Corporate Tax in Palau
Palau does not impose a traditional corporate income tax on net profits. Instead, businesses are subject to a Gross Revenue Tax (GRT) of 4% on gross revenue. The first $500,000 of gross revenue is exempt from GRT.
Gross Revenue Tax (GRT)
The Gross Revenue Tax in Palau is levied at a rate of 4% on gross revenue. Unlike a traditional CIT, the GRT is calculated on gross revenue rather than net profit, meaning expenses are not deductible. This applies to all businesses operating in Palau.
Exemption Threshold
The first $500,000 of gross revenue is exempt from GRT. GRT is only payable on gross revenue exceeding $500,000 at the 4% rate. This provides significant relief for small and medium-sized enterprises.
Taxable Revenue
Gross revenue includes all income generated from business activities within Palau. There is no net income tax — businesses are not taxed on profits but on their total revenue.
No Deductible Expenses
Because the GRT is based on gross revenue rather than net profit, operating expenses, cost of goods sold, salaries, and other business costs are not deductible. This makes the GRT system simpler to administer but means businesses with thin margins face a higher effective burden.
Tax Incentives
Palau offers limited tax incentives:
- Revenue Exemption: First $500K of gross revenue exempt from GRT
- Foreign Investment Incentives: Priority sectors may qualify for reduced rates or exemptions
Filing Requirements
- Quarterly GRT Returns: Due within 30 days after the end of each quarter
- Annual Tax Return: Due by April 15 following the tax year
- Annual Financial Statements: Must be filed with the tax return
Payment of Tax
GRT is payable quarterly. Businesses must estimate their quarterly gross revenue and remit the appropriate GRT amount.
Withholding Taxes
Palau does not impose withholding tax on dividends, interest, or royalties. All WHT rates are 0%.
International Taxation
Palau taxes resident businesses on their worldwide gross revenue. Foreign tax credits are not applicable under the GRT system since it is a gross revenue tax rather than an income tax.