Cambodia

Implementing capital gains tax (CGT) under a double taxation agreement (DTA) framework

The General Department of Taxation (GDT) has issued Instruction 23862 to clarify how CGT is implemented under DTA frameworks. DTA provisions prevail over those of the Law on Taxation in determining capital gains taxing rights and are based on the gain-earner’s source and residency. Below are the specific guidelines on the taxing rights for each type of sale or transfer.

1. Immovable property: if located in Cambodia, the capital gain is taxed in Cambodia.
2. Movable property:if belonging to a permanent establishment (PE) or fixed place of business in Cambodia, the capital gain is taxed in Cambodia.
3. Ships, boats, aircraft or railway or other land transport means: if operating in international traffic, the capital gain is only taxed in the operating enterprise’s resident country.
4. Shares or similar benefits: if the value of the enterprise's immovable property in Cambodia as compared to the value of its total assets is lower than the conditional percentage set in the DTA, Cambodia will have no taxing rights on the capital gain.
5. Other assets: other than 1 to 4 above, the resident country or jurisdiction generally has the right to collect the CGT.  

To enjoy the CGT exemption under the DTA, especially the 3, 4 and 5 above, taxpayers must submit an online application together with relevant documents to the GDT for review and approval.

Classifying fixed assets: building structure and computer program depreciation

The GDT has issued guidelines for classifying and depreciating fixed assets in line with LoT Article 13 and income tax Prakas 578 dated 19 September 2024, Article 33. The guidelines are summarised below.

1. Expenses related to building or construction structures that are components of the building shall be classified as fixed asset class 1 and depreciated following Prakas 578 Article 36 even if the building belongs to a company or is rented.
2. Expenses related to computer programs shall be classified as fixed assets as follows:

1. Pre-installed computer programs or software (not modified, transformed, distributed or resold) on a computer which is the sole       product (without separating software and computer prices) shall be classified as tangible asset class 2 and shall be depreciated     following Prakas 578 Article 36.

    b. Any computer program or software that doesn’t meet the conditions above shall be classified as an intangible asset.

The guidelines also provide specific examples for reference.

Tax obligations for share premiums

In accordance with Article 7 of the Law on Tax and Prakas 578 dated 19 September 2024, regarding income tax, the General Department of Taxation (GDT) has issued Instruction 18574 to clarify the tax implications related to share premiums:

1. A share premium is a capital addition or capital contribution by shareholders to the enterprise. It’s not taxable income.
2. Both share capital and share premiums from new share subscriptions must be fully paid to the enterprise. These transactions should      be clearly documented in the accounting books with appropriate supporting evidence.

If an enterprise lacks proper documentation, any increase in the owner's capital account may be classified as taxable income under income tax regulations.

Tax obligations for board members or company directors

In accordance with Article 42 of the Law on Tax and Prakas 575 dated 19 September 2024, regarding salary tax, the GDT has issued guidelines for implementing tax obligations. The guidelines are summarised below:

    1. Salary tax obligations to board members or company directors as employees

Board members or company directors working for a company in Cambodia, including those temporarily seconded by a parent company or head office abroad (regardless of work permit status), who receive a salary for their work, are subject to salary tax, even if the salary is paid overseas.

    2. Withholding tax (WHT) obligations to board members or company directors as non-employees

Board members or company directors not fulfilling the conditions of an employment relationship, and performing services as non-residents (with or without work permits), as well as resident or non-resident individuals conducting independent work for a company in Cambodia, are subject to service WHT as detailed in Articles 25 and 26 of the tax law.

   3. Exemptions from salary tax for certain board members or company directors

Board members or company directors are exempt from salary tax if they:

       a. are registered on the company's article of incorporation and patent tax certificate, but don’t actively manage the company in                   Cambodia

       b. only attend occasional board and shareholder meetings

       c. don’t receive a salary from the company in Cambodia.

The guidelines also provide several specific examples for reference. We recommend reviewing your current arrangements for board members, company directors, legal representatives and secondee appointments to identify potential risks.  

Tax obligations for international waterway transportation of goods

The Ministry of Economy and Finance (MEF) issued Prakas 405 to establish rules and procedures for tax obligations for taxpayers involved in international waterway transportation of goods, outbound and inbound.

This Prakas applies to both resident and non-resident taxpayers with permanent establishments (PE) in Cambodia engaged in international waterway transportation, including international liners, their branches or subsidiaries, agents of international liners and freight-forwarders in Cambodia.

A disbursement note can be issued to recover advanced payments made on behalf of customers to liners, supported by invoices from liners to customers. Disbursed income and expenses aren’t taxable income or deductible expenses for income tax purposes. When withholding tax (WHT) is applicable, the issuers of the disbursement notes must withhold and remit the WHT to the tax authorities if their customers are non-registered individuals.   

