TongaTax Obligations Detailed

In Tonga, employers have several tax obligations, including withholding Pay As You Earn (PAYE) tax from employee salaries, remitting those taxes monthly, and filing annual reconciliations.

Employer Obligations

• PAYE Withholding: Employers must withhold PAYE tax from employee salaries based on a progressive tax system. Rates range from 0% for income up to $12,000 TOP to 25% for income exceeding $70,000 TOP.
• Monthly PAYE Returns (Form 7): This form details each employee's gross income and PAYE withheld.
• Annual Withholding Certificate (Form 4): Employers must provide each employee with this form within 14 days of the financial year's end (June 30th). It shows the employee's total gross income and total PAYE withheld for the year.
• Annual PAYE Reconciliation (Form 8): This form reconciles all monthly PAYE returns for the year and is due by August 31st.
• Employer Contribution to National Retirement Benefit Fund (NRBF): Employers contribute 5% of the employee's salary to the NRBF.

Employee Tax Rates

As of July 1st, 2021:

• $0 to $12,000 TOP: 0%
• $12,001 to $30,000 TOP: 10%
• $30,001 to $50,000 TOP: 15%
• $50,001 to $70,000 TOP: 20%
• $70,001 TOP and above: 25%

Other Relevant Tax Information

• Corporate Tax Rate: 25%
• Sales Tax (VAT) Rate: 15%
• Tax Year: July 1st to June 30th

It's important to consult with a Tongan tax professional or the Ministry of Revenue & Customs for the most current and comprehensive information regarding employer tax obligations. Rules and regulations are subject to change. This information is current as of February 5, 2025.

In Tonga, employees are taxed on their gross income, meaning no deductions are allowed. The tax rates are progressive, ranging from 0% to 25% based on income brackets.

Employee Tax Withholding

• No Deductions: Tonga's tax system does not allow any deductions for employees. Income tax is calculated based on the employee's gross employment income, which includes salary, wages, bonuses, allowances, and benefits.
• Tax Rates (Effective July 1, 2021):
  • TOP $0 - $12,000: 0%
  • TOP $12,001 - $30,000: 10%
  • TOP $30,001 - $50,000: 15%
  • TOP $50,001 - $70,000: 20%
  • TOP $70,001 and over: 25%
• Example: An employee earning TOP $60,000 annually would have their tax calculated as follows:

(TOP $12,000 * 0%) + (TOP $18,000 * 10%) + (TOP $20,000 * 15%) + (TOP $10,000 * 20%) = TOP $6,800

Employer Responsibilities

• Withholding: Employers are responsible for withholding the correct amount of PAYE (Pay As You Earn) tax from each employee's gross pay.
• Remittance: The withheld tax must be remitted to the Ministry of Revenue & Customs, accompanied by the appropriate forms.
• Tax Withholding Certificate (Form 4): Employers must provide each employee with an Annual Tax Withholding Certificate (Form 4) within 14 days of the end of the financial year. This certificate details the employee's gross income and the total tax withheld during the year.
• Monthly Tax Withholding Returns (Form 7): Employers are required to file monthly tax withholding returns, listing each employee's gross wages and the amount of PAYE withheld.
• Annual Tax Withholding Reconciliation (Form 8): At the end of the financial year, employers must file a reconciliation of all monthly PAYE returns (Form 8), along with a copy of each employee's Form 4.

Employee Tax Refunds and Short Payments

• Refunds: If the tax withheld exceeds the actual tax liability, employees can apply for a refund using Form 9 (Withholding Tax Application for Refund), attaching a copy of their Form 4.
• Short Payments: If the tax withheld is less than the actual tax liability, the employee is responsible for paying the difference. The Ministry of Revenue & Customs will issue a demand letter outlining the shortfall and any applicable penalties.

Additional Taxes

• National Retirement Benefit Scheme: Both employers and employees contribute 5% of the employee's earnings to the National Retirement Benefit Scheme.

As of today, February 5, 2025, this information is current, but tax laws and regulations are subject to change. It's always recommended to consult with a tax professional for the most up-to-date advice.

In Tonga, a 15% Consumption Tax (CT) is levied on most goods and services, similar to VAT/GST systems in other countries.

Consumption Tax (CT) in Tonga

Tonga's Consumption Tax (CT) is a broad-based consumption tax levied at a standard rate of 15%. It applies to most goods and services supplied in Tonga, as well as imported goods. The CT was introduced on April 1, 2005.

