On this page:
- Registration threshold
- Who the threshold applies to
- Threshold calculation method
- Determining amounts for taxable supplies
If you have average taxable supplies of more than $300,000, you must register for PGST, unless you meet one of the exemption categories. This is known as the registration threshold.
If you hold a Foreign Investment Approval Certificate, the registration threshold does not apply and you must register for PGST.
Who the threshold applies to
Taxable supplies made by a person
The registration threshold applies based on the total taxable supplies made by a person. Generally, for PGST, a person is an individual, firm, partnership, joint venture, corporation, estate, trust, or other association, however organized.
If you conduct multiple businesses
If a person conducts multiple businesses, the PGST registration threshold is determined by the value of taxable supplies made by the person’s businesses collectively. A person carrying out a particular business in divisions or branches will be treated as a single business. The threshold test relates to the entirety of the business, not individual divisions, or branches.
If you do not meet the threshold now, check at the end of each month to see if you have reached the threshold or are likely to exceed it. You must register within seven days of exceeding the threshold.
Threshold calculation method
If you have an existing business that has a 3-year history of sales (and current year projected), you can check whether you meet the registration threshold by calculating your average annual taxable supplies over 4 years.
Do this by:
- determining the amount of taxable supplies for each of the following years:
- current year (projected)
- 1 year prior to current year
- 2 years prior to current year
- 3 years prior to current year
- add each of these figures to reach a total figure of taxable supplies
- divide that total by 4 to reach the final average amount of taxable supplies over 4 years.
If average taxable supplies over 4 years is greater than $300,000, you must register for PGST unless you meet one of the exemption categories.
In most cases, you would estimate what you expect your taxable supplies will be for the year January 2023 to December 2023 and your taxable supplies for the previous 3 years to work out if you meet the registration threshold.
It is January 2023, and Merii is calculating her average annual supplies for Company A. As she is doing this calculation in January, her calculations are based on the period from January 01 to December 31 for each year:
|Year||Dates used||Annual supplies|
|2023||January 01, 2023 to December 31, 2023||$ 342,000|
|2022||January 01, 2022 to December 31, 2022||$ 336,000|
|2021||January 01, 2021 to December 31, 2021||$ 365,000|
|2020||January 01, 2020 to December 31, 2020||$ 305,000|
|Total divided by 4||$1,348,000 / 4|
|Average taxable supplies over 4 years||$ 337,000|
It is August 2022, and Dabit is calculating the average annual supplies for Company B. As he is doing this calculation in August, his calculations are based on the period from August 01 to July 31 for each year:
|Year||Dates used||Annual supplies|
|2023||August 01, 2022 to July 31, 2023||$ 296,000|
|2022||August 01, 2021 to July 31, 2022||$ 275,000|
|2021||August 01, 2020 to July 31, 2021||$ 266,000|
|2020||August 01, 2019 to 31 July 2020||$ 282,000|
|Total divided by 4||$1,119,000 / 4|
|Average taxable supplies over 4 years||$ 279,750|
Dabit’s average taxable supplies is under the registration threshold. He will need to repeat the calculations each month and register within 7 days, if he meets the threshold.
If your business is new and you do not have a 3-year history of sales, you will need to determine if the expected taxable supplies in the year ended December 31, 2023 is greater than $300,000. If yes, you are required to register for PGST.
Once your business has established a 4-year history of sales, you will be required to determine your status against the registration threshold using the method outlined under Existing business above.
Determining amounts for taxable supplies
Taxable supplies include most supplies of goods and services you supply in Palau when conducting a business in Palau, including supply of:
- anything else other than an exempt supply.
The value of taxable supplies is generally the amount you charge for the supplies.
For the purposes of working out the registration threshold, a person who provides exempt supplies, will treat imported services as a taxable supply.
Excluded taxable supplies
Certain taxable supplies are excluded when working out if you exceed the registration threshold.
Excluded taxable supplies for the purposes of working out if you exceed the registration threshold are:
- Capital assets: Capital asset is defined as a tangible or intangible asset of a business having a useful life of more than one year. Capital assets should not be included in your calculations. Importantly, inventory is expressly excluded from the definition of a capital asset.
- Sale of your business as a going concern: The value of a taxable supply made solely from you disposing of the whole or part of your business or permanently ceasing to carry on your business should not be included in your calculations.
These exclusions prevent you from exceeding the threshold due to unusual transactions, when you would not otherwise meet the registration threshold.
Imported services treated as taxable sales
In general, a supply of imported services is a supply of services made by an unregistered person outside Palau to a registered person in Palau. Internal transfer of services by a part of a business outside of Palau to another part of the business in Palau is also considered a supply of imported services.
If you provide financial services (e.g. bank), you need to include the supply of imported services made to you in determining your taxable supply amounts. This is worked out on the assumption that you are already registered.
A person who does not provide any financial services does not need to account for imported services.
Example – internal imported services
Bank A has taxable supplies from the sale of properties in the amount of $250,000 in the 2021 year. In the 2021 year, they also had imported services to the value of $100,000 with staff from their head office in Guam coming to work in the Palau office.
Bank A must add the taxable supplies of $250,000 and the imported services of $100,000 to reach a total of $350,000 in taxable supplies for the 2021 year.
Special rules for associates
In reviewing registration status and determining whether you exceed the registration threshold, the Director has the discretion to include the taxable supplies made by your associates. This discretion is in place to prevent a person from avoiding PGST registration through fragmentation of taxable supplies among related persons.
Factors for consideration in the decision to exercise this discretion include:
- the way business is conducted
- connections between the relevant businesses
- any other relevant matter.
For these purposes, you are considered an associate to another person if:
- you or the other person act or may act based on the direction, request, suggestion or wishes of the other person, other than as a result of an employment or client relationship, or
- both you and the other person act or may act based on the direction, request, suggestion, or wishes of a third person, other than as a result of an employment or client relationship.
The greater the similarly or connection between the relevant businesses, the more likely it is that the Director will exercise discretion to include your associate’s taxable supplies in determining whether the registration threshold is satisfied. In instances where this discretion is exercised, the Director will register both you and your associates for PGST.
Merii owns 100% of the shares of Company A, and 100% of the shares for Company B. The companies are considered associates of each other as each company would act based on the directions from Merii.
Merii is an associate of both companies, and both companies may be required to register.