Reimbursement should be claimed via proper invoices, with reimbursed income considered for income tax purposes.

According to Article 20 of the tax law, enterprises involved in international waterway transportation are required to pay income tax at:

1. 20% on taxable income earned by international shipping enterprises and international shipping agents that are resident taxpayers under the self-declaration regime
2. 20% on Cambodian-sourced income earned by non-resident liners operating business through their PE in Cambodia. The PE or agents of the non-resident liners must withhold the income tax and remit it to the tax authorities on the liners’ behalf. The tax base for income (attributable income) is set at 15% of gross income earned by non-resident liners from transportation from Cambodia to the final overseas destination. Effectively, agents must withhold and pay 3% (20% x 15%) of the gross income, which is the final tax for the non-resident liners.

Article 65 of the tax law details the application of VAT on international waterway transport as:

1. 0% VAT on the supply of international waterway transportation. Transactions involving the purchase and resale of goods storage space on the vessels, when there’s a profit margin, are also considered part of an international waterway transportation.

2. 10% VAT on services rendered in Cambodia, including agent’s commissions, lift-on and lift-off services in port premises, domestic transport services, import or export document preparation services, packaging services and other services.

3. 10% VAT on the supply of port’s services, such as loading or unloading of goods from ships, container storage, and other related services, except for the services related to any means for waterway usage.

This Prakas is effective from 21 May 2025. Any provisions contrary to this Prakas are abrogated. Please refer to this Prakas for more tax details.

Withholding tax (WHT) incentives for local airlines

The Ministry of Economy and Finance (MEF) has issued Prakas 198 to reduce the WHT rate for local airlines.

The WHT rate is reduced to 2% for local airlines’ below payments to non-resident taxpayers:

• Aircraft rental.
• Aircraft maintenance and overhaul.
• Overseas technical assistance.
• Overseas airport charges.
• IT shared service costs.
• Brand licensing fees.
• Online ticket booking systems.
• Training by overseas vendors.
• Centralised system shared costs.
• System licence fees.

The WHT rate is reduced to 10% for local airlines’ below payments to non-resident taxpayers:

• Management service fees.
• Other services.

The above revised WHT rates are effective from 17 March 2025 to 31 December 2028.

All local airlines must submit monthly and annual tax returns and record and maintain accounting records and information related to their business activities in accordance with tax laws and regulations.

Value-added tax (VAT) exemption on certain e-commerce financial transaction services

The General Department of Taxation (GDT) issued letter No. 29613 to confirm to the Associations of Banks and Microfinance that certain e-commerce financial transaction services are considered non-taxable supplies. They are summarised as follows:

• Expenses on education, training, relevant study documents, and educational documents in electronic form (e.g. electronic documents, books, videos) supplied by educational institutions officially recognised by the countries where the institutions are established.
• Overseas lawyer service fee expenses supplied by law firms.
• Independent director fee expenses.
• Expenses on risk rating assessment services provided by Moody, S&P, or Fitch, the agencies recognised by the National Bank of Cambodia.
• Monthly fees, bank charges, and telegraphic transfer (TT) fees and charges related to money settlement transactions, money transfers, or inward remittance services for customers or the bank itself from overseas banks.
• Expenses on overseas transfers for customers.
• Expenses on transactions to obtain overseas loans (e.g. interest and other charges by the lenders).
• Direct expenses incurred for money transfers charged by SWIFT or BOTTOMLINE. Annual fees for system usage, license, royalty, or system maintenance paid to SWIFT or BOTTOMLINE are subject to VAT on e-commerce transactions.
• Direct expenses incurred for settlement transactions via credit or debit card and cash withdrawal services from ATM charged by Visa, Mastercard, Union Pay, UPI, AMEX, or JCB company. Annual fees for system usage, license, royalty, or system maintenance paid to Visa, Mastercard, Union Pay, UPI, AMEX, or JCB companies are subject to VAT on e-commerce transactions.
• Customer’s expense for staying at VIP lounge in airports in other countries is not non-taxable supply and not subject to VAT on E-commerce transactions.

The above confirmation is not retroactive for tax amounts already paid.

Clarification of tax relief for a rent-free period during construction, improvements, or reparation and claimable input VAT credit on mobile phone service charges used for business purposes

At the GDT and Private Sector Tax Working Group meeting on 4 July 2024, the private sector raised various points for discussion, including the following.

Rent-free period provided by landlord

During the rent-free period provided by the landlords for the lessees to prepare for construction, improvements, or reparation, the GDT agreed that the relevant taxes, including income tax, VAT, or WHT, are not applicable as long as those period and purposes are stated clearly in the lease contracts. Income or expenses were recognised by the relevant parties during that period. The GDT will prepare regulations to clarify further.

