Tax Treaties and Cross-Border Taxation in Palau

Cross-border taxation in Palau is relatively straightforward due to the absence of withholding taxes and the simplified tax system. This guide provides an overview of the key rules and considerations for international investors.

Withholding Taxes

Palau does not impose withholding tax on payments to non-residents:

Tax Treaties (DTTs)

Palau has limited double tax treaty coverage. As of 2026, Palau has signed a limited number of tax treaties primarily with the United States and a few other partners. Where treaties apply, they may provide mechanisms for resolving double taxation disputes.

Transfer Pricing

Palau does not have specific transfer pricing legislation, given the GRT system is based on gross revenue rather than net profit. Related-party transactions are not subject to special adjustment rules.

Foreign Tax Credit

Resident taxpayers under the PIT system can claim a foreign tax credit for taxes paid abroad on foreign-source income. The credit is limited to the Palau tax payable on that income. Under the GRT system, foreign tax credits are not applicable.

Exchange of Information

Palau participates in international tax cooperation and has signed Tax Information Exchange Agreements (TIEAs) with several countries. Palau is not currently on any major tax haven blacklists.

Inbound Investment

Foreign investors in Palau are subject to:

• GRT on Palau-source gross revenue at 4% (above $500K threshold)
• No withholding taxes on distributions
• Foreign Investment Approval requirements for certain sectors

Outbound Investment

Palau residents investing abroad are taxed on their worldwide income under PIT, with foreign tax credits available. Businesses are subject to GRT on global gross revenue.