign tax credit, no distinction is made between income derived from treaty and non-treaty countries.
C. Determination of taxable income
General. Income is defined as the aggregate of all sources of income, including annual net profit from a trade, commercial, financial or of other business. Expenses are deductible to the extent that they are incurred in producing assessable income, and are not capital or of a capital nature or incurred in producing exempt income. Deductions are allowable for certain capital expenditures incurred in the agriculture and fishing industries.
Foreign-exchange gains and losses. Realized exchange gains and losses from debts incurred or borrowings made on or after 11 November 1986 (at any time with respect to reforestation activities) in a foreign currency are generally assessable and deductible, respectively, as well as any realized gains or losses made on amounts of income or deductions. Unrealized gains are not assessable, and unrealized losses are not deductible.
income-producing activity or business that is carried on or proposed to be carried on in PNG by the taxpayer.
The expenditure incurred is apportioned over the life of the project or 10 years, whichever is less. If the taxpayer is in the resources industry, the cost of the environmental impact is not allowable under this measure, but is available under the specific resources taxation provisions.
Depreciation deductions are also available for plant and equipment used for environmental impact studies.
Rehabilitation costs of resource taxpayers. For resource projects that begin on or after 1 January 2012, at the end of a project, a resource taxpayer may transfer losses incurred on environmental rehabilitation to other projects owned by it. PNG uses ringfencing provisions and calculates the profits of resource projects on a project-by-project basis. Historically, losses incurred were effectively lost if no further income was produced.
Research and development. On 1 January 2014, the extended deduction of 50% was phased out for research and development (R&D) expenditure. Previously, a 150% deduction was available for “prescribed” R&D expenditure. To claim the R&D concession, taxpayers needed to complete and submit an application annually to the Research and Development Expenses Approval Committee (within the PNG IRC) for approval before the start of the fiscal year. However, any expenditure on scientific research incurred before 1 January 2014 will continue to be eligible. In addition, although the additional deduction (50%) for eligible R&D expenditure has been abolished, such expenditure will continue to be deductible on a 100% basis even if such expenditure might otherwise be capital in nature and not deductible under general provisions.
The following payments and expenditure incurred by a taxpayer carrying on business for the purpose of obtaining assessable income may be allowable R&D deductions:
• Payments to an approved research institute for scientific research related to the business of the taxpayer and payments to an approved research institute for the purpose of undertaking research related to the business of the taxpayer
• Capital expenditure on scientific research related to the business of the taxpayer (except expenditure on plant, machinery, land or buildings, or alterations, additions or extensions to buildings)
• Expenditure on plant and equipment used solely for R&D purposes (depreciable at a rate of 33% per year)
• Expenditure on buildings and additions to buildings used solely for R&D purposes (deductible in equal installments over three years)
For purposes of the R&D concession, scientific research includes any activities in the fields of natural or applied science for the extension of knowledge.
Relief for losses. Losses incurred may generally be carried forward for seven years. However, losses incurred by resource taxpayers and primary production taxpayers can be carried forward 20 years. Losses incurred by a company are allowed as a
deduction only if the taxpayer passes either the continuity of ownership test or the same business test.
For entities in the resources sector, losses may also be quarantined on a project basis.
Losses may not be carried back.
No provisions exist for grouping losses with associated companies (with the specific exception of certain company amalgamations).
Groups of companies. No provisions exist in PNG for the grouping of income or losses of associated companies or for other group relief. Companies are assessed on an individual basis.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax
Rate (%)
Goods and services tax (GST); imposed on virtually all goods and services unless the goods or services are exempt (for example, financial services and gambling) or the supply is zero-rated (for example, exports); any entity undertaking taxable activity in PNG must register and charge GST if taxable supplies exceed, or are expected to exceed, PGK250,000 in any 12-month period; entities that are registered must account for GST collected (output tax) and GST paid (input tax) during each month with any excess of GST collected to be remitted to the IRC by the 21st day of the following month; entities may generally claim a refund for most GST input tax paid on importations or local purchases of goods and services; effective from 1 January 2016, a deferral scheme applies with respect to GST on imports 10 Customs and excise duty; imposed on all goods imported into PNG, unless the goods are duty-free or exempt from duty; duty is imposed on the total value including cost, insurance and freight; the rate of duty depends on the nature of the goods; a zero rate often applies to goods imported into PNG if the goods are not available in PNG, but a specific analysis must be undertaken in each instance Various Stamp duty; imposed on dutiable instruments such as deeds, share transfers and a wide range of other documents at varying rates; may also apply to documents executed outside PNG under provisions that impose an obligation to file documents for assessment for stamp duty with respect to property or activities in PNG Various
E. Miscellaneous matters
Foreign-exchange controls. The currency in PNG is the kina (PGK).