Employers have several tax responsibilities, including the deduction of Pay As You Earn (PAYE) from employee wages and salaries if applicable. The rates for PAYE are graduated based on income level. PAYE applies to standard employment income, including wages, salaries, and benefits provided to employees. PAYE deductions must be remitted to the Ministry of Revenue & Customs on a monthly basis, accompanied by Form 7. Payments are due within 14 days of the end of each month.

Tonga National Provident Fund (TNPF) Contributions

Employers must also register with TNPF and contribute on behalf of their employees. Both the employer and employee contribute 5% of the employee's annual salary (up to a maximum threshold). TNPF contributions apply to all registered employees. TNPF contributions must be remitted on a monthly basis to the Tonga National Provident Fund.

Other Potential Employer Taxes

In addition to PAYE and TNPF contributions, businesses may have to pay import duties on goods brought into Tonga for commercial use. Excise taxes may also be levied on certain goods manufactured or sold within Tonga.

In Tonga, the income tax system for employees is relatively straightforward.

Pay As You Earn (PAYE) Withholding

PAYE withholding is a type of income tax that applies to all employees with taxable income. It is calculated based on a progressive tax system, meaning that those who earn more pay a higher percentage. Unlike some other countries, Tonga does not allow employees to claim deductions for work expenses and the like when calculating income tax. Instead, gross income is used for PAYE calculations.

Tonga National Provident Fund (TNPF) Contributions

The TNPF contributions are mandatory retirement savings contributions. All registered employees are required to participate in the TNPF. The calculation method for these contributions is that employees contribute 5% of their annual salary, up to a maximum threshold, to the TNPF.

Tonga operates a Value-Added Tax system known as the Consumption Tax (CT). The standard CT rate in Tonga is currently 15%, which applies to most supplies of goods and services within the country.

Exemptions for Services

Certain categories of services are exempt from CT in Tonga. Key exemptions include:

• Financial Services: Financial services as defined within the Consumption Tax Act 2003 are exempt.
• Educational Services: Educational services that meet specific criteria can be exempt.
• Healthcare Services: Some medical and healthcare services may be exempt.

Filing Procedures

Businesses that supply taxable goods and services exceeding a specific turnover threshold must register for CT with the Ministry of Revenue & Customs. CT returns are generally filed on a monthly basis, accompanied by Form 9. CT payments are due within 14 days of the end of each tax period.

The Tongan government provides a variety of tax incentives to stimulate investment and the growth of priority sectors. These incentives are designed to make it more appealing for businesses to operate within the country, and they come in several forms.

Types of Tax Incentives

• Corporate Income Tax Reduction: Businesses that meet certain criteria may be eligible for a reduced corporate income tax rate.
• Import Duty Exemptions: Qualifying businesses may be exempt from import duties on specific equipment and raw materials.
• Consumption Tax Exemptions: Certain sectors may be exempt from Consumption Tax (CT) on specific goods and services.
• Accelerated Depreciation: Some businesses may qualify for accelerated depreciation allowances, which can reduce their taxable income in the early years of an asset's life.

Qualification Criteria

The eligibility for these tax incentives often depends on the specific sector in which the business operates, as well as the size and nature of the investment. The key sectors that are typically targeted for these incentives include:

• Agriculture: There are incentives available that are designed to promote the development of agriculture and improve food security.
• Tourism: The tourism industry is a major focus for tax incentives and investment promotion.
• Manufacturing: Manufacturing businesses that have the potential for export growth may be eligible for certain incentives.
• Renewable Energy: Investments in renewable energy projects are encouraged through the provision of tax incentives.

Application Process

The process for applying for these tax incentives is as follows:

1. Contact the Foreign Investment Division: Businesses that are interested in these tax incentives should first reach out to the Foreign Investment Division at the Ministry of Trade and Economic Development for guidance.
2. Submit Proposal: The next step is to prepare a detailed business proposal that highlights the potential benefits of the project to the Tongan economy and how it aligns with the priority sectors.
3. Evaluation and Approval: The proposal will then be evaluated, and the relevant ministries will determine whether the business is eligible for the incentives.