Please view the keynote presentation and notes from the Australian PNG Business Forum 2016 Meeting on the topic of Planning and Registering your Business in PNG.

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Planning and Registering your Business in PNG
Australia Papua New Guinea Business Forum, May 2016
Transcript
Good Morning Ladies and Gentlemen
I am sure many of you are aware, the opportunities for doing profitable business in PNG are
plentiful. There are limited expat suppliers, the labour is low cost, technology is improving and
most importantly the Oil & Gas sector is red hot. PNG often presents some unique experiences
to new entrants so if you are here today to explore the opportunity of doing business in PNG,
your time will be well spent in this session.
Prior to commencing business is PNG you need to decide how to operate your business to be
both compliant and tax effective with the laws of your country of origin and within PNG. This is
a formidable task overshadowed only by process of implementing these decisions.
There are principally three forms by which a business may be conducted in PNG and this
morning I will deal with each of these in turn.
 Foreign Contractors
 Branch
 Local PNG Company
Foreign Contractors
The first aspect that I would like to discuss is that of a foreign contractor. Many business
providing services in PNG are subject to tax in PNG under the foreign contractor provisions of
the Income Tax Act.
The foreign contractor provisions apply where a non-resident derives income from a prescribed
contract. The foreign contractor is deemed to have derived that income from a source in Papua
New Guinea and is liable to pay tax on that income in PNG.
Peter Maletz
Partner, Hanrick Curran
Tel: 07 4052 7524; 07 3218 3900
Peter.maletz@hanrickcurran.com.au
Peter is a Partner at Hanrick Curran, an independent mid-tier Accounting firm with offices in
Brisbane, Cairns, PNG and is part of the world wide Alliott Group network. His 30 years of
business management and accounting expertise is valued by clients across a range of
industries, with extensive experience in hospitality, integrated tourism and mining. He has
acted for numerous resource and tourism companies in Australia, PNG and Asia Pacific region.
Peter is an avid contributor to his client’s strategic plans and has extensive corporate experience
in a Board of Advice role having held executive positions on an International School Board, the
Papua Club, the Port Moresby Chamber of Commerce and as President of the Aust. PNG
Business and Cultural Society. In 2010 Peter was elected to the Executive Committee of Aust.
PNG Business Council, is the current Treasurer and is often invited to speak at Council events
on topics of cross border business opportunity.

2. 2
Planning and Registering your Business in PNG
Australia Papua New Guinea Business Forum, May 2016
“Prescribed contracts” cover fairly broad business activities including the installation, use or
maintenance of substantial equipment in PNG, construction projects, the use for right to use in
PNG of any industrial, commercial or scientific equipment and the provision of professional
services as an Advisor, Consultant or Manager.
Where a foreign contractor has derived income from a prescribed contact the foreign contractor
is deemed to have derived taxable income in an amount equal to 25% of the gross income. As
the rate of income tax imposed on a foreign contractor is 48% of taxable income, the tax
payable by the foreign contractor is 12% of the gross payment.
A foreign contractor can apply to the Commissioner General to lodge an income tax return on
an annual basis, and pay tax on taxable income from the project. Where this approval has been
obtained the foreign contractor will be exempt from having the 12% Foreign Contractors
Withholding Tax deducted from contract payments. Foreign Contractors Withholding Tax is
allowable as a tax credit against foreign income in Australia.
Additionally, a foreign contractor is required to apply for a Tax File Number and lodge this with
the contract.
There is often confusion between the taxation of management fees paid to a non-resident and
the taxation of foreign contractors. Broadly, in practice the management fee (withholding) tax
applies to management fees paid for services rendered outside PNG and the foreign contractor’s
withholding tax is payable in respect of services rendered within PNG.
When management fees are paid by a PNG resident to residents of Australia the management
fee will not be subject to withholding tax where the services are provided from offshore.
This is considered the simpler option, but it won’t suit everyone.
Branch of an Overseas Company
The next method of doing business in PNG which I would like to discuss is the operation
through a branch of an overseas company.
Businesses owned by non-residents operating in PNG largely fall within the foreign contractor
withholding tax positions. However, where a non-resident does not fall within the foreign
contractor provisions, for example because it does not have a prescribed contract, then it will
essentially be taxed like a resident company but will pay tax at 48%. It will have the same
requirements as a resident company in respect of lodging tax returns and liability to GST.
Branch accounts are required to be audited by a registered company Auditor, however there
are certain exemptions available with regard to audit requirements based on the domicile of the
overseas company and/or a size criteria.
Whilst on the surface this doesn’t appear overly attractive, used in the right way, this can be a
very effective cross border business structure.

