The new Income Tax Act, effective from 1 January 2026, modernises the tax system with updated corporate and personal tax rates, simplified rules for small businesses, strengthened transfer pricing and international reporting obligations, and revised provisions on capital gains, withholding taxes, and sector-specific taxation.
Papua New Guinea’s new Income Tax Act 2025 came into effect on 1 January 2026.
Issued on 20 October 2025, the new Income Tax Act modernises and simplifies the country’s tax framework, replacing the former regime under the Income Tax Act 1959. It outlines various tax obligations for individuals and corporations, including specific provisions for small business taxes, salary and wages, and the treatment of property income.
The main changes are as follows:
Corporate tax and special sectors
The standard corporate income tax rate is set at 30% for most companies. However, the Act maintains a distinct regime for the banking sector. Financial institutions licensed under the Banks and Financial Institutions Act 2000 are taxed at 35% if their taxable income is under PGK 300 million.
For large financial institutions earning over PGK 300 million, the Act implements a graduated reduction plan for what is often referred to as an additional tax. Starting at 43% in the 2026 fiscal year, this rate is scheduled to decrease by 1% annually until it stabilises at 35% by 2034.
Additionally, companies in the extractive industries face specific rules, such as an Additional Profits Tax (APT) imposed at a rate of 30% on positive accumulated net project receipts.
Small business tax
The Act provides a simplified tax regime for individuals with a turnover below the GST registration threshold (PGK 60,000).
- Small businesses may pay a flat annual tax of PGK 250.
- For those paying quarterly, the rate is PGK 62.50 plus 2% of turnover exceeding PGK 15,000 for the quarter.
Transfer pricing
The Act also updates the transfer pricing rules. Transactions between associates must now strictly adhere to “arm’s length conditions.” To enforce this, the Act requires multinational groups to submit country-by-country reports, master files containing global group information, and local files detailing specific controlled transactions.
Capital gains and property income
The Act clarifies that Capital Gains Tax is imposed at a rate of 15% on the disposal of taxable assets. Property income, which includes dividends, interest, royalties, and rent, is generally included in a person’s assessable income unless specifically exempted.
Group loss transfer rules introduced
Companies with at least 95% common ownership can now transfer tax losses between resident entities. However, transferred losses cannot exceed the loss-receiving company’s taxable income in the relevant tax year.
New rules for foreign contractors
Foreign contractors operating through a permanent establishment will no longer be subject to foreign contractor withholding tax. Instead, they must file a tax return and pay tax at the standard rate of 30%, plus a 15% branch profits remittance tax.
Definition and taxation of technical fees
A new definition of technical fees has been introduced, covering administrative, management, technical, professional, or consultancy services, including fees for supplying personnel (excluding employment income). Payments of technical fees to non-residents will be subject to 15% withholding tax.
Expanded definition of royalties
The definition of royalties has been broadened to include fees for the use of, or the right to use, software, digital content, and equipment.
Withholding tax and other levies
The Act outlines various withholding rates that serve as final taxes in many scenarios:
- Dividends and interest (residents): 15%.
- Royalties (non-resident associates): 30%.
- Business income payments: 10%.
- Management/technical fees (non-residents): 15%.
Personal income tax
The Act introduces a revised progressive tax structure for resident individuals. For those earning an annual taxable income, the first PGK 20,000 is now tax-free (0%). Beyond this threshold, the rates increase as follows:
- PGK 20,001 to PGK 33,000: 30%
- PGK 33,001 to PGK 70,000: 35%
- PGK 70,001 to PGK 250,000: 40%
- Exceeding PGK 250,000: 42%.
