TAXtalk - Cambodia

Do you want to experience real growth of country’s some of the key economic indicators? Proudly presenting Cambodia for you. (Source: National bank of Cambodia – as on Q1FY2022)
· Current and Capital account deficit reduced by 37% YOY.
· Overall balance has increased by almost double YOY
· FDI is 10.3% of GDP
· Overall reserve asset has been increased by KHR 516 billion YOY
Cambodia can shoulder 7.3 months of Imports (Q122)

Cambodia Tax Series (9/20)
Value Added Tax (VAT)
VAT is collected from the customers on adding value to the invoice amount which is called output VAT. A business must need to pay the VAT on purchase of its good / services which is called Input VAT. The business must pay the output VAT to the authorities after deducting the input vat. The end consumer who cannot offset the VAT is the ultimate payer of it.
VAT are also paid on the duty paid value of imported goods. There are certain cases like exports, tax-exempt entities etc. which are exempt from VAT. The importer may pay the VAT while paying the import duty.
Following are some of the industries which are exempted from VAT
· Educational services
· Public Postal Services
· Hospital and Medical services including dental and goods incidental thereto
· Unprocessed agriculture produces
· Non- profit activities in public interest
· Removal or collection of Solid or Liquid wastes
· Public transportation operated by state owned provides

The interesting thing to note is that should the business deals on the exempt goods or services, they are not able to recover / offset input VAT paid on their purchases. In contrast input tax paid on the purchase of goods or services dealing on the 0% VAT related items can be adjusted. The reason 0% is still the rate of tax recognized by law makers. If the business deals on both exempt and taxable goods and services than input tax paid to the extent or portion of taxable activities can be claimed as input VAT

Cambodia Tax Series (8/20)
Patent Tax
A new company that is registered during the first 6 (six) months of the tax year will be required to pay the Patent Tax of 1.14 million (one million one hundred and forty thousand) Khmer Riel (approximately US$285) of for the whole year, but a company registered during the last 6 (six) months of the tax year will only be required to pay half of the Patent Tax. Existing company shall be required to pay the annual Patent Tax of US$285 by 31 March of the following year.

A taxpayer who has branches, warehouses, factories, or workplaces for the same business activity in one jurisdiction is only required to make one Patent Tax payment. However, if the taxpayer has branches, warehouses, factories or workplaces in different jurisdictions or different business activities, then the taxpayer will be required to pay the Patent Tax in each jurisdiction it operates and for each business activity.

Cambodia Tax Series (7/20)
Withholding Tax (WHT)
There are certain payments where tax based on certain rates need to be withhold by the payer. WHT need to be deducted on the payment both in cash or in kind. WHT is the final tax and in practice only the taxpayers falling in the self-declaration regime only need to withhold tax.
WHT is due when the payments are booked in the books of accounts or actually paid (basically due or payment whichever is earlier) . They should be remitted to authorities within 20th day of the following month of payment.

Following payments are subject to WHT.
· Interest – 15% (except payments to the Banks in Cambodia)
· Rental – 10%
· Services – 15% (except to the payment made to registered taxpayer against valid tax invoice)
· Interest in fixed term deposit – 6% (for payments from a Bank in Cambodia only)
· Interest on non-term deposit – 4% (for payments from a Bank in Cambodia only)

Any resident taxpayer or foreign PE making payment of Cambodian source income to non-resident is required to WHT of 14%. However, WHT is not applicable to payment of reinsurance of Cambodian properties or other risks.

