Guide

Expanding to Papua New Guinea

Papua New Guinea (PNG) offers a unique and promising market for businesses seeking to expand their horizons. With its rich natural resources, growing economy, and a population eager to embrace new products and services, PNG presents a compelling opportunity for international entrepreneurs.

In this blog series, we'll delve into the reasons why PNG is a strategic location for business expansion, explore the intricacies of the market, and highlight the unique advantages that Innovare brings to your expansion strategy.

So, join us as we embark on a journey to discover the boundless possibilities that await in this Pacific paradise.

How to Set Up a Business in Country

Setting up a business in Papua New Guinea (PNG) in 2024 involves several essential steps to ensure legal compliance and a solid foundation for your venture.

The first step is to choose the appropriate business structure. In PNG, common structures include sole trader, partnership, company (either private or public), cooperative society, and joint venture.

Each structure has its own legal and tax implications, so it's crucial to select one that aligns with your business goals and operational needs.

Once you have decided on the business structure, the next step is to reserve a business name. This process is managed by the Investment Promotion Authority (IPA).

You need to search for the availability of your desired business name through the IPA’s online registry to ensure it is unique and not misleading. After confirming availability, you can reserve the name through the IPA’s online portal, which is valid for 30 days.

Following the name reservation, you must register your business with the IPA. This involves submitting the necessary incorporation documents, such as the Memorandum of Association and Articles of Association for companies.

Additionally, you need to obtain a Tax Identification Number (TIN) from the Internal Revenue Commission (IRC) and register for Goods and Services Tax (GST) if applicable.

Securing the necessary licences and permits is another critical step. Depending on your business type and industry, you may need specific licences or permits to operate legally. It’s important to check with relevant local authorities to ensure you have all the required documentation.

Opening a business bank account is essential for managing your finances. Choose a reputable bank in PNG and provide the necessary documents, such as your business registration certificate and TIN, to open an account. This will help you manage transactions, payroll, and other financial activities efficiently.

Compliance with employment regulations is also vital. This includes adhering to labour laws regarding wages, working hours, and employee benefits.

Registering your employees with the National Superannuation Fund (NASFUND) and ensuring they have access to social security benefits is crucial for maintaining a compliant and ethical business environment.

How to Set Up a Company in Country

Expanding your business to Papua New Guinea (PNG) involves several key steps to ensure compliance with local regulations and to establish a strong foundation for your operations.

Here’s a detailed guide to help you navigate the process:

1. Choose a Business Structure

Selecting the right business structure is the first step in setting up your company. In PNG, the common business structures include:

Sole Trader: This is the simplest form of business, where one person owns and operates the business. The owner is personally liable for all business debts and obligations.
Partnership: A partnership involves two or more people who share ownership and responsibility for the business. Partnerships can be general, where all partners share equal responsibility, or limited, where some partners have limited liability.
Company: A company is a separate legal entity from its owners, offering limited liability protection. Companies in PNG can be either private (limited by shares) or public.
Cooperative Society: This is a business owned and operated by a group of individuals for their mutual benefit. Cooperative societies are common in sectors like agriculture and fisheries.
Joint Venture: A joint venture is a business arrangement where two or more parties agree to pool their resources for a specific project or business activity.

For foreign owned entities include:

1. Limited liability company: It is also known as a private limited. A company is separate from its owners, shareholders and the persons who run it, the directors. All PNG LLCs must have one director and one shareholder. There are no minimum share capital requirements. PNG companies that are 50 percent or more owned by foreign investors require certification from the Investment Promotion Authority (IPA). Additionally, some activities are reserved for PNG nationals.

2. PNG branch: A PNG branch may be preferable to incorporating a subsidiary if one of the objectives is to consolidate the financial results of the parent company.

3. Representative office: A PNG Representative Office can also be 100% foreign-owned and controlled, but is not permitted to make direct sales in PNG. Where a foreign company does not intend to carry on business in PNG it may seek to establish a representative office. Such an office must however only engage in activities which will not amount to carrying on business, for example market research.

2. Register Your Company

Once you’ve chosen your business structure, the next step is to register your company. The registration process includes:

● Name Reservation: Reserve your business name through the Investment Promotion Authority (IPA). Use the IPA’s online registry to ensure your desired name is unique and not misleading. The reservation is valid for 30 days.

