How to Register a Sole Proprietorship (Self-employed Business) in Palau

Operating as a sole proprietor in Palau is a straightforward way to start a business as an individual. It’s appealing because it avoids the costs and bureaucracy of incorporation, while allowing full independence. Most paperwork is handled through the Bureau of Revenue and Taxation (BRT), though tax compliance can be confusing given Palau’s mix of taxes: the Business Profits Tax, Gross Revenue Tax, and the Palau Goods and Services Tax (PGST). The main challenge is keeping track of your obligations and ensuring you register correctly. The benefits are flexibility, fast setup, and lower costs compared to forming a corporation.

Disclaimer: This article is for informational purposes only and is not a substitute for legal advice. Please always check official sources or seek professional guidance before taking action.

What is a sole proprietorship in Palau?

Palau’s laws do not provide a unique statutory term for “sole proprietorship.” In practice, an individual who operates a business without forming a corporation is treated as a sole proprietor (self-employed business). This is the simplest business structure, distinct from corporations or partnerships.

How does a sole proprietorship (self-employed business) work in Palau?

Sole proprietorship vs. other business structures in Palau

If you want a more formal structure, you can incorporate a corporation or form a partnership. These entities provide liability protection and can be better suited for larger operations, but they involve more costs and compliance.

Step-by-step guide: How to register a sole proprietorship in Palau

Step 1: Check your eligibility

You must be legally allowed to work in Palau (citizen, resident, or permit holder). Foreigners generally need a valid visa or business permit.

Step 2: Choose your business name

You can trade under your legal name or apply for a trade name. Use the Palau Registry search tool to check availability.

Step 3: Gather required documents

You will need:

• Government-issued photo ID
• Proof of residence or business address
• Business description (nature of activity)
• Taxpayer forms from BRT: Tax-001 series

Step 4: Register with BRT

Submit your forms to the Bureau of Revenue and Taxation in person. You’ll register for a Tax Identification Number (TIN), apply for a business license, and declare your tax category.

Step 5: Pay registration fees

License fees vary by category. For small taxpayers, the additional business license fee is $25 (USD) per quarter ($100 per year). Confirm your exact fee with the Bureau of Revenue & Taxation.

Step 6: Comply with post-registration obligations

After registration, you must maintain compliance by charging PGST where applicable, filing Business Profits Tax or Gross Revenue Tax returns, and renewing your license when due. Quarterly payments may be required, either based on your previous year’s liability or as a percentage of gross revenue if new. You should also keep clear records of income, expenses, and invoices, and file annual returns with BRT.

Financial and tax obligations for sole proprietors in Palau

You are responsible for:

• BPT: A flat 12% on taxable net income for PGST-registered businesses. Filing is annual, with quarterly prepayments (25% of the prior year’s liability or 2% of gross revenue if no prior record).
• GRT: A 4% tax on gross revenue if you are not PGST-registered and earn more than $50,000 annually.
• PGST: A 10% VAT-style tax on most goods and services, collected and remitted by registered businesses.
• Record-keeping: You must keep accurate books of all invoices, receipts, expenses, and licenses. Documentation must be retained in case of an audit.
• Invoicing: Invoices should include your TIN, client details, date, description of goods or services, and PGST where applicable. Invoices should be sequentially numbered and stored for records.

Launch your contracting career and stay compliant with Deel

Registering as a sole proprietor gives you independence, but it also means handling taxes, invoices, and records on your own. Deel’s all-in-one platform helps you manage obligations without the stress. With Deel, you can:

• Automate invoicing and expense tracking with essential Bookkeeping tools
• Create, send, and sign localised work agreements
• Keep accurate records for tax season
• Access expert tax advice and compliance support
• Get paid through multiple payment and withdrawal methods
• Spend your earnings in USD with the Deel Card
• Access funds early with Deel Advance
• Enjoy contractor perks from 150+ partners

Stay independent, without the admin overload. Sign up to Deel for free today.

FAQs

What is the minimum capital required?
None.

Do sole proprietors need to register for PGST?
Yes, if your activity meets the PGST threshold or you opt in.

How much are the registration fees?
Around $100 per year for the business license.

Can sole proprietors hire employees?
Yes. You must then register for payroll withholding and remit employee taxes to BRT.

How long does registration take?
Usually, within about 14 days if the documents are complete.

Can foreign nationals register?
Yes, but they require a valid visa or business permit.

Do sole proprietors need a separate bank account?
Not mandatory, but strongly recommended for clarity and compliance.

What happens if I stop operating?
You must deregister with BRT, cancel your license, and file a final return.

Are there incentives for new businesses?
No specific incentives are publicly documented.

Can I use Deel as a sole proprietor?
Yes. Deel enables global payments, invoicing, contracts, and even benefits for freelancers.