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.
See also: Palau Goods and Services Tax (PGST) Registration
What you need to know?
BPT is a tax on your net income (gross revenue less allowable deductions) that is determined at the end of your tax year.
During the year you will make installment 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 maintain a healthy cashflow. BPT helps allows you to do this and this is how it works.
- You make quarterly installments payments based on:
- Year 2023 or any other year that you have no BPT payable, 2% of gross revenue is used as basis for your BPT installment payment
- 25% of your BPT tax liability in the previous year
- For year 2023 or if you had no BPT payable in the previous year, you may apply to vary the installment amount to a lower rate to the Director of the Bureau of Revenue & Taxation by completing the Tax-502B 2023 BPT Vary Quarterly Installment Form.
- When you file your BPT Return at the end of your tax year, the installments you paid during the year will be used to offset against your BPT tax liability.
BPT allows you to carry forward losses during your tax year to offset future profits for the next 4 years.
Business Profits Tax is assessed an applied at the rate of 12% on the person’s net income for each tax year.
Accounting method for BPT
When accounting for BPT you must use the accrual accounting method unless a request for cash basis accounting was approved by the Director of the Bureau of Revenue & Taxation.
Accrual Method of Accounting
Under the accrual accounting method revenue is recorded when it is earned and expenses when they are incurred.
Revenue recognition following the accrual accounting method
- gross revenue is recognized when you have fulfilled the performance obligations.
- prepayment (deferred revenue) will not be counted as gross revenue until the performance obligations are fulfilled.
- for payment to be received later (accrued revenue), payment will be included in gross revenue as performance obligations are fulfilled.
Cash basis method of accounting
Under the cash basis method of accounting revenue is recorded when payment has been received and expenses have been paid for.
Calculating gross revenue
Your gross revenue for BPT should be calculated and determined following the accounting method for BPT – accrual accounting method unless a request for cash basis accounting was approved by the Director of the Bureau of Revenue & Taxation.
The following are considered when calculating gross revenue:
- income derived from businesses sourced in Palau
- gain on disposal of assets
- interest, dividends, royalties, rentals, and fees (not including dividends from resident entities).
Gross revenue for BPT purposes does not include:
- refunds, rebates, and returns;
- monies held in a fiduciary capacity;
- gross receipts from the sale of bonds or other evidence of indebtedness or stocks, or from the sale of land;
- income in the form of wages and salaries; and
- the cost of senior citizen discounts.
- exempt income;
- an amount subject to non-resident tax or international transportation tax
- Amount of PGST charged and collected from customer.
Exempt Income means:
- a distribution by a resident entity;
- the income of a nonprofit corporation that is a resident;
- an amount to the extent exempt from tax under Chapter 9 of Title 28 or an international agreement;
- an amount derived by a non-resident from the operation of a ship or aircraft if the Director is satisfied that an equivalent exemption is provided to a resident by the country in which the non-resident resides;
- an amount derived by the national government or a state government or a political subdivision of the national government or a state government.
What this means for you?
BPT is imposed on your net income, which calculated as your gross revenue less allowable deductions.
The shift to BPT means tax is imposed on your profits rather on your entire turnover for GRT.
Administration of BPT
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.
BPT installment payment
This year 2023, 2% of your total gross revenue for each respective quarter is used as a basis for paying your BPT installment.
You may apply to vary the installment amount to a lower rate to the Director of the Bureau of Revenue & Taxation by completing the Tax-502B 2023 BPT Vary Quarterly Installment Form. You may request a variation for either one of the following reasons:
- Business profits tax payable for the current tax year will be less than 2% of my Gross Revenue for the current tax year.
- Taxpayer will have a “zero” tax liability or a net loss for the current tax year.
Your calculation of gross revenue will not include any allowable deductions when determining the base of your installment payments.
Completing the BPT Installment Form
You will need to complete Tax-502A 2023 BPT Quarterly Installment Form due by the 15th day following the end of the 3rd, 6th, 9th, or 12th month of your tax year.
For year 2023 only or no BPT liability in the previous year
Use the information from your business recordkeeping to calculate and determine your gross revenue based on your sales during the respective filing period.
Your standard amount of BPT installment payment is 2% of gross revenue for each of your respective filing period unless a variation of the amount was requested and approved by the Director of the Bureau of Revenue & Taxation.
BPT Liability is determined
When you have a BPT tax liability in the previous year, your standard amount of BPT installment payments for each respective filing period will be based on 25% of the total BPT tax liability amount from the previous year.
Filing a BPT installment
The BPT Installment form can be accessed through the BRT website at www.palaugov.pw/tax or Tax Forms.
The form must be completed and filed with us, and payments must be made to the Bureau of National Treasury by the due date.
You can file your BPT installment by bringing the file to us in the BRT office.
If you are filing via email, you must ensure the completed filing is sent from the authorized email address disclosed on your taxpayer registration or we cannot accept the filing.
Alternatively you can file by bringing the completed paper form into the BRT office if the file is completed and includes the signature of the authorized person.
How to pay
Your payment can be made either in person or remotely.
In person payment
- file the completed BPT Installment Form with the BRT
- use the transmittal you received after filing with BRT proceed to pay at the Bureau of National Treasury office
- by the due date
- credit / debit card
- wire transfer / direct deposit (using ACH)
Remote payment Options
To pay by wire transfer / direct deposit contact Chief Darla Babauta from the Bureau of National Treasury at (680) 767-2506/2738 or via email to firstname.lastname@example.org.
If paying by check, make it out to the Bureau of National Treasury and take it to their office, or you can post to P.O. Box 6069 Koror, Palau 96940. If you are posting, you will need to include your contact phone number on the check.