David Caradus, a partner of PricewaterhouseCoopers, whose PNG practice has been in operation for more than 50 years, provides answers to common questions about doing business in PNG.

PricewaterhouseCoopers’ David Caradus

Does a foreign company have to register in PNG?

If a foreign company is ‘carrying on business’ in PNG, it is required to register as an overseas company in PNG and obtain certification carry on business in PNG.

When is a foreign company required to register in PNG?

A foreign company is required to register as an overseas company within one month of commencing to carry on business in PNG under the Companies Act. This includes appointing a resident agent. The term ‘carrying on business’ is given an extended meaning by the Companies Act but otherwise has its ordinary meaning. It is noted that a foreign company that enters into a contract for work to be done in PNG and undertakes work in PNG for a period of more than 30 days would be regarded as carrying on business in PNG for the purposes of the Companies Act.

When is a company required to be certified to carry on business in PNG?

Companies with foreign shareholdings of 50% or more (held or controlled by non-citizens of PNG) are required to be certified by the Investment Promotion Authority (IPA) before they can carry on business in PNG. The meaning of ‘carrying on business’ for the purposes of the Investment Promotion Act is substantially similar to the meaning of carrying on business for the purposes of the Companies Act. It follows that this requirement applies whether an overseas company intends to carry on business in PNG through a PNG incorporated company or through a company incorporated outside PNG.

What are the other benefits of registering in PNG?

Aside from mitigating the adverse consequences of not being duly registered (e.g. fines) and ensuring compliance with the Acts above, there are several other factors that will lead a company to register and obtain certification to carry on business in PNG.

Until it is formally registered in this way, the company will not be issued with the GST registration number, and thus cannot issue valid tax invoices to customers.

Firstly, the commercial banks in Port Moresby will only allow a company to open and operate bank accounts if it can demonstrate that it is registered with the Companies Office and, where relevant, certified to carry on business by the IPA. Similarly, only a company registered with the Companies Office and, where relevant, certified to carry on business in PNG by the IPA, can obtain work permits and entry visas for its non-citizen employees.

Also, where an overseas company elects to undertake the work in PNG itself it will be required to register for goods and services tax (GST) purposes if it will make taxable supplies exceeding 100,000 kina (US$47,750) in the following twelve months.

The Internal Revenue Commission (IRC) will not register an overseas company for GST purposes unless it is provided with a copy of the certificate of registration of the overseas company under the Companies Act and, where required, a copy of the certificate to carry on business under the Investment Promotion Act.

Until it is formally registered in this way, the company will not be issued with the GST registration number, and thus cannot issue valid tax invoices to customers.

What are the corporate tax rates in PNG?

The general corporate income tax rate is 30%. The rate of income tax for non-resident companies, other than those engaged in mining, petroleum or gas operations, remains at 48%. As discussed below, some companies may be taxed as ‘foreign contractors’.

Where the company’s gross salary or wages exceeds 200,000 kina (US$95,500), the company will also be liable to a training levy at the rate of two per cent (with the liability reduced by the costs incurred in training PNG citizen employees).

How are foreign contractors taxed in PNG?

Many foreign companies providing services in PNG will be subject to taxation in PNG under the ‘foreign contractor’ provisions of the income tax law.

As a general rule, the rate of tax applicable to income of a foreign contractor is 12% of the gross contract income unless the foreign contractor is granted permission to lodge an income tax return and be assessed on an annual basis.

Where the foreign contractor provisions apply, the employees of the foreign contractor will be liable to salary or wages tax in PNG.  Where gross salary or wages exceed 200,000 kina (US$95,500) the foreign contractor will also be liable to the aforementioned two per cent training levy.

If the foreign contractor is resident in a country with which PNG has a double taxation agreement (such as Australia, Canada, China, Korea or Singapore), PNG may be prevented from taxing the income or the rate of income tax may be reduced. In 2012,  double taxation agreement was signed with New Zealand and this is expected to come into force in 2013.

The taxation of foreign contractors should not be confused with the taxation of management or technical fees paid to a non-resident for services rendered outside PNG. Broadly, management fee (withholding) tax applies to management fees paid for services rendered outside PNG and foreign contractor’s withholding tax is payable in respect of services rendered within PNG. The rate of management fee (withholding) tax is 17% of the gross management fee unless reduced by the operation of a double tax agreement.

David Caradus has more than 25 years’ experience advising on taxation and investment in PNG and is the author of 2012 PNG Tax Facts & Figures and Papua New Guinea Resource Project Taxation: PWC’s Guide for Investors and Operators.