Karen McEntee outlines key considerations for companies seeking to expand business in the Pacific nation.
Entry into any new market can be a daunting experience so it is critical that appropriate advice is sought from the outset.
New entrants to Papua New Guinea (PNG) have a range of statutory and tax compliance obligations to consider in addition to any commercial and legal considerations. Companies preparing to do business in PNG should seek advice and start the process many months before they start operating in PNG. Advice should also be sought in advance of submitting tender proposals so companies are fully aware of any tax costs that may impact their net profits.
PNG companies or overseas companies intending to carry on business in PNG must register with the Registrar of Companies (ROC). Companies or branches which are foreign owned (effectively 50 percent or more owned by non-PNG citizens) must also obtain formal certification from the Investment Promotion Authority (IPA) as a Foreign Entity Carrying on Business in PNG. Penalties may apply if certification is not obtained prior to carrying on business in PNG. The ROC/IPA combined process could take up to two months or more.
Tax considerations include the structure for investing in PNG eg through a branch or PNG company, the rates and types of taxes and whether taxes can be minimised or eliminated by availing of the benefits of a Double Tax Agreement. It is important the tax implications are fully understood when negotiating the contract terms with the client as depending on the structure withholding tax as high as 15 percent of gross revenue could potentially apply. It can be possible to manage and minimise the tax payable with advance tax planning.
The Internal Revenue Commission require a copy of the ROC/IPA registration before issuing a tax registration number.
Expatriate employees will require work permits and visas to legally work in PNG. The processing times can vary but generally will take at least six weeks to process (often more). The company must produce its IPA certification as part of this process.
Even expatriates working in PNG for relatively short periods can be subject to PNG payroll taxes. However PNG does allow for tax efficient salary packaging in certain circumstances.
A PNG bank account will be required where the company is being paid in PGK. To get a bank account the company will need evidence of its ROC and tax registrations in addition to the usual paperwork.
In summary with the combined ROC/IPA and work permit/visa process potentially taking an aggregate of up to four months or more, entry into the PNG market requires advance planning to ensure compliance obligations are met and the optimal tax structure for investment is used.
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