A. Form / Structure
Businesses are able to operate as Sole proprietorship, Partnership, Joint Venture, Trust, Branch of Foreign Entity, Locally Incorporated Companies, etc. The choice of the structure depends on nature and scale of business, duration of project, tax/ statutory costs and importantly, return to shareholder.
Company is the most common form of doing business, and pre-requisite to form one are – (a) name to operate, (b) one or more shares (c) one or more shareholders (d) one or more directors. A company may also appoint a secretary and adopt own constitution. It generally takes 1-2 weeks to form a company, if all documents are lodged in order, and prescribed fee is paid.
B. Licencing requirements
Businesses are required to register with appropriate regulatory authority or professional body. For example, a trader will need a trade licence from the local authority in whose jurisdiction he operates, or a medical practitioner will require an approval from Medical Board.
Aside from above, businesses that are controlled or owned by foreign entities, are also required to obtain a certification from the Investment Promotion Authority. This requirement applies to business, 50% or more, or whose, shareholding or composition of board, is controlled by foreign persons. This process may take 4-8 weeks, once application is lodged and prescribed fee is paid.
C. Tax registrations
Businesses are required to apply to Internal Revenue Commission (IRC) and obtain a Taxpayer Identification Number (TIN) number, as soon as practicable. Unless otherwise stated, IRC would register a business for all tax types like Salary or Wages Withholding tax, GST etc.
A separate registration is required with the Commissioner of Customs and Excise, if a business wishes to import or export goods.
D. Ways of financing
Common forms of financing include, own equity, internal debt and external debt. Utmost care should be taken in the choice of finance, as it would vary with, nature of your business, scale and length of project undertaken, risk appetite, etc. Hire financing and finance lease are common form of external debt.
E. Employment Visa
Owing to skills shortages, businesses are able to hire foreign workers for most of the occupation requiring specialised skills. A work permit application needs to be lodged with Department of Labour and Industrial Relations (DLIR). Once approved, an application for visa can be made with the PNG Immigration and Citizenship Service Authority (PNGICSA). The entire process usually takes anywhere between 12 weeks to 16 weeks.
F. Foreign exchange guidelines
The foreign exchange regime in PNG was liberalised in 2007, resulting in handful of transactions requiring prior exchange approval. However, in 2015 Central Bank introduced strict reporting requirements, clamping down on offshore foreign currency accounts operated by residents, and introduced a ceiling on the remittances by authorised banks. This was done mainly to arrest the sharp decline in foreign exchange reserves, and to promote domestic trade.
All remittances exceeding K200,000 in relation to a payee is subject to tax surveillance, and require a business to apply for a tax clearance certificate from IRC.
G. Financial Preparation /Audit
Companies unless specifically exempted, are required to prepare financial statements, as per the Generally Accepted Accounting Practices (GAAP), and get their account audited annually. The Companies Act of PNG has exempted certain entities from audit requirements, and this is dependent on, satisfying some criteria's like number of employees, number of shareholders and value of assets.
H. Double Tax Avoidance Agreement
Where businesses are residents of Countries with which PNG has entered into a double tax agreement, they can access number of beneficial tax treatments, for itself and its foreign workers. As of date PNG has entered into tax agreements with 11 countries namely, Australia, Canada, China, Fiji, Germany, Indonesia, Korea, Malaysia, New Zealand, Singapore and United Kingdom.
I. Tax Rates
Resident companies are subject to tax of 30%, whereas foreign companies pay tax of 48%. Dividends paid are generally subject to 15% withholding tax. So, it is usually beneficial to incorporate a local company since effective tax works out to 40.5% (30% plus 15% on 70% of income after tax) against 48% payable by a branch of foreign company
J. Tax avoidance measures
IRC employs a number of tools, to ensure PNG gets fair share of tax revenue. Thin Capitalisation rules apply to promote equity participation and discourage excessive debt financing, Transfer Pricing rules apply to ensure fair terms of trade between related entities, CbCR reporting apply to large multinationals, Tax Clearance process ensure taxation of foreign remittances, Certificate of Compliance (COC) process ensures that local services provides pay fair share of taxes, Taxation Circulars from IRC act as a guidepost, Tax Agent Reporting requirement ensures tax planning and budgeting, etc.