Use of official exchange rates for taxpayers under the self-declaration regime
After meeting with the National Bank of Cambodia (NBC) to strengthen effective, transparent and efficient management of tax collection, especially making it easy for taxpayers to use exchange rates appropriate to market exchange rates and to make sure the mechanism to clarify invoices is clear, the General Department of Taxation (GDT) has decided to allow all taxpayers to use the official exchange rates issued daily by NBC instead and has provided the following guidelines.
- The daily official exchange rate
Taxpayers shall use the official exchange rate issued daily by the NBC or a market exchange rate, but it must not be lower than the NBC’s official daily exchange rate for KHR currency for the total price of the invoice. If there are specific days or other times that the NBC doesn’t issue its official exchange rate, taxpayers will use the official exchange rate that the NBC issued one day prior.
Non-resident taxpayers who register for simplified VAT are not required to use KHR currency for the total price of the invoice. For preparing tax returns in KHR and calculating VAT to be paid, non-resident taxpayers shall use monthly official exchange rates as stated in point 3 of this Instruction.
- Official exchange rate for tax on salary
Taxpayers will use the official exchange rate issued by NBC on the 15th day of each month when calculating salary tax. If the 15th day of each month falls on a day the NBC doesn’t issue its official exchange rate, taxpayers will use the NBC’s official exchange rate issued one day prior.
3. Monthly official exchange rate
Taxpayers will use the official exchange rate issued by NBC on the last day of each month to calculate monthly tax payments for supplies by non-resident taxpayers who have registered for simplified VAT or any transaction without KHR currency on an invoice, such as transactions supplied by a person not under the self-declaration regime or a non-resident.
- Annual official exchange rate
Taxpayers will use the official exchange rate issued by NBC on the last day of December of each year for which the annual tax returns are prepared and annual tax payments are calculated.
This new Instruction will be effective from the date of its signature. Instruction No. 10362 GDT dated 17 May 2022 on using official exchange rates for taxpayers under the self-declaration regime will be abrogated.
Supplementary instructions on implementation of value-added tax (VAT) on tangible fixed assets
Further to Instruction No. 15301, dated 22 June 2020, the General Department of Taxation (GDT) issued supplementary instructions to clarify the following points:
- Regardless of whether a taxpayer has claimed the input VAT credit or not (at the time of purchase), the sale of the tangible fixed assets (which are no longer used in the taxpayer’s business) as reusable assets or scraps shall be subject to 10% VAT following tax laws and regulations in force.
- Any disposal of fixed assets (which are destroyed, damaged, or have no sale value) shall not be subject to 10% VAT, provided there is clear evidence of the disposal. Enterprises are required to notify the GDT at least ten working days before any destruction of any fixed assets with accounting net book value (NBV) above 200,000 Cambodian riel (KHR). The GDT will assign tax officers to visit the destruction site within ten working days after receiving the notification.
- For a charitable contribution (as stated in Article 16 of Law on Taxation) of any tangible fixed assets that the taxpayer has already claimed VAT input credit and has been used in the business, it shall not be treated as sales and so shall not be subject to 10% VAT and tax on income in the below cases:
- Tangible fixed asset class 2 has been used in the business for over three years, and its accounting NBV does not exceed KHR 1 million.
- Tangible fixed asset classes 3 and 4 have been used in the business for over five years, and its accounting NBV does not exceed KHR 2 million.
- For tangible fixed asset class 1 (whether newly built or purchased) of which the input VAT credit has been claimed but not yet been put into use in the business is not treated as a sale and therefore not subject to 10% VAT. If a tangible fixed asset class 1 has been put into use in the business but then ceased to be used for more than one year, the enterprise (taxpayer) shall notify the GDT of the appropriate reason for stopping using the asset to be exempt from the obligation to pay 10% VAT.
- The term ‘tangible fixed asset which is no longer used’ refers to a tangible asset maintained but not used in the business to produce any output from one year onwards.
These instructions shall be used to supplement Instruction No. 15301, dated 22 June 2020, on the same subject.
Interest documentation required for loans among related parties
To comply with Prakas No. 986, dated 10 October 2017, on Transfer Pricing Rules, the GDT has issued the following Instructions:
- An enterprise in a loan transaction from a related party can determine the loan interest rate according to any rate that’s been agreed and shall be exempt from compliance with the arm’s-length principle if the enterprise has the following loan transaction supporting documents from the related party:
- Loan agreement clearly stating the period of the loan and repayment.
- Business plan or current and forecasted financial statements along with the purpose of the loan and explanations.
