Palau remains on the European Union’s list of suspected tax havens, which was updated barely a week after President Surangel Whipps Jr. signed the country’s comprehensive tax reform law.
“It is so disappointing to hear as there is no basis for their classification,” Whipps said. “Our tax system has been in place for over 70 years.”
Besides Palau, EU’s updated list, which was released Oct. 5, includes Guam, American, Samoa, Fiji, Panama, Samoa, Trinidad and Tobago, U.S. Virgin Islands and Vanuatu.
The blacklist was set up in 2017 after revelations of widespread tax avoidance schemes used by corporations and wealthy individuals to lower their tax bills. It originally included 25 jurisdictions.
In 2018, Palau committed to implementing tax reforms to meet the EU standards, prompting the bloc's ministers to move the Pacific nation from the blacklist to a so-called grey list of jurisdictions with low tax transparency standards but aiming to become less opaque, an EU document shows.
Palau has been reinstated to the blacklist in 2020.
When asked if he would appeal EU's inclusion of Palau, Whipps replied, "We need to investigate first."
“We just passed a new law that will take effect next October to modernize our tax system with a net income and (Palau goods and services tax),” Whipps said.
The tax reform, signed into law on Sept. 29, replaces the gross receipt tax with value-added tax system.
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In his transmittal letter to Palau Congress, Whipps said the nation’s GRT system that was inherited from the United States was “now an outdated and inefficient method of assessing taxes, managing records and measuring our economic output.”
“Most of our foreign trade and investment partners already use a value-added tax system, and now we will join those partners and many other Pacific island nations in adapting to a new tax system,” the president wrote.
The new tax law levies a 10 percent tax on all imported goods upfront with some exceptions.
Businesses making above $50,000 in annual gross sales and are not registered as PGST will pay the 4 percent gross revenue tax as it is applied today while those earning $50,000 or less in gross sales a year, only file but do not pay taxes.
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