● Incorporation Documents: Prepare and submit the necessary documents, such as the Memorandum of Association and Articles of Association for companies.

● Tax Identification Number (TIN): Obtain a TIN from the Internal Revenue Commission (IRC) for tax purposes.

● Goods and Services Tax (GST) Registration: If applicable, register for GST with the IRC.

3. Understand Local Regulations

Compliance with local regulations is crucial for operating a business in PNG. This includes:

● Labour Laws: Adhering to employment laws regarding wages, working hours, and employee benefits.

● Industry-Specific Regulations: Depending on your business sector, you may need to comply with additional regulations and obtain specific licences or permits.

● Environmental Regulations: Ensuring your business practices are environmentally sustainable and comply with local environmental laws.

4. Taxation

Understanding the tax framework is essential for financial planning and compliance. Key aspects include:

● Income Tax: Businesses must file annual income tax returns and pay taxes based on their income.

● Goods and Services Tax (GST): If your business involves the sale of goods or services, you need to register for GST and file regular returns.

● Withholding Tax: Certain payments, such as salaries and dividends, are subject to withholding tax, which must be deducted and deposited with the IRC.

5. Banking and Finance

Efficient financial management is vital for business success. Key considerations include:

● Opening a Business Bank Account: Choose a reputable bank in PNG and open a business account to manage your finances.

● Funding Options: Explore various financing options, including bank loans, venture capital, and government grants. A well-prepared business plan can help attract investors.

● Financial Management: Implement robust accounting practices to maintain accurate financial records, manage cash flow, and ensure compliance with tax regulations.

How Do I Go About Manpower and Human Resourcing?

Expanding your business in Papua New Guinea (PNG) requires a strategic approach to manpower and human resourcing. Here’s a comprehensive guide to help you navigate this process:

1. Visas and Work Permits

When hiring foreign employees, securing the appropriate visas and work permits is essential. In PNG, non-citizens must obtain a valid work permit before commencing employment.

The work permit is regulated and issued by the Papua New Guinea Immigration and Citizenship Authority (ICA). It is important to note that the work permit is a separate document from the employment visa, which is issued after the work permit application is approved.

2. Work Permit Requirements

To obtain a work permit in PNG, employers must meet specific requirements, including:

● Job Offer: A formal job offer from a PNG-based company.

● Qualifications: Proof of the employee’s qualifications and experience relevant to the job.

● Health Clearance: Medical clearance certificates to ensure the employee is fit to work.

● Security Clearance: Security clearance from relevant authorities to ensure the employee poses no threat to national security.

3. The Visa Application Process

The visa application process involves several steps:

● Application Submission: Submit the visa application along with required documents, including the job offer letter, proof of qualifications, and health and security clearances.

● Processing Time: The processing time for employment visas can vary, but it generally takes a few weeks.

● Approval and Issuance: Once approved, the visa is issued, allowing the employee to enter and work in PNG.

4. Additional Considerations

When managing manpower and human resources, consider the following:

● Cultural Integration: Provide cultural orientation and training to help foreign employees adapt to the local work environment and culture.

● Legal Compliance: Ensure compliance with local labour laws, including working hours, wages, and employee benefits.

● Employee Retention: Implement strategies to retain talent, such as offering competitive salaries, career development opportunities, and a positive work environment.

5. Social Security Management

Managing social security for employees is crucial for their well-being and legal compliance. Key aspects include:

● National Superannuation Fund (NASFUND): Register employees with NASFUND to provide them with retirement benefits.

● Public Officers Superannuation Fund (POSF): For public sector employees, ensure they are registered with POSF. ( we are not dealing with public sectors)

● Health Insurance: Offer health insurance plans to ensure employees have access to medical care.

Employment Contracts

When expanding your business in Papua New Guinea (PNG), establishing clear and comprehensive employment contracts is essential. These contracts outline the terms and conditions of employment, ensuring both parties understand their rights and obligations.

Onboarding

Onboarding is the process of integrating new employees into your company. A well-structured onboarding program helps new hires understand their roles, company culture, and expectations.

Key steps include:

● Orientation Sessions: Introduce new employees to the company’s mission, values, and policies.

● Training Programs: Provide necessary training to equip employees with the skills required for their roles.

● Mentorship: Assign mentors to guide new hires through their initial period, helping them acclimate to the work environment.