- Board of Directors’ resolution (for an enterprise that is not a single member private limited company).
- When an enterprise borrows money from a related party, the loan interest rate won’t exceed the market interest rate when borrowing it. For the purpose of this Instruction, the market interest rate is the average of the interest rates of at least five local commercial banks, which are annually issued by the GDT.
- For a cash advance transaction an enterprise has with a related party, if it’s to be repaid within one year starting from the day of receiving the cash until the day of its actual settlement, it won’t be considered as a loan transaction and will be exempt from the interest compliance with the arm’s-length principle.
Instruction No. 4909, dated 18 March 2019, on interest documentation for loans among related parties will be abrogated.
VAT state-charge for basic daily food items
The Ministry of Economy and Finance issued Prakas 009 to determine that VAT on certain basic food items for the people’s daily living shall be borne by the state for the next two years.
Under this Prakas, ‘basic food’ refers to certain food necessary for the daily living, such as the following:
- Meat from domesticated animals: cattle, buffalos, goats, sheep, pigs, chickens, and ducks, whether the meat is fresh, cured, or smoked.
- Eggs from all kinds of domesticated animals, whether the eggs are fresh, cured, or smoked.
- All kinds of freshwater and marine (saltwater) fish, lobsters, shrimps, prawns, crabs, and all kinds of molluscs, whether fresh, cured, or smoked.
- All kinds of sugar, which are not characterised as candy.
- All kinds of salt.
- All kinds of fish sauce and soy sauce.
The VAT on domestic supplies of these basic foods will be considered as a state-charge for the two years from 1 January 2022 to 31 December 2023.
Under this Prakas, food supplied by restaurants shall be excluded from the above.
Implementation of VAT on e-commerce
To comply with Sub-Decree 65 and Prakas 542, the GDT has provided its instructions for implementation of VAT on e-commerce as follows:
Sub-Decree 65 and Prakas 542 applies to digital goods/services or e-commerce activities electronically traded and supplied by non-resident and electronic platform operators that do not have a permanent establishment (PE) in Cambodia to customers (including self-declaration regime enterprise residents or/and physical persons) in Cambodia. Electronic platform operators refer to non-resident taxpayers who provide services, receive settlement payments, and deliver digital goods/services to buyers via electronic platforms in the name of non-resident e-commerce suppliers.
As for e-commerce transactions or activities supplied in Cambodia by resident taxpayers, they are not in the scope of this Instruction but must comply with the tax law and regulations in force.
Supplies of digital goods/services or e-commerce activities as stated in Article 57 of the tax law shall be considered as non-taxable supplies.
Under Prakas 542, non-resident taxpayers who:
- Provide supplies of digital goods/services or e-commerce activities from overseas to Cambodia with annual turnover from KHR 250 million or total expected turnover for three consecutive months ending in the current calendar year from KHR 60 million shall be required to register for simplified VAT within 30 days.
- Have been providing supplies of digital goods/services with annual turnover from KHR 250 million starting from 1 January 2021 to 31 December 2021 are required to register for simplified VAT no later than 31 December 2021.
Monthly submission of returns and payments of VAT
Non-resident taxpayers who provide supplies of digital goods/services or e-commerce activities from outside Cambodia to customers in Cambodia shall be required to collect 10% VAT from resident persons not registered under the self-declaration regime, submit VAT returns, and pay VAT to the GDT monthly.
In case taxpayers are registered under the self-declaration regime but do not make direct payments to the non-resident suppliers through the bank account under the taxpayers' name (e.g. payment through third party agent), the non-resident suppliers have the obligation to charge VAT and pay the tax to the GDT.
Self-declaration regime taxpayers who receive supplies of digital goods/services or e-commerce activities from non-resident taxpayers shall collect the VAT reverse charge at the rate of 10%, submit the returns, and pay it to the GDT monthly.
Small taxpayers under the self-declaration regime shall be exempt from the VAT reverse charge for five years starting from 8 September 2021.
Taxable persons who fail to register or update information or submit returns and pay VAT to the GDT on time are subject to penalties as stated in the tax law and regulations in force.
The registration process, invoice requirement, exchange rates for VAT calculation, and payment options are detailed in this Instruction. The VAT on e-commerce will be implemented from 1 April 2022.
Incentives under new Law on Investment
The new Law on Investment in the Kingdom of Cambodia is promulgated by Royal Kram No. NS/RKM/1021/014. Under this law, investment sectors and activities that are not in the negative list to be separately determined by Sub-Decree will get tax and customs duty incentives after they are registered as a Qualified Investment Project (QIP). For these QIP-registered investment activities, there are two basic incentive options:
Option 1: Tax exemption
- Income tax exemption from three to nine years, depending on the investment sectors and activities, starting from when income is first generated. After this income tax exemption period ends, the QIP will need to pay income tax at the following progressive rates:
- 25% for the first and second years.
