The new double tax agreement between New Zealand and Papua New Guinea entered into force on 21 January 2014. The agreement was originally signed on 29 October 2012.
Under the terms of the agreement the maximum withholding tax on dividends is 15%, and the maximum withholding tax on interest and royalties is 10%. Business profits will only be taxable in the other contracting state if an enterprise has a permanent establishment there. The definition of a permanent establishment includes a construction project continuing for at least 90 days or the exploration of or exploitation of natural resources, or operation of substantial equipment, continuing for 90 days.
The double tax agreement provides for a tax sparing credit in respect of tax paid in Papua New Guinea. If a New Zealand enterprise benefits from a tax exemption or relief in Papua New Guinea it may therefore be granted a credit against New Zealand tax for the tax that would have been paid in Papua New Guinea but for the exemption or relief. The two contracting states are to determine by exchange of notes the precise laws to which this is to apply.
