Updated: Sep 4, 2022
If you are contracting in PNG for short periods of time and do not have a permanent establishment, you may still be at risk of creating a GST registration obligation.
The Goods and Services Tax (GST) rate is 10% and applies to most goods and services supplied in Papua New Guinea, including contractor services, unless they are zero-rated or meet exemption criteria. We have compiled below some of the most common questions posed by contractors in PNG.
Is there any GST Obligation for Foreign Contractors Performing Services in PNG?
For non-PNG contractors (foreign contractors) who render services in PNG, such activities are generally deemed to be carrying on a taxable activity. This may trigger GST registration and compliance obligations where the total value of supplies (excluding exempt supplies) has exceeded 250,000 Papua New Guinean kina (PGK) in the last 12 months or is expected to exceed PGK250,000 in a 12 month period.
What if a Contract has PNG and non-PNG Scope?
Where a contract includes in-country and out-of-country scopes that, there are higher risks of the PNG IRC considering the entirety of the contract as subject to PNG GST. Hence due care has to be sought from a PNG GST professional to assess the risks given GST recoverability is not possible for foreign unregistered entities. Also for PNG registered entities, GST recoverability is subject to GST audits with high levels of substantiation requirements. For this reason, GST refunds or GST offsets can take in excess of 6 months to be processes. In COVID times, such processing has been known to take so long that some businesses are considering budgeting for it as a cost to business.
Is GST applicable on Importation of Goods & Services?
An import GST deferral scheme is also available for goods and equipment imported into PNG. Taxpayers wishing to participate in the import deferral scheme are required to apply for approval by the IRC and must have a good history of tax compliance in order to qualify.
For services imported into PNG but performed overseas, a reverse-charge mechanism applies whereby the payer of the overseas invoices is liable to account for and remit PNG GST at the rate of 10%.
What does GST Zero-Rating apply to generally?
Exported goods and services attract a zero rate of GST. Zero-rated supplies also include international transport; most medical supplies; certain fine metals; certain supplies of unprocessed petroleum; supplies to religious, charitable or educational institutions; supplies to prescribed foreign aid providers; and sales of businesses as going concerns.
What does GST Exemption apply to generally?
The supply of some goods and services are exempt, including medical, educational, and financial services. Land is excluded from GST, but buildings and other improvements are subject to the tax. Exempt supplies include most financial services; educational services; medical services; most fine metals; public road transport; newspapers; betting; lotteries and games of chance; postage stamps; and housing or motor vehicles provided by the employer.
Are Directors Liable for GST Non-Compliance?
Directors of companies that fail to comply with GST obligations are personally liable for a penalty equal to the outstanding tax liability that the company ought to have remitted to the IRC.
What If We Get GST Wrong in PNG?
GST is only 10% but can pose significant cash costs to projects in PNG. Considering that some contractors operate on 8-16% profit margins, GST in PNG can turn a project from green to red if the GST implications of contracting in PNG have not been considered, aligning to a strategy on contract wording, invoicing and adequate substantiation.
We can offer access to leading PNG advisers who held senior most roles within the Big 4 and have consulted on virtually all types of large projects in PNG. Contact us for a consultation on your PNG GST matters.