Registration

Registration for CT is compulsory for businesses with an annual turnover exceeding TOP 100,000. Businesses with turnover below this threshold can register voluntarily.

Filing and Payment

CT returns and payments are due within 28 days after the end of each month. There are two filing categories (A & B) assigning two-month tax periods to businesses. Category A periods end on the last day of January, March, May, July, September, and November. Category B periods end on the last day of February, April, June, August, October, and December. Filing and payments can be made online.

Exemptions and Zero-Rated Supplies

Specific goods and services are exempt from CT, meaning CT is not charged on these supplies, and businesses cannot claim input tax credits on related expenses. Exempt supplies include:

• Medical, dental, and nursing services
• Prescription medicines
• Education services
• Financial services
• Public transportation services (excluding tourist transport)
• Residential land leases

The Minister of Revenue & Customs, with Privy Council consent, can issue orders specifying exempt supplies. Supplies and imports for His Majesty the King are also exempt. Zero-rated supplies are subject to a 0% CT rate but allow businesses to claim input tax credits, effectively refunding any CT paid on inputs.

Input Tax Credits

Registered businesses can claim input tax credits for the CT paid on goods and services purchased or imported for business use. If input tax credits exceed output tax (CT collected), the excess can be carried forward to the next period or refunded upon application.

Penalties and Offenses

Failure to comply with CT regulations, such as late filing, late payment, or incorrect reporting, can result in penalties and offenses.

As of today, February 5, 2025.

Tonga offers a range of tax incentives primarily focused on promoting investment and specific sectors such as tourism, manufacturing, and export-oriented industries. As of today, February 5, 2025, available information primarily references incentives outlined in the 2014/2015 Investment Incentives Bulletin and subsequent budget statements. Therefore, this information should be verified with the Tongan Ministry of Revenue and Customs for the most up-to-date details.

Tax Incentives in Tonga

Several tax incentives aim to stimulate investment and economic growth.

• Tax Holidays: Approved industrial and prime tourist enterprises may be eligible for tax holidays, potentially lasting up to 15 years, with possible extensions for enterprise expansion. Dividends received during this period are tax-exempt.
• Customs Duty Exemptions: Capital goods imported by approved enterprises for manufacturing, processing, assembly of approved products, or service industries are exempt from customs duties for two years from the start or expansion of operations.
• Export-Oriented Industries: Companies exporting 90% of their products qualify as export-oriented industries, receiving duty-free import of capital equipment and raw materials and exemptions from port and service taxes.
• Sector-Specific Incentives: Varying incentives are offered based on sector and enterprise size. For example, low duty rates (3%) on capital items and exemptions on specific inputs are available for priority sectors. Construction benefits from duty-free basic building materials. The tourism and manufacturing sectors have access to special tax exemptions. The transport sector has exemptions for life-saving equipment, airport-specific equipment, communication tools, and fuel for domestic airlines and ferries.
• Small Business Tax Regime: Businesses with turnovers under $100,000 benefit from a simplified tax system.
• Other Tax Exemptions: Several organizations and individuals are exempt from income tax as provided for in the Income Tax Act of Tonga, including income derived by the King, diplomats, certain international organizations, and interest from Government securities.

Applying for Incentives

The Ministry of Labour, Commerce and Industries (MLCI) administers foreign investment policies, company registration, and incentive administration. A Standing Advisory Committee (SAC) reviews applications for Development Licenses and recommends approvals to the Minister.

A Development License outlines the approved incentives and concessions granted for the project, which typically takes five to six weeks to process. Foreign companies must file their memorandum and articles of association with the Registrar of Companies (the Minister of Labour, Commerce and Industries) within three months of establishing a business in Tonga. Technical and promotional assistance is available from the MLCI to assist investors.

Recent Developments

While details on recent changes are limited, the Tongan government has been working on tax reforms and continues to evaluate the effectiveness of existing incentives. The 2024/2025 budget highlighted ongoing efforts to support economic recovery, particularly through investments in technology, upskilling programs, and partnerships with the private sector.

General Tax Information

• Corporate Income Tax: Tonga has a corporate income tax rate, previously reported at 25%. However, always confirm current rates with official sources.
• Consumption Tax: A consumption tax is in place, with exports being zero-rated.
• Import Duties: Import duties apply to various goods, although exemptions and reductions exist for specific sectors and purposes.

It is important to consult the Ministry of Revenue and Customs or the Ministry of Finance for the most current details on tax incentives and regulations in Tonga. This information is based on available documentation and may not reflect the latest legislative changes.