Cambodia Tax Series (6/20)
Salary Income
Let me start by saying that, there is no provision of personal income tax system in Cambodia. However, salary taxes are deducted as like tax deducted in Source (TDS). It is not the employee who have to file the tax return but by the employer after deducting the taxes in salary income had to submit the return and taxes accordingly to the authorities. Taxes rates are progressive as greater the income bigger the tax bracket.
A Cambodian resident is subject to tax on worldwide income as salary of Cambodia. However, non-resident is taxed only on Cambodian Income only. Income on salary is prevalent irrespective of place of payment. Taxes on salary are only subject to employment related income only and not the whole income per se. Authorities may consider certain consultants as employee. Salary income is divided into salary and fringe benefits and later are taxed at 20% flat. Salary includes bonus, wages, overtime payment and other remunerations. Law has defined the tax slabs in Cambodian Riel, conversion can be made based on the rates published by authorities. Following are the tax slabs (in Riel) for resident taxpayer:
· 0 to 1,200,000 – 0%
· 1,200,001 to 2,000,000 - 5%
· 2,000,001 to 8,500,000 – 10%
· 8,500,001- 12,500,000 – 15%
· 12,500,001 and over - 20%
· Non-resident taxpayers are taxed at 20% flat.

Resident employee having dependent housewife or minor child are entitled to get rebate of Riel 75,000 ($ 18.75 approx.)

Some of the items that fringe benefits include are motor vehicles (private use), food, accommodation cots, contribution to pension plan for more than 10% of employee’s monthly salary, cost related to entertainment, insurance more than amounts that are given to all employee uniformly irrespective of grade, educational assistance (except related to employment) etc.

Expenses related to reimbursements as well as insurance, meal allowances, uniform costs which are paid uniformly to all the employees are excluded from the income from salary. Moreover, employment related expenditures, redundancy payments, NSSF contribution, infant allowances / nursery expenses in accordance with labor law, salaries paid to members of national assembly and senate as well as staff of diplomatic, international or aid organizations, nonresident employees (subject to conditions) are exempt from tax.

Cambodia Tax Series (5/20)
Minimum Tax
It is the minimum amount of tax calculated at 1% of turnover including all taxes but excluding VAT. Such amount needs to be paid within 20th day of the following month and are subject to adjustment at the year-end tax liability. From 1 January 2017, only those taxpayers who do not maintain proper accounting records (as defined in Prakas) are only subject to minimum tax. Should the final amount of tax on profit at the year-end is less than minimum monthly tax than later becomes the tax liability of taxpayer entity.

Monthly minimum tax needs to be paid irrespective of profit or loss of the taxpayer entity. However, the unsettled portion of minimum tax paid in the prior year can be used to adjust the tax payment of current year. An entity which is in the tax holiday period may not need to deduct the minimum tax subject to the portion of the business which are in tax holiday. However, the entity must still prepare the minimum tax return and submit to authorities.

Carry forward of losses
Tax loss can be carried forward to five years. However, carried backward of losses are not permissible. Carry forward can be only allowed if the taxpayer have filed the tax return in time, had maintained books of accounts, the business ownership and activities has not been changed. Should there been unilateral tax assessment by the authorities, then tax losses cannot be carried forward.

Cambodia Tax Series (4/20)
Qualified Investment Project
QIP stands for Qualified Investment Projects those who received a Final Registration Certificate (FRC) from CDC (Council for the Development of Cambodia). They aim to contribute economic development of Cambodia. Following are the types of QIPs
· Domestic QIP – Do not produce goods or services for export
· Export QIP – Produces the goods and services for export
· Supporting Industry QIP – Registered for QIP aims to produce raw materials and related for export QIPs

Following business / projects are not eligible for QIPs:
· Tourism services
· Restaurants, bars, nightclubs, bars or massage parlours
· Real estate development
· Commercial activities, import and export, wholesale and retail
· Casinos and gambling
· Currency and financial services
· Newspaper/ Media activities
· Transportation services by waterway, air or roadway (not including the railway sector)

INCENTIVES for QIPs

· Investment Guarantee and Tax exemption from certain period [Tax exemption period = Trigger Period + 3 years + Priority Period] (Trigger period = Starts from the FY where QIP gets FRC and ends on last date of FY where QIP makes first profits or if the QIP makes income from investment than it ends on the last day of third FY immediately after the FY where such investment income is derived. Priority Period = Defined by CDC based on the capital investment, industry and other related factor (professional judgement of CDC))

