Overview:
Palau’s Attorney General has confirmed that four U.S. contractors are exempt from local taxes under SOFA, but a new court case from Ngaraard State could challenge how far those exemptions go.
By L.N Reklai
KOROR, Palau (March 13, 2026) — The Office of the Attorney General has confirmed that four U.S. military contractors working in Palau are legally exempt from certain taxes and customs duties under the Status of Forces Agreement (SOFA), according to a legal opinion released this week.
The opinion was prepared by Assistant Attorney General Kathleen M. Burch for Attorney General Ernestine K. Rengiil, as required under Republic of Palau Public Law (RPPL) No. 12-3. The law calls for a review of tax exemptions granted to for-profit businesses between 2022 and 2025.
The findings were shared with President Surangel S. Whipps Jr., leaders of the Olbiil Era Kelulau, and the Bureau of Revenue and Taxation.
According to the opinion, four companies qualify for exemptions under SOFA: DynCorp International (part of Amentum), Technology Service Corporation, UXELL Construction Inc., and Pacific Unlimited Inc. These companies are either contractors or subcontractors working with the U.S. military in Palau.
SOFA is part of the Compact of Free Association between Palau and the United States. It has been in effect since 1994 and requires Palau to exempt U.S. military forces and their contractors from most local taxes, fees, and import duties related to their work.
The agreement also allows materials and equipment used by these contractors to enter and leave Palau without being taxed or inspected under normal customs procedures.
The Attorney General’s opinion states that the exemptions granted to the four companies follow both Palauan law and the terms of SOFA. It does not identify any cases where these companies wrongly avoided taxes.
DynCorp, now part of Amentum, has been working under a U.S. Navy contract since 2016, with additional work in Palau added in 2021. Technology Service Corporation is involved in a U.S. Navy aviation-related security program and has received exemptions since late 2023.
UXELL Construction is a subcontractor involved in the Tactical Mobile Over-the-Horizon Radar (TACMOR) project, a U.S.-funded infrastructure and defense project in Palau. It has received exemptions since 2022. Pacific Unlimited is also listed as a subcontractor under a U.S. Navy-related contract, though specific exemption dates were not included in the opinion.
The review focused only on U.S. contractors covered by SOFA. The Attorney General said other categories—such as businesses funded by foreign grants or those operating in the Capitol Tax Free Zone—could not be fully reviewed due to missing documents and time limits.
“At this time, the only legal opinion being issued is for the United States contractors,” the Attorney General stated.
The findings come as a separate legal dispute is unfolding over the TACMOR project. Ngaraard State has filed a court case against contractors involved in the project, arguing that state governments have the authority to require companies to pay local fees for construction activities within their jurisdictions.
That case could test how national agreements like SOFA interact with state-level authority in Palau.
While the Attorney General’s opinion confirms that the contractors are exempt from national taxes under SOFA, it does not address whether state governments can impose their own fees. That issue is expected to be decided by the courts.
The opinion gives national leaders and the public a clearer understanding of how international agreements affect tax obligations in Palau, but questions remain about how those rules apply at the state level.