One of the many aspects of your international company is payroll. When you expand to a new country, you’ll confront a new set of taxation laws and paycheck requirements, and it will be your responsibility to follow them. At Globalization Partners, we take on the challenges of global payroll, so you don’t have to.
Taxation Rules in Tonga
Tonga uses a tiered income tax system for its citizens with a Pay As You Earn (PAYE) model, with rates recently update in July 2021. For the first 12,000 Tongan paʻanga (¢) in annual earnings, individuals owe 0 percent in taxes. The remaining levels are as follows:
- 10 percent for ¢10,001-30,000
- 15 percent for ¢30,001-50,000
- 20 percent for ¢50,001-70,000
- 25 percent for any amount over ¢70,001
As a PAYE tax, you are required to deduct these taxes from employee paychecks and pay them to the Ministry of Revenue and Customs.
Another required tax on employee paychecks is the National Retirement Benefits Fund. Contributions are compulsory for employees who work under a registered employer, but employees may choose to be voluntary contributors. Both you and your employees must make an equal contribution of 5 percent on the worker’s paycheck.
Tonga Payroll Options for Companies
When it comes time to establish a payroll system, your international company has a few options. Each payroll method requires a different amount of resources and comes with varying levels of legal risk. Your options include:
- Internal: If you have an entity in the country, you could create an internal payroll department. This method allows you to work with experts and keeps payroll in your control, but it requires time and money to establish. An internal payroll may not be a viable option for international companies just getting their start.
- Payroll processing company: Working with a payroll processing company in the country can connect you to professionals who are more familiar with the tax laws. However, if this third party makes a mistake, your company will still be liable.
- Remote: Handling your international payroll at home can help you cut back on spending, but it requires attention to detail. Your payroll department at home will need to separate regulations between different countries, and you maintain all legal responsibility for mistakes.
- Globalization Partners: As an Employer of Record (EOR), we put your employees on our payroll, making us entirely responsible for taxes and other compensation laws. You can have peace of mind knowing your employees are getting their paychecks as you hand all legal risks to us.
How to Set Up a Payroll in Tonga
If you choose to build an internal payroll department, you need to establish a subsidiary in the country first. This process takes time, requiring you to gain the appropriate government clearances and develop an international team.
Regardless of the payroll method you choose, you have to register with the appropriate governing bodies, including the Ministry of Revenue and Customs and the Retirement Fund Board. Registering with these institutions and getting the proper identification from your employees allows you to make all the legally required deductions.
Generally, the Retirement Fund Board covers a payout for employees once they reach the legal retirement age of 55. The organization also allows for an early release benefit on specific grounds. Employees can apply for an early release benefit if they were terminated for:
- A health reason confirmed by the Tongan Health Society (THS) Board.
- Migration overseas.
- A financial hardship that meets current policies.
Entitlement for any other type of termination is not regulated or required.
Payroll Processing Company in Tonga
Globalization Partners handles your payroll responsibilities, so you can feel confident about your international expansion. Mitigate risk and know your workforce will get the right paychecks every time. Reach out to our team today to learn more.