The Bureau of Revenue & Taxation

Palau Goods and Services Tax (or PGST) was introduced on January 1 2023. It is a broad-based tax of 10%, applied to most goods and services and other items sold or consumed in Palau.

Some things don’t have PGST included, these are called Exempt supplies.

Businesses registered for PGST charge PGST on their sales and collect on behalf of the government. The government then distributes the PGST revenue collected to pay for public services and infrastructure such as hospitals, roads, and schools.

PGST is charged at each step of the supply chain with the end consumer bearing the cost (user pays). This ensures profits from the tourism and other industries are taxed within Palau, creating a fairer tax system, where tax revenue generated is kept in Palau, to benefit Palauans.

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Business Profits Tax (BPT) was introduced on January 1, 2023 and automatically applies to businesses registered for PGST. It is calculated at 12% tax on net income (gross revenue less allowable deductions), the same rate as the highest rate of tax on wages and salary.

BPT replaces Gross Revenue Tax (GRT) and differs by imposing tax on profits, rather than on entire turnover.

Planning ahead for tax is important for businesses to keeping a healthy cashflow. BPT helps do this through quarterly payments (installments), so when the annual BPT is filed there is little or no remaining tax to pay.

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Non‑PGST registered businesses with annual gross income of $50,000 or less are required to pay an additional business license fee of $100 each calendar year.

• This fee is in addition to the standard business license fee required under Section 1501.
• The additional fee is collected in quarterly installments.

“Wages” or “salaries” means the compensation you receive as an employee for the work or services you perform in Palau. This applies whether you are paid in cash or property, and whether payments are made regularly, occasionally, or in a lump sum.

It includes:

• Commissions
• Fees
• Bonuses
• Allowances or emoluments
• Any other compensation tied to your work as an employee

Wages and Salary do not include:

• Employer payments for sickness, accident disability, or medical/hospital expenses (Note: normal wages paid while you are excused from work due to sickness are still considered wages.)
• Casual or short‑term labor not part of the employer’s regular business, and lasting no more than one week per month.
• Scholarships, fellowships, or stipends provided to cover the costs of full‑time study at a recognized educational institution.

Tax Rates

Employees are taxed on their wages and salaries at the following rates:

• 6% on the first $8,000 of wages and salary earned
• 10% on wages and salary earned over $8,000 up to $40,000
• 12% on wages and salary earned over $40,000

Employer Responsibilities

Employers are required to:

• Deduct and withhold the tax when wages or salaries are paid.
• Pay the withheld tax to the Bureau of Revenue & Taxation within 30 days of disbursement.
• Provide each employee with a year‑end statement (W2) showing total wages and tax withheld.
• Maintain accurate payroll records for each employee.

Taxes withheld are considered held in trust for the government. Employers who fail to comply may face penalties.

Employee Responsibilities

Employees working for employers outside Palau, or without a local agent, must file returns and pay taxes directly as if their employer were based in Palau.

Exemptions

Certain individuals are exempt from Wages and Salary Tax:

• Retired traditional chiefs receiving remuneration tied to their title.
• Retired persons serving as state legislators.

“International transport services” refers to the transportation of goods or passengers by sea or air, excluding ancillary transport services. These services include:

• Outside to outside: Transport from one place outside the Republic to another place outside the Republic, including any portion that passes through the Republic’s territory.
• Outside to Republic: Transport from a place outside the Republic to a destination within the Republic.
• Republic to outside: Transport starting in the Republic and ending outside the Republic.

Tax rate:

Non‑residents must pay an international transportation tax of 4% on gross revenue earned from carrying passengers, livestock, mail, merchandise, or goods that are loaded in the Republic and transported to a destination outside the Republic.

Exemptions:

The tax does not apply to:

• Income that is exempt by law.
• Revenue from:
  • Passengers in transit through the Republic between two places outside the Republic.
  • Transshipment of livestock, mail, merchandise, or goods.

Palau imposes a Non‑Resident Tax on individuals or entities who are not residents but earn certain types of income in the Republic. This applies to payments such as interest, royalties, technical fees, or insurance premiums.

Definitions

• Interest – Payment for the use of money loaned, calculated at a specific rate.
• Insurance premium – Includes premiums for reinsurance and any amount paid for placing insurance.
• Royalty – Payments, whether lump sum or periodic, for:
  • Use of intellectual property (copyrights, patents, trademarks, designs, formulas, processes).
  • Access to scientific, technical, industrial, or commercial knowledge or expertise.
  • Use of industrial, commercial, or scientific equipment.
• Technical fee – Fees for managerial, administrative, technical, professional, or consultancy services, including supply of personnel. Does not include employee wages.

Tax Rates

• Insurance premiums – 5%
• Other income (e.g., interest, royalties, technical fees) – 10%

Exemptions

The Non‑Resident Tax does not apply to:

• Income classified as exempt income under Section 1433.
• Income earned through a permanent establishment in Palau, which is instead subject to Business Profits Tax.

How the Tax Is Applied

• Tax is imposed on the gross income earned by the non‑resident, with no deductions for expenses or losses.

The tax is collected via withholding at the time of payment. The payer of the interest, royalty, technical fee, or insurance premium is responsible for withholding and remitting the tax.

Tax Amount

A room tax is charged at $10 or 10% of the room or cabin rate—whichever is greater. This applies:

• Per hotel, motel, lodging house, or similar facility room.
• Per cabin on ships or water vessels licensed to operate in Palau.
• The tax is applied per room or cabin, per day, as long as it is occupied by at least one guest.

If a room or cabin is rented more than once in a 24‑hour period, the tax applies each time it is occupied.

Who Collects the Tax

• Hotels, motels, lodging houses, and vessel operators are responsible for collecting the tax.
• Taxes must be paid to the Bureau of Revenue & Taxation by the 15th of each month.
• Taxes are collected at the time the room or cabin is sold, regardless of when payment is made.

Definition of Transient Occupant

A transient occupant is anyone staying in a room or cabin for less than 30 days.

A 4% fee is imposed on the proceeds of any lease or transfer of land in Palau when Business Profits Tax (BPT) or Gross Revenue Tax (GRT) do not apply to the transaction.

Exemptions

This fee does not apply to:

• A lease made by the Palau Public Lands Authority or a state public lands authority to a Palauan citizen or a wholly Palauan‑owned business entity.

However, the fee does apply to any sublease made by the Palauan citizen or wholly Palauan‑owned business entity.

Relationship to PGST

The Land Transfer Proceeds Fee is imposed in addition to the Palau Goods & Services Tax (PGST) for transactions where PGST applies.