Salary Payment

Salary payment terms should be clearly defined in the employment contract. This includes:

● Payment Frequency: Specify whether salaries are paid monthly, bi-weekly, or weekly.

● Payment Method: Indicate the method of payment, such as direct bank transfer or cheque.

● Deductions: Outline any deductions for taxes, social security, or other contributions.

Leave Entitlements

Leave entitlements are an essential part of employment contracts. In PNG, employees are entitled to various types of leave, including:

● Annual Leave: Typically, employees are entitled to 14 days of paid annual leave.

● Sick Leave: Employees can avail up to 10 days of paid sick leave per year.

● Maternity and Paternity Leave: Female employees are entitled to 12 weeks of maternity leave, while male employees may receive paternity leave as per company policy.

● Public Holidays: Employees are entitled to paid leave on public holidays as declared by the government.

● Long service leave: The entitlement is usually for 6 months long service leave accruing after 15 years service with a proportionate entitlement applying after 3 years service.

Termination

The termination clause in an employment contract should clearly outline the conditions under which employment can be terminated. This includes:

● Notice Period: Specify the notice period required for termination by either party, typically ranging from one to three months.

● Grounds for Termination: Define the grounds for termination, such as misconduct, poor performance, or redundancy.

● Severance Pay: Detail any severance pay or benefits due to the employee upon termination.

Working Hours

Working hours should be clearly stated in the employment contract to ensure compliance with labour laws. In PNG, the standard working hours are:

● Daily Working Hours: Typically, 8 hours per day.

● Weekly Working Hours: Generally, 48 42hours per week.

● Overtime: Specify the conditions under which overtime is paid and the rate of overtime pay.

Employment Contract Considerations

When drafting employment contracts, consider the following:

● Legal Compliance: Ensure the contract complies with local labour laws and regulations.

● Clarity and Precision: Use clear and precise language to avoid ambiguities and misunderstandings.

● Mutual Agreement: Both parties shall mutually agree to the terms and conditions, and the contract should be signed by both the employer and the employee.

● Review and Update: Regularly review and update employment contracts to reflect any changes in laws or company policies.

Should I Set Up My Own Entity or Outsource to a Local Expert?

Expanding your business to Papua New Guinea (PNG) presents exciting opportunities, but navigating the legalities and complexities of a new market can be daunting.

A critical decision you'll face is whether to establish your own wholly-owned entity or partner with a local expert.

Let's explore the advantages and disadvantages of each approach to guide your decision-making process.

Setting Up Your Own Entity:

● Advantages:

○ Full control over operations and decision-making.

○ Potential for long-term brand building and market share capture.

○ Profits remain entirely within your company.

● Disadvantages:

○ Complex setup process with legal and regulatory requirements to navigate.

○ Time-consuming, requiring dedicated resources to manage local operations.

○ Potential for higher initial investment costs.

○ Difficulty in accessing established networks and navigating cultural nuances.

Outsourcing to a Local Expert:

● Advantages:

○ Faster market entry with a streamlined setup process handled by the local expert.

○ Leverage local expertise in navigating regulations, compliance, and cultural norms.

○ Access to established networks and potential cost savings through shared resources.

○ Reduced initial investment and ongoing operational costs.

● Disadvantages:

○ Less control over day-to-day operations and decision-making.

○ Potential for profit-sharing arrangements with the local partner.

○ Reliance on the expertise and communication of the outsourcing partner.

Choosing the Right Path

The optimal approach depends on your specific business goals, resources, and risk tolerance. Here's a table summarizing key considerations to aid your decision:

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Factor	Setting Up Your Own Entity	Outsourcing To A Local Expert
Control	High	Lower
Speed to Market	Slower	Faster
Cost	Potentially Higher Initial Cost	Lower Initial Cost
Market Access	Requires Building Own Network	Access to Established Networks
Cultural Expertise	Requires In-House Resources	Leverage local partner's expertise

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Innovare: Your Trusted Expansion Partner in Papua New Guinea

Regardless of which approach you choose, Innovare can be your strategic partner throughout your Papua New Guinea expansion journey.

Our team of experts possesses unparalleled knowledge of the Papua New Guinea market, legal landscape, and business culture.

Innovare's comprehensive solutions and local expertise empower you to navigate the Papua New Guinea market with confidence.

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