This article presents you with a brief summary of the Foreign Contractor Withholding Tax (FCWT) regime currently applicable in PNG. It incorporates the recent amendments introduced in recent budget.

Who is liable to FCWT?

Any person (whether resident or foreign corporation) who is party to a prescribed contract and not an excluded person, is liable to FCWT.  Such persons are referred as “Foreign Contractors”

What is the rate of Tax?

15% of gross income derived from a prescribed contract.

What is Prescribed contract?

The following activities are prescribed under the act-

(a)  the installation, maintenance or use in PNG of substantial equipment or substantial machinery; or

(b)  the construction in PNG of structural improvements or other works, including

(i) the construction of roads, including bridges, culverts or similar works forming part of a road;

(ii) the erection of buildings, fences or similar improvements;

(iii) the clearing or draining of land;

(iv) the construction of ports or port facilities;

(v)  the construction of facilities for the provision of water, light, power or communication; and

(vi) the provision or improvement of transport facilities of any kind; or

(c)  the use of, or right to use, in PNG, any industrial, commercial or scientific equipment including any machinery or apparatus or appliance, whether fixed or not, and any vehicle, shipping vessel or aircraft,

(d)   the provision in PNG of professional services or services as an adviser, consultant or manager.

Who are Excluded persons?

The following persons are not liable to FCWT though they may be party to prescribed contract –

  • Resident company
  • A resident person, who is ordinarily resident of PNG.
  • A person who derived a salary or wages income
  • A person who derives a management fee

What is Excluded income?

The following income are generally considered excluded income:

Offshore income

Generally under the common law rules, any offshore income derived by a non- resident is not liable to tax in PNG however the Act deems all income derived from a prescribed contract to have a source in PNG. This means that where a non-resident derives both offshore and onshore income from a prescribed contract, the gross contract income will be liable to FCWT. However where the entire income under a contract is derived offshore, no FCWT shall apply.

Personal services income

As detailed in Taxation Circular TC2013/1 where individuals are providing personal services on a routine basis over a period of time, they are likely to be most likely subject to Salary or Wages tax[1].

Where the services are wholly or substantially provided from outside PNG and the individual’s services are ancillary to a contract (prescribed or not), then MFWT or FCWT may apply instead of SWT.

When does the tax apply?

When a resident agent makes payment to foreign contractor under a prescribed contractor, he is required to deduct FCWT.

Who is a resident agent?

A person who is carrying on business in PNG and is party to a prescribed contract.

Obligations of Resident Agent

A resident agent acts as a LADDER (Lodge-Apply-Defer-Deduct-Ensure-Remit) between the foreign contractor and the IRC, in the following manner:

  • Lodges a signed copy of contract or invoices with the IRC within 14 days:
  • Applies for an Income Tax File number in relation to the Foreign Contractor;
  • Defers from making payments to the till a formal determination is obtained;
  • Deducts the prescribed FCWT from the payments made to foreign contractor;
  • Ensures that the tax forms (F1/F1) are completed and lodged with IRC
  • Remits the FCWT deducted using the tax file number allotted within 21 days from end of month in which such payment was made.

[1] Taxation Circular TC 2013/1

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