- 50% for the third and fourth years.
- 75% for the fifth and sixth years.
- Exemption from prepayment of income tax during the income tax exemption period.
- Exemption from minimum tax (MT) when there is an independent audit report.
- Exemption from export duties, except if separately stipulated in other laws or regulations in force.
Option 2: Special depreciation
- Deduction of capital expenses through special depreciations as stated in the tax provisions in force.
- Deduction of up to 200% of some other expenses for up to nine years. The eligibility of the investment sectors and activities, and the type of expenses, as well as the period of the expense deduction, will be determined under the Financial Management Law and/or Sub-Decree.
- Exemption from prepayment of income tax for a certain period depending on the investment sectors and activities. This will be determined in the Financial Management Law and/or Sub-Decree.
- Exemption from MT when there is an independent audit report.
- Exemption from export duties, except if separately stipulated in other laws or regulations in force.
Other incentives (imports)
- Export-oriented QIPs and ‘supporting industry’ QIPs that support export-oriented QIPs can import construction materials, construction equipment, production equipment, and production inputs (materials) with the customs duty, specific tax on certain merchandise and services (SPT), and VAT borne by the government.
- Domestically oriented QIPs can import construction materials, construction equipment, and production equipment with the customs duty, SPT, and VAT borne by the government. The incentives for production inputs are determined by the Financial Management Law and/or Sub-Decree.
QIPs located in a special economic zone are entitled to the same incentives and protection as the other QIPs included in this Law.
New additional incentives
- Exemption of VAT on purchases of production inputs (materials) domestically produced to support the QIP’s implementation.
- Deduction of 150% of expenses from the tax base for the following types of expenses: (i) research, development, and innovation, (ii) professional training and upskilling of Khmer employees/workers, (iii) construction of dormitories, canteens or restaurants with reasonable prices, nurseries, and other food and beverage (nutritional supports) venues for employees/workers, (iv) machinery modernisation to support production lines, and (v) welfare for Khmer employees/workers, e.g. transportation from dormitories to factories and vice versa, to restaurants or canteens, to nurseries, and other food and beverage (nutritional supports) venues.
- Exemption from income tax for QIP expansion, to be determined by Sub-Decree.
Certain high-potential investments in industries or activities that will help develop Cambodia’s economy may be granted additional special incentives under the Financial Management Law.
The Royal Government will issue a Sub-Decree on implementation of the new Law on Investment in the Kingdom of Cambodia.
This new Law replaces the Law on Investment in the Kingdom of Cambodia promulgated in 1994 and the amended Law on Investment issued in 2003. Other provisions contrary to this new Law will be abrogated.
E-document submission system
The GDT has launched an e-document submission system (EDSS) for medium and large taxpayers following instructions from the government and the Ministry of Economy and Finance (MEF). The online system will help to reduce the spread of COVID-19, as well as make it easier for general taxpayers.
Taxpayers, tax agents, or the public can use the new EDSS to submit their applications, administrative letters, documents, or tax returns to the GDT or Khan-provincial tax branches. This can be done by uploading their scanned documents to the GDT’s online system, called e-Tax Service. Small taxpayers, meanwhile, can use the tax declaration program, GDT Tax Prefiling App. For all tax payments, taxpayers must comply with the online payment system named e-Payment.
The GDT has cancelled the E-document facility from 10 January 2023.
Capital gains tax
The MEF issued Prakas No. 346 to implement capital gains tax on sale or transfer of immovable property, leases, investment assets, goodwill, intellectual property (IP), and foreign currencies. The tax rate on capital gains is flat at 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.
Under this Prakas, the capital gains tax would be effective from 1 July 2020. However, the MEF has announced the delay of implementation of the capital gains tax to 1 January 2024.
Double taxation agreements (DTAs)
At the time of writing, Cambodia had signed DTAs with the below regions and countries.
|1||Cambodia-Singapore||20 May 2016||Yes|
|2||Cambodia-China||13 October 2016||Yes|
|3||Cambodia-Brunei||27 July 2017||Yes|
|4||Cambodia-Thailand||7 September 2017||Yes|
|5||Cambodia-Indonesia||13 October 2017(in Phnom Penh)23 October 2017 (in Jakarta)||Yes|
|6||Cambodia-Vietnam||31 March 2018||