· Investment Guarantee and Special Depreciation of 40% (Condition: On the first year of purchase or put-to-use, only applies to assets related to manufacturing and processing and only if the taxpayer has elected not to use the tax holiday)

· Only Investment Guarantee (Investor not wanting any other benefits)
(QIP may choose one option from above)

Cambodia Tax Series (3/20)
Tax on Profit
Taxable income is calculated after deducting all the allowable expenses from the business income. All claimed expenditure should be valid and supported by the supporting documents.

Expenses Non-Deductible
• Personal expenses (not subject to salary tax and fringe benefit)
• Any kind of tax payment for oneself or for other including withholding tax, tax on salary or tax on fringe benefits etc.
• Expenses related to amusement, entertainment,
• Loss on sale or exchange of properties directly or indirectly between related parties

Specific provisions related to deductible expenses
Interest Expenses
• Interest and tax payment for acquisition/ construction of plan and business should be capitalized and claimed as depreciation accordingly.
• Interest Expenses: Deductible up to total interest income +50% of net interest income. Moreover, any interest expenses may be carried forward to claim in next year. Interest rate could be 0% to maximum rate as fixed by GDT. The interest expenses which exceed the maximum rate are permanently disallowable (except to the capitalized interest discussed above). Currently following is the maximum interest rate:
 120% annually from third party
 100% annually from related party

Depreciation
For tangible property following are the depreciation:
• Building and structure – 5% - straight line method
• Computer and electronics equipment, software and data handling – 40% reducing balance method
• Automobiles, trucks – 25% reducing balance method
• Office furniture and Equipment – 25% reducing balance method
• Other tangible assets - 20% reducing balance method
• Intangibles – 10% - SLM over the useful life
• A QIP is entitled to have special depreciation of 40% (Conditions: On the first year of purchase or put to use, only applies to assets related to manufacturing and processing and only if the taxpayer has elected not to use the tax holiday). If the assets are held for less than a year a claw back provision will be applicable (will discuss QIP separately)

Other Expenses
• Charitable contributions equivalent to 5% of taxable income are deductible, provided that the expenses are supported by adequate supporting document.
• Cost related to exploration and development of certain minerals are amortizable.
• Payment made to company’s officer, directors are deductible subject they reasonable. The term reasonable is not defined in the act.
, , , ,

Cambodia Tax series (2/20)
Corporate Income Tax / Income form Business
Classification of taxpayers are based on the threshold of turnover. In Cambodia, taxpayers are classified in following three categories.
• Small taxpayers – Those entity having turnover KHR 250 million (USD 62.5K) to KRH 700 million (USD 175K)
• Medium Taxpayer – Those entity having turnover KHR 700 million (USD 175K to KHR 4,000 million (USD 1 Mn). National or subnational institution, NGOs, Foreign Diplomatic and Counselor mission, International organizations,
• Large Taxpayer – Turnover more than KHR 4000 million (USD 1 Mn), subsidiary of MNC, Qualified Investment Project (will be discussed separately)

Point to note that, small business whose turnovers are less than KHR 250 million (USD 62,500) are exempt from tax obligations and liabilities. While writing this, Cambodia do not have personal income tax system that requires individuals to file and pay tax to the General Department of Taxation separately. Incase of salary income of person, employer is liable to withhold the tax and pay to the authorities on behalf of employee (will deal separately).

Following are the prevailing tax rates for corporate income tax
• Standard Tax Rate for entities – 20%
• Oil, gas and other certain mineral extraction companies 30%
• Insurance (General, non-life) – 5% of premium income

The resident tax payer is subject to worldwide income (subject to credit of foreign tax payment) while non-resident entities are only taxed on Cambodian source only. All foreign Permanent Entities (PE) are subject to tax on Cambodian source only.