Taxation of Companies
FINANCIAL PERIOD
Companies must lodge their tax returns based on a 31 December year end
unless they have permission from the Commissioner General to adopt an
alternative period.
RESIDENCE
A company will normally be treated as a resident of Papua New Guinea in
a particular year if the company is:

Incorporated in Papua New Guinea; or

Carries on business in Papua New Guinea and has either its central
management and control or its voting power is controlled by PNG
residents shareholders.
LIABILITY OF RESIDENT COMPANIES
A resident company is taxed in Papua New Guinea on its world-wide
income. Non-resident companies pay tax only on their Papua New Guinea
income.
Calculation of taxable income
There are special rules applying to certain companies such as mining,
petroleum and gas companies. In most cases, however, taxable income is
generally equivalent to accounting income except where the income tax law
requires specific calculations to be made.
Major areas where there are specific rules for working out amounts to
include in taxable income or claim as deductions etc are as follows:
TAX RATES
2009 TAX RATES FOR COMPANIES ARE:

Resident companies: 30 percent; and

Non resident companies: 48 percent.
However, there are different tax rates for income from mining, petroleum
and gas. In addition, companies may also liable to other taxes such as
dividend withholding tax or additional profits tax.
Dividends and Deemed Dividends
Dividends received by a resident company from any other resident
company are included in the assessable income of the recipient. The
company receiving the dividends will be entitled to a rebate against tax
otherwise payable on the dividends received.
A resident company that has paid dividend withholding tax (make link to
below**) on Papua New Guinea sourced dividends received can offset the
amount against withholding tax payable on dividends it pays. Unapplied
dividend withholding tax at the end of the financial year can be carried
forward 7 years towards future withholding tax on dividends paid.
All dividends paid by a resident company are normally subject to dividend
withholding tax at 17% of the dividend paid (or 10% for mining companies).
This applies to dividends paid to residents and non residents. The rate of
dividend withholding tax may also be modified as a result of the operation
of a double tax treaty (LINK for more information)
Dividend withholding tax does not apply in a number of circumstances:
Broadly, the following types of dividends are
Exempt:

Dividends paid to exempt bodies such as sporting or charitable
bodies, etc;

Dividends paid to superannuation funds established for the benefit of
employees

Dividends paid out of pioneer income;

Dividends paid out of capital profits from non-redeemable bonus
shares.
Dividend withholding tax is payable on deemed dividends including:

Liquidator distributions of accumulated revenue profits;

Loans to shareholders of private companies ;

Excessive remuneration of directors (or their relatives) of private
companies;

