Mon. Dec 16th, 2019

Foreign workers’ salaries no longer credited against taxes

An error in a law meant to help small business adjust to increase in minimum wage law and 2.5% health insurance contribution, has had an opposite effect than what is originally intended.

RPPL 9-18 sought to help businesses by allowing them to deduct up to $5,000 of non-citizen salary and wage from their gross revenues before filing gross receipt taxes.

RPPL 9-18’s legislative findings states, “The Olbiil era Kelulau finds that the enactment of the recent minimum wage law, and with the continued requirement that employers contribute 2.5% toward Palau National Health Insurance, the private sector needs the additional economic stimulant so that it may continue to grow.  This bill will provide a tax break to companies; before they calculate gross revenue to be taxed, the entire salary or wages paid to Palauan citizen is deducted from the amount of gross revenue, and up to $5,000 in salary or wages paid to foreign workers..”

Unfortunately this language was only in the legislative findings but not encoded in the legal language of the law itself.  This passed OEK and was signed into law by President Remengesau without anyone noticing the major omission.

Last week, Bureau of Revenue and Taxation issued a notice to all employers informing them that it will not accept tax filings that include deduction of foreign worker salaries because of absence of law authorizing such deduction.

The notice further states that Ministry of Finance is in communication with national congress to correct this oversight and will advise when law is enacted. (L.N. Reklai)