3. 3
Planning and Registering your Business in PNG
Australia Papua New Guinea Business Forum, May 2016
Local PNG Company
The third means by which a business can operate in PNG is through a locally incorporated
subsidiary. Companies that are tax residents of Papua New Guinea are taxed at the rate of 30%
and are required to lodge annual returns and register for GST. In addition to the 30% income
tax a locally incorporated company is liable to Dividend Withholding Tax at the rate of 17% on
dividends paid to Shareholders from after tax profits. Accordingly the effective rate of tax
payable by locally incorporated companies after distribution of all after tax profits to
Shareholders is 41.9%.
Local foreign owned companies are required to be audited by virtue of the Companies Act
requirements and must have a local ordinarily resident PNG director.
This structure provides a local presence and allows you to capitalise on all associated benefits.
The Registration Process
I would now like to examine the registration process for each of these options of carrying on
business in Papua New Guinea.
All foreign enterprises i.e. business with more than 50% foreign ownership are required to be
certified with the Investment Promotion Authority. It is illegal to conduct or to carry on business
without certification and heavy penalties can be imposed. It should also be noted that in order
to apply for a Tax Identification Number, register for GST or open a bank account proof of
certification needs to be provided. The IPA has a K2000 filing fee upon application for
certification of an enterprise in PNG. Foreign companies operating as a branch in PNG need to
be registered with the Registrar of Companies as a foreign company.
Likewise companies incorporated in PNG are also required to be registered with the Registrar of
Companies. Annual returns are required to be submitted to the Registrar of Companies in
respect of both locally incorporated and branches of foreign companies on an annual basis.

4. 4
Planning and Registering your Business in PNG
Australia Papua New Guinea Business Forum, May 2016
Exchange Controls
It is important to mention the exchange control restrictions which operate in PNG through the
administration of the Bank of Papua New Guinea. The authority to approve the exchange
transactions in most cases lies with the authorised dealers i.e. the Banks who in turn report to
the Bank of Papua New Guinea.
Tax clearance certificates are required where certain cumulative remittances of foreign currency
exceed K200,000 in a calendar year. Generally resident companies are not permitted to receive
payments for goods or services in a foreign currency. For exchange control purposes a resident
includes a foreign company operating actively in PNG on a branch basis. In this regard, an
entity is deemed to be operating actively in PNG if there exists some location within the Country
from which the entity engages and intends to continue to engage in economic activities and
transitions on a significant scale. Typically there is no difference between a branch and a PNG
incorporated subsidiary from a foreign exchange control perspective as both are considered to
be residents for exchange control purposes.
Personal Property Securities Register
It is worth mentioning that PNG established a Personal Property Securities Register, operative
from 9 May 2016. This is to operate much the same as the somewhat similar register does in
Australia. Accordingly, where a contract contains retention of title clause, that security interest
needs to be registered under the Personal Property Securities Act. If you fail to register
business assets there is a potential that you risk loss of those assets. This obviously has a
significant impact on doing business in PNG and accordingly advice should be sought,
particularly given the recent introduction of the Register.
Bust a Myth
I have been in the business of helping clients do business in PNG for over 30 years so have
heard all the myths, in closing, let me bust a few of those for you.
“It’s too dangerous to do business in PNG”
FACT: Follow the well beaten expat path.
“The red tape is impossible”
FACT: Use advisers who know the system
“You must have local ownership”
FACT: The reality is, foreign is fine.
I thank you for your attention today and hope that this brief overview of doing business in PNG
provides some assistance in your deliberations.
Author Peter Maletz © Hanrick Curran, May 2016