Every person registered for PGST is subject to BPT from January 01, 2023. Business Profits Tax (BPT) will replace your Gross Revenue Tax (GRT) reporting obligation. You do not have to register for BPT. You will be automatically registered when you register for PGST.
Who BPT applies to
BPT applies to all businesses who are registered for PGST, including:
- Foreign Investment Approval Certificate (FIAC) holders
- Following State-Owned Enterprises (Palau Public Utilities Corporation, Palau National Communications Corporation, and Belau Submarine Cable Corporation)
- financial institutions (e.g. banks).
BPT does not apply to government entities (national, state & foreign) and commissions, boards, authorities, and most public entities.
What you need to know
BPT is a tax on your net income (gross revenue less allowable deductions) that is worked out at the end of each year. During the year you will make regular payments that will be credited toward your BPT tax payable at the end of the year. Planning ahead for your tax is important to help you keep a healthy cashflow. BPT helps you to do this do this, and this is how it works:
- You make regular payments (installments) during the year, once every 3 months. The amount you pay is based on:
- the tax you paid in the previous year. Calculate each installment as 25% of the tax you paid in the previous year
- in the first transitional year, or any year that you have no BPT payable, you calculate your installment amount as 2% of gross revenue earned in the 3 month installment period.
- You may reduce your installments by applying to the Director if you consider they are too high based on your estimated tax payable at the end of the year.
- When you lodge your annual BPT return the installments you paid during the year are offset against your tax, leaving you with little or no tax to pay.
BPT provides for the offsetting of losses in a tax year, against profits in the 4 subsequent tax years. This helps even out taxation to allow for changes in business profits (good years and bad years).
Business Profits Tax is assessed and applied at the rate of 12% on the person’s net income for each tax year.
What this means for you
BPT is imposed on your net income, which is calculated as your gross revenue less allowable deductions (e.g. your normal business expenses, depreciation). This differs from the calculation of GRT which is imposed on your gross revenue (no general allowance for deductions).
This change means tax is imposed on your profits under BPT, rather than on your entire turnover for GRT.
BPT payment and filing due dates
Payment installments are due by the 15th day of the month following the end of the 3rd, 6th, 9th, and 12th months of your tax year.
An annual return for a tax year must be filed within 3 months of the end of the tax year.
The beginning and end date of a tax year differ, depending on what type of taxpayer you are.
For a company, the tax year means a period of 12 months, ending on the date of the annual balance of your company’s financial accounts. For example, if you balance your company’s financial accounts on September 30, then the tax year is the period from October 01, to September 30. Many companies will have a tax year that is the same as the calendar year.
Any other taxpayer
For any other taxpayer, it is the calendar year, January 01 to December 31 of the relevant year.