Papua New Guinea's tax system is administered by the Internal Revenue Commission (IRC). Both employers and employees have specific tax obligations that must be met to ensure compliance with the country's tax laws. Understanding these obligations is crucial for businesses operating in Papua New Guinea, as well as for individuals employed within the country. The tax year in Papua New Guinea aligns with the calendar year, running from January 1 to December 31.
Navigating the complexities of Papua New Guinea's tax system can be challenging, especially for foreign companies and workers. This guide provides a comprehensive overview of employer tax obligations and employee tax deductions in Papua New Guinea for 2025, covering social security contributions, income tax withholding, allowable deductions, compliance requirements, and special considerations for foreign entities.
Employer Social Security and Payroll Tax Obligations
Employers in Papua New Guinea are required to make contributions to approved superannuation funds for their employees. These contributions serve as a form of social security, providing retirement benefits for employees.
- Superannuation Guarantee Contribution: Employers must contribute a percentage of each employee's gross salary to a complying superannuation fund. As of 2025, the minimum contribution rate is 8.4% of the employee's gross salary.
- Workplace Health and Safety Levy: Employers may also be subject to a workplace health and safety levy, depending on the industry and risk profile of their operations. The specific rates and regulations vary.
- Payroll Levy: The payroll levy is calculated based on the total payroll expenses of the company.
Income Tax Withholding Requirements
Employers in Papua New Guinea are responsible for withholding income tax from their employees' salaries and wages. This is known as Pay-As-You-Earn (PAYE) tax. The amount of tax withheld depends on the employee's income level and applicable tax rates.
- PAYE Calculation: Employers must calculate PAYE tax based on the employee's gross income, taking into account any applicable tax-free thresholds and deductions. The tax is then deducted from the employee's pay and remitted to the IRC.
- Tax Rates: Papua New Guinea uses a progressive income tax system, where higher income earners pay a higher percentage of their income in taxes. The tax rates for the 2025 tax year are as follows:
| Taxable Income (PGK) | Tax Rate |
|---|---|
| 0 - 12,500 | 0% |
| 12,501 - 20,000 | 22% |
| 20,001 - 70,000 | 30% |
| Over 70,000 | 42% |
- Tax-Free Threshold: As of 2025, the annual tax-free threshold is PGK 12,500. This means that individuals earning up to this amount are not required to pay income tax.
Employee Tax Deductions and Allowances
Employees in Papua New Guinea may be eligible for certain tax deductions and allowances, which can reduce their taxable income and overall tax liability.
- Superannuation Contributions: Employees who make voluntary contributions to approved superannuation funds may be able to claim a tax deduction for these contributions, up to a certain limit.
- Education Fees: A deduction may be available for education fees paid for dependent children attending recognized educational institutions.
- Medical Expenses: Employees may be able to claim a deduction for certain medical expenses, subject to specific conditions and limitations.
- Other Allowable Deductions: Other potential deductions may include expenses related to employment, such as professional subscriptions or work-related travel.
Tax Compliance and Reporting Deadlines
Employers and employees in Papua New Guinea must adhere to specific tax compliance and reporting deadlines to avoid penalties and interest charges.
- PAYE Remittance: Employers are required to remit PAYE tax withheld from employees' salaries to the IRC on a monthly basis. The deadline for remittance is typically the 7th day of the following month.
- Annual Returns: Both employers and employees must file annual tax returns with the IRC. The deadline for filing annual returns is usually March 31 of the following year.
- Record Keeping: Employers are required to maintain accurate records of all payroll transactions, including salaries, wages, deductions, and tax withheld. These records must be kept for a period of at least seven years.
Special Tax Considerations for Foreign Workers and Companies
Foreign workers and companies operating in Papua New Guinea may be subject to special tax considerations, including:
- Double Tax Agreements: Papua New Guinea has double tax agreements with several countries, which may provide relief from double taxation for foreign workers and companies.
- Withholding Tax on Payments to Non-Residents: Payments made to non-resident companies or individuals may be subject to withholding tax. The rates vary depending on the type of payment and the recipient's country of residence.
- Transfer Pricing: Foreign companies operating in Papua New Guinea must comply with transfer pricing regulations, which aim to prevent the artificial shifting of profits to lower-tax jurisdictions.
- Work Permits and Visas: Foreign workers must obtain the necessary work permits and visas to legally work in Papua New Guinea. Failure to do so can result in penalties and deportation.
