KOROR (Palau Horizon) – The Senate approved on third and final reading a proposed measure which will create a new income tax scheme for large corporations.
Senate Bill No. 8-41 requires corporations covered by the bill to pay a 26 percent tax on net income and will at the same time exempted from paying corporate taxes imposed by other provisions in the Palau National Code.
The bill’s goal is to attract foreign investment in Palau.
The current law levies a four percent tax on gross revenue of businesses.
Under the bill in order to qualify to pay taxes under this legislation, a corporation must meet specific statutory qualifications.
First, the corporation must have sufficient shareholder equity or paid-in capital, requires corporation to have at least $1 million in shareholder equity or paid-in capital to be eligible for taxation under this scheme . The measure also requires that 80 percent of the corporation’s parent companies and subsidiaries( “control group”) to have a total shareholder equity or paid-in capital of $10 million. The bill covers financial institutions and hotel.
If a corporation pays taxes under this new provision, then it shall be exempt from paying other corporate taxes in Palau. If a corporation is not subject to this tax, then it shall pay taxes under the Republic’s already existing corporate tax laws.
Eligible corporations also have an opportunity to receive credits against other taxes paid. The measure also allows a corporation to receive a credit against taxes paid in Palau for taxes paid in a foreign jurisdiction. This tax credit is limited to the amount the Corporation owes to the Republic. This limit means that a corporation shall not receive a refund because of foreign-paid tax.
This bill is one of the three bills will work in concert to help Palau become financially independent.
§2413. Payment of tax due. Within 30 days of the close of the corporation’s taxable, year, the corporation shall pay its estimated tax due for that year. Any additional tax due as shown on the annual income tax return of the corporation shall be paid by the last business day of the sixth month following the close of the corporation’s taxable year. If the additional tax due as indicated on the annual income tax return is more than 10% of the estimated tax amount paid, the corporation shall also pay interest on the additional tax due at the rate of two-thirds of one percent per month, or fraction of a month, from the due date of the estimated tax amount to the date the additional tax due is paid.”
Section 3. Effective Date. This Act shall take effect upon its approval by the President of the Republic of Palau or upon its becoming law without such approval.
