Overview:
Palau’s tax authorities have imposed more than $60,000 in fines on a hotel owner after uncovering underreported income tied to third-party travel bookings, highlighting stricter enforcement across the tourism sector.
KOROR, Palau (April 14, 2026) — The Bureau of Revenue and Taxation has fined a hotel owner more than $60,000 in unpaid taxes, penalties and interest after an audit found the business underreported its income, officials said.
The investigation was triggered by routine risk assessments that flagged inconsistencies between the hotel’s financial reporting and third-party data.
Audit findings
The audit revealed that the number of hotel guests exceeded what had been reported. Investigators also identified two major compliance violations:
- Underreported Palau Goods and Services Tax (PGST):
The hotel owner failed to calculate PGST based on the final room price, which included additional “markup” fees charged by a travel agency outside Palau, known as a non-resident travel agent (NTA). Under the law, PGST must be calculated on the full final price paid by the guest, regardless of where the transaction occurs or whether payment is made directly or indirectly. - Underreported Hotel Room Occupancy Tax:
The owner failed to properly collect and remit occupancy taxes as required under Section 1401 of Title 40 of the Palau National Code. The law mandates that the tax be applied and collected at the time the occupancy sale is made, regardless of when payment is received.
Role of non-resident travel agents
The Bureau said the case stresses the tax responsibilities of businesses working with third-party intermediaries:
- Principal-agent relationship:
Under PGST regulations, when an NTA sells a room for a Palau-based hotel, the transaction is treated as a sale made by the hotel owner, who remains responsible for reporting and paying taxes. - Markup inclusion in taxable value:
If an agent adds a markup to the room price before selling it to a guest, the total price becomes the taxable amount. The hotel owner must report and pay tax on that full amount. - Commission-based sales exception:
In cases where an agent charges the hotel a commission rather than increasing the customer’s price, and the guest pays the standard rate, the arrangement does not result in underreporting as long as the full price paid by the guest is reported.
Legal obligations
The Bureau reminded business owners of their obligations under Title 40 of the Palau National Code:
- Value of supply: Taxes are based on the total amount paid or payable, directly or indirectly, for goods or services, including any added markups.
- Occupancy tax compliance: Hotel room taxes must be applied, collected and transmitted at the time the occupancy sale is made.
Enforcement and outreach
The Bureau said it will continue conducting audits to promote transparency, accountability and fair competition across Palau’s tourism sector.
Businesses uncertain about recordkeeping requirements or the tax treatment of NTA transactions are encouraged to seek assistance.