Shares sold as part of a tax avoidance scheme.
Foreign Losses
Losses incurred in deriving income from sources outside of Papua New
Guinea are not an allowable deduction from income sourced in PNG.
Overseas losses are offset only against foreign source income. These
losses can be carried forward for up to 20 years.
Provisional Tax
Provisional tax may be paid by companies to ensure that income tax that is
expected to be payable on their income in a particular fiscal year will be
collected during that year. This is done by the Commissioner General
issuing a provisional tax assessment based on the last income tax return
lodged. If no tax was payable on the prior year return (or one was not
lodged) the Commissioner General can estimate the tax that should be
payable.
Provisional tax is payable in three equal installments on or before 30 April,
31 July and 31 October. The amounts paid will reduce the company's tax
bill when it lodges its income tax return for that year. If the taxpayer
believes that the tax due for a particular year will be less than the
provisional tax assessed by the Commissioner General it may apply to
have the provisional tax assessment reduced to reflect the taxpayer's
estimated tax due. Penalties may apply for variations which are significantly
below what is ultimately payable by the company.
MINING, PETROLEUM AND GAS PROJECTS (RESOURCE PROJECTS)
Project Basis of Assessment – Ring-Fence
principle
Income earned from a resource project is assessed as if it were the only
income of the taxpayer. Deductions are restricted to expenditure
exclusively connected with the project, except for limited exceptions. Where
there is deductible expenditure or income not relating solely to the project,
then expenditure or income is apportioned on a reasonable basis.
Income Tax Rate for Resource Projects
Different rates of tax apply for different types of resource projects as shown
in the table below:
Type of Project
Rate o
T
Petroleum (project in production prior to 31/12/2000)
50%
Petroleum (project commencing production from or after 01/01/2001)
45%
Petroleum (PPL granted between 01/01/03 & 31/12/07 and production licence granted before
or by 31/12/2017.)
30%
Gas
30%
Mining - resident
30%
– non- resident
40%
The rate of income tax for petroleum projects was reduced from 50% to
45%, commencing in 2001. The tax rates for the non-resident mining
companies have been reduced to 40% from 48% with effect from 1 January
2006.
For petroleum and gas, there is no distinction between a resident and a
non-resident company.
Advance Payment Tax
A taxpayer who derives assessable income from mining, oil or gas
operations is liable to pay the income tax liability for a year of income,
based on its estimate of taxable income for that year. The taxpayer is
required to furnish the estimate of its taxable income by 31 March of that
year and pay the income tax calculated on the estimate of taxable income
in three installments; on 30 April, 31 July and 31 October of that year.
Variation of Advance Payment Tax Estimate
Taxpayer who request a review of the estimated taxable income previously
furnished can apply on payment of the installment due.
Project Basis of Assessment Ring-Fence
Principle
Income earned from a resource project is assessed as if it were the only
income of the taxpayer. Deductions are restricted to expenditure
exclusively connected with the project, except for limited exceptions. Where
there is deductible expenditure or income not relating solely to the project,
then expenditure or income is apportioned on a reasonable basis.
CAPITAL AND EXPLORATION EXPENDITURE:
ALLOWABLE DEDUCTIONS
Allowable Capital Expenditure (ACE)
Expenditure on long life assets, with a normal useful life of 10 years or
more, is amortised on a straight line basis over 10 years. For other capital
expenditure, residual balance is divided by the lesser of four or the
remaining life of the project. However, the amount of deduction which can
be claimed is limited to the amount of taxable income remaining after all
other deductions have been claimed and cannot create a loss.
Exploration Expenditure
Exploration expenditure may be carried forward for a period of 20 years (for
income tax returns before Jan 2001, the carry forward limit was 11 years).
If the exploration expenditure is not claimed within a period of 20 years
from the granting of a Resource Development Licence the expenditure
cannot be claimed in future years.
Allowable Exploration Expenditure (AEE)
Deductions for AEE are calculated by dividing the residual exploration
expenditure at the end of a year of income by the lesser of four or the
remaining life of the project. The amount calculated is available as a
deduction in the year of income however, it can only be claimed up and to
the amount of taxable income remaining after all other deductions have
been claimed (other than allowable capital expenditure deductions) and
cannot create a loss.
Immediate Deductions for Certain Capital
Expenditure
Where the cost of a capital item incurred on a resource project is not
greater than K1000. 00 the full cost is an allowable deduction in the year
incurred
Additional Exploration Deductions
A Company carrying out resource operations may elect to ‘pool’ exploration
expenditure it incurs in other exploration licence areas. The company is
then entitled to claim 25% of the residual value of the exploration pool, in
addition to normal allowable exploration expenditure deductions.
The deduction may not create a tax loss, and may not reduce tax payable
by the taxpayer on combined resource operations by more than 10%.
For a company carrying on mining operation and exploring for minerals, the
deduction limit is such amount as would reduce tax payable by 25%.
Accelerated Deductions
It should be noted that accelerated deductions are, from Jan 2001, no
longer available.
Operating Expenses
Companies are entitled to deductions for their share of operating expenses
incurred by the operators in a resource project. They are also entitled to
deductions for sole costs incurred by themselves in accordance with
provisions applying to resource projects under Division 10 and under
general tax provisions.
Interest Deductions
If in any year, the debt/equity ratio is greater than 3:1 for a resource project,
the deduction allowed for interest in that year is limited to the amount which
would have been payable if the debt/equity ratio had been 3:1.
ADDITIONAL ROYALTY AND LEVIES
Royalty
Royalty for petroleum companies is calculated at 2% of well-head value
and is treated as a deduction. However, where development levy also
applies, royalty is treated as a tax credit.
Development Levy
Development levy is also calculated at 2% of well-head value and is
allowable as a tax deduction.
Infrastructure tax credit
Resource companies are allowed a full credit for the cost of any approved
infrastructure developments which they undertake for the benefit of the
community in which they operate (or other areas). The deduction is limited
to the lesser of 0.75% (reduced from 2% from Jan 2001) of assessable
income or tax payable for the year
Unused expenditure deemed tax credits must be utilised within the next two
years from the date the expenditure was incurred
Special Infrastructure Tax Credit
Resource companies are allowed a full credit for the cost of any approved
infrastructure developments which they undertake for the benefit of the
community in which they operate (or other areas). The deduction is limited
to the lesser of 0.75% (reduced from 2% from Jan 2001) of assessable
income or tax payable for the year.
Unused expenditure deemed tax credits must be utilised within the next
twenty years from the date the expenditure was incurred
https://irc.gov.pg/pages/taxes/businesses-and-employers/taxation-of-companies
INCENTIVES FOR MINING AND PETROLEUM
DESIGNATED GAS PROJECTS
Double deduction of Exploration Expenditure for mining operations: A
double deduction is allowable on exploration expenditure pursuant to an
exploration license issued under the Mining Act 1992 from which a mining
development license was drawn on or after 1 January 2003.
Loss Carry Forward: Loss incurred by a taxpayer in carrying out resource
operations can be carried forward indefinitely.
Pooling of Exploration Expenditure: Resource companies can make
election to put all Exploration expenditure incurred outside of a resource
project into a pool and claim 25% of the pooled expenditure as a deduction
against income from the project. The deduction is limited to 25% of tax
payable for mining companies and 10% of tax payable in the case of
petroleum companies.
Incentive Rate for Petroleum Operations:
An incentive tax rate of 30% is available to petroleum operations arising out
of a petroleum prospecting license (PPL) granted between 1 January 2003
and 31 December 2007 and from which a petroleum development license
(PDL) was granted on or before 31 December 2017.
Additional Provision for Allowable Capital
Expenditure
As of 1 January 2003, capital expenditure incurred by a company carrying
on mining project will be pooled and the deduction allowed will be 25% of
the value of the pool at the end of the year. This applies to projects in which
a mining lease or special mining lease was issued on or after 1 January
2003.
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