A guide to tax considerations related to superannuation in Papua New Guinea, including contribution requirements and tax on termination payments. Provided by KPMG’s Port Moresby Office.
Where employers have 15 or more full time equivalent employees they are required to remit employer and employee contributions to an authorised superannuation fund in relation to any employee continuously employed for three months or more. For PNG citizen employees, an employer must currently contribute 8.4% of the employee’s gross wage and such employees are required to make their own contributions of 6% from net salary and wage receipts.
Currently employers are not required to make mandatory superannuation contributions in respect of expatriate employees, though these can be made voluntarily.
There is provision for additional voluntary contributions to be made by either employer or employee. However, in the case of an employer, no claim for a tax deduction as a business expense is available for contributions they make that exceed 15% of the employee’s gross salary, and that excess amount is taxable to the superannuation fund. Employee contributions are not deductible to them.
Tax on superannuation (termination) payments
The PNG system also provides for concessional taxation of superannuation payments made by authorised superannuation funds to employees as a result of their retirement or resignation. These concessions only apply where the employer component falls within prescribed maximum levels. A tax rate of 2% applies in some limited cases, such as where:
- Contributions have been made for 15 years or more
- Contributions have been made for at least seven years and the employee is at least 50 years of age
- Made on the death or disablement of the taxpayer.
Other concessional rates apply. For example, distributions where contributions have been made for ten years or more but less than 15 years may attract a tax rate of 8% in the employee’s hand. Distributions where contributions have been made for more than five years but less than ten years may attract a tax rate of 15%. Distributions where contributions have been made for less than 5 years are taxed at the marginal rate.
Similar tax rates apply to long service leave payments.
This guide to Papua New Guinea’s tax system is produced by KPMG’s Papua New Guinea office and is reproduced here with permission.
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