VAT input credit for mobile phone charges

The GDT agreed that VAT charges on mobile phone services are allowed to claim the input VAT credit as long as the charges are used for business purposes and there is sufficient evidence (e.g. records of the mobile phones as the company’s assets) to support it. The GDT will prepare regulations to clarify further.

Tax incentive measures

On 22 August 2024, Prime Minister Samdech Thipadei made a special announcement (statement) to continue providing support, including tax incentives, for certain business sectors. We summarise the key tax incentives as follows:

• Extension of capital gains tax exemption for real estate business until the end of 2025. At this stage, it is still unclear whether the extension applies to capital gains arising from other investments (e.g. share disposals).
• Exempt penalty and interest for voluntarily filing amended tax returns until the end of June 2025.
• Extensions of other tax incentives for specific sectors, such as tourism in Siem Reap province, agriculture, and education.

The relevant regulations will be issued later.  

Establishment of special tax audit unit under the GDT of the MEF

The Cambodian government issued a sub-decree to establish a special tax audit unit under the supervision of the GDT of the MEF on 16 July 2024. The unit’s rank is equal to the GDT’s department level. The purpose of the newly established unit is to advance and speed up resolutions to taxpayers’ problems with tax audits, to improve the business and investment environment in Cambodia.

The key roles and responsibilities of the unit include:

• managing and performing tax audit work in accordance with existing laws and the standard operating procedures for tax audits
• verifying documents and performing risk analyses for one-time comprehensive tax audits without going through desk audits or limited audits
• preparing annual tax audit planning
• performing tax audits upon taxpayers’ requests, and
• informing enterprises of the reasons they’re selected for a comprehensive tax audit.

The special tax audit unit can ask the Director General of the GDT to review and resolve outstanding issues in the tax audits of the enterprises it oversees, working together with other GDT units.  

Enterprises that may be transferred under the supervision of this special tax audit unit include those that have received a Gold Tax Compliance Certificate and other enterprises determined by a committee to be established by the GDT.

Reduction of WHT and specific tax (SPT) rates for airline companies

The MEF issued Instruction 009 to provide the following instructions for implementing WHT and SPT to relieve airline companies’ tax burden on the lease of aircrafts from foreign companies and the burden of people travelling by air.

• The WHT rate will change from 14% to 10% on the aircraft lease from foreign companies by domestic airline companies.
• The SPT rate will change from 10% to 5% on air transport service of passengers, regardless of the service provided by domestic or foreign airline companies.
• These reductions will last for three years, from 1 June 2024 to 31 May 2027.

Standard operating procedures for tax audits (SOP for tax audits)

The Cambodian tax authorities have issued a tax audit SOP to guide tax officers in managing the tax audit process. This SOP aims to prevent different departments from creating duplicate tax audits.

Income tax incentives for the expansion of qualified investment projects (QIPs)

The MEF issued Prakas 313 dated 10 May 2024 to provide further guidelines for income tax incentives for the expansion of QIPs as stated in Article 16 of Sub-Decree 139 on Implementation of the Investment Law in Cambodia.

The income tax exemption is provided for the below expansion of QIPs:

• Expansion of existing production.
• Expansion through product line diversification within the same lines.
• Expansion through equipping new technologies for improvement of productivity and environment protection.
• Other expansion activities to be approved by the government.

The expansion of the QIP is entitled to a specific period of income tax exemption in line with initial investment activities, which ranges from three to nine years depending on the sectors and investment activities as stated in the annex of Sub-Decree 139.

The qualified expansion is limited only to additional investment capital paid each year and used for construction materials and new production equipment (excluding the value of land and working capital).

Tax for public lighting (TPL)

The Royal Government of Cambodia has issued a Sub-Decree to determine the TPL rate for the supply of alcoholic or tobacco products in Cambodia.

Effective from 1 April 2024, the TPL rate for the supply of alcoholic or tobacco products will be 5%.

Detailed rules and procedures for managing the TPL collection will be determined by a Prakas of the MEF.​

Capital gains tax

The MEF issued Prakas No. 496 to implement capital gains tax on sale or transfer of immovable property, leases, investment assets, goodwill, intellectual property (IP), and foreign currencies. The capital gain is subject to income tax at a flat rate of 20%.

Calculation of the capital gains tax

For immovable property, the tax authorities provide a choice where the taxpayer can claim a standard tax deduction of 80% of the taxable income or actual expenses with supporting documents. For capital gain from sale or transfer of other assets, taxpayers must claim tax deduction based on actual expenses incurred.

Taxpayers must submit tax returns and pay capital gains tax to the GDT within three months after realising the capital gain.

The capital gains tax on sale or transfer of leases, investment assets, goodwill, IP, foreign currencies and immovable property shall be implemented from 1 January 2026.