In the Republic of Palau, businesses employing one or more people have several tax responsibilities.

Social Security Tax

This tax applies to all businesses with employees. The employer rate is 7% of the employee's gross salary. The calculation for this is simply the gross salary multiplied by 7%, which equals the employer's Social Security contribution. These taxes are due quarterly, and the authority responsible for this is the Republic of Palau Tax Bureau.

Health Insurance Premium

This is another tax that applies to all businesses with employees. The employer rate for this is 2.5% of the employee's gross salary. The calculation for this is the gross salary multiplied by 2.5%, which equals the employer's health insurance premium contribution. These payments are also due quarterly and are aligned with social security payments. The authority responsible for this is the Republic of Palau Ministry of Health.

Income Tax Withholding

This tax applies to employees earning wages in Palau. The rates for this are graduated and can be found on the Republic of Palau Tax Bureau website. The employer uses tables to determine how much income tax to withhold based on the employee's gross salary and pay period. These payments are due quarterly, along with social security payments. The authority responsible for this is the Republic of Palau Tax Bureau.

Important Notes

Businesses must register with the Republic of Palau Tax Bureau to obtain a tax identification number for filing and payment purposes. There may also be other business taxes in Palau, such as gross receipts tax or import duties.

In Palau, all employees earning wages are subject to certain tax deductions.

Social Security Tax

This tax applies to all employees earning wages in Palau. The rate is 7% of the employee's gross salary. The calculation for this is simply the gross salary multiplied by 7%, which equals the Employee Social Security contribution. The employer is responsible for withholding and remitting this tax on behalf of the employee.

Income Tax Withholding

Income tax withholding also applies to all employees earning wages in Palau. The rates for this tax are graduated, and the specific rates can be found on the Republic of Palau Tax Bureau website. The employer uses official tax tables provided by the Republic of Palau Tax Bureau to determine the correct amount of income tax to withhold for each employee based on gross salary and pay period frequency. Again, the employer is responsible for withholding and remitting this tax on behalf of the employee.

Important Notes

There are no health insurance deductions for employees in Palau. Employers pay a health insurance premium on behalf of employees; there is no employee-side deduction. Employers are responsible for the accurate calculation, withholding, and remittance of employee social security and income taxes.

Palau recently introduced a VAT system known as the Palau Goods and Services Tax (PGST). This system impacts services in various ways.

PGST Rate

The standard rate of 10% applies to most supplies of goods and services within Palau.

Exemptions

While most services are subject to the PGST, there are some notable exemptions. Financial services, such as banking and insurance, are mostly exempt. There are also other exemptions, and for an up-to-date list of potentially exempt services, it is advisable to check directly with the Palau Tax Bureau.

Registration and Filing

Businesses with an annual taxable supply exceeding $300,000 USD are required to register for PGST. The filing periods are expected to be either monthly or quarterly, depending on the business's taxable turnover. For precise specifications, businesses should consult guidance from the Palau Tax Bureau. The PGST returns are filed electronically through the Tax Bureau's system.

Important Notes

The PGST was implemented in January 2023, and further updates and clarifications on exemptions and procedures may emerge.

Palau may not offer a wide range of tax incentives compared to some other countries, but there are still some benefits that can make it an attractive location for certain businesses.

No Corporate Income Tax

This is a complete exemption from corporate income tax. It applies to all businesses registered in Palau and eliminates the corporate income tax burden, potentially increasing profitability.

Reduced Business Registration Fees

This incentive involves fee reductions for registering new businesses. The applicability may vary depending on the type and size of the business. It lowers initial business setup costs. Specific criteria may apply, so it's recommended to consult with the Palau Bureau of Domestic and International Commerce (BDIC). To inquire about eligibility and application procedures for reduced registration fees, contact BDIC.

Import Duty Exemptions

This incentive is an exemption or reduction of import duties on certain goods. It may apply to specific industries or for importing equipment and materials needed for business operations. This reduces import costs for essential business goods. The qualification criteria varies depending on the type of goods and intended use. Businesses should inquire with the Palau Ministry of Finance. For details on exemption programs and application procedures for specific goods, contact the Ministry of Finance.

Important Notes

Palau focuses on a simpler tax environment with lower overall tax burdens rather than offering a vast array of specific tax breaks. Existing incentives tend to target specific industries or encourage new business formation. Tax policies and incentives can change, so it's crucial to stay updated with the latest information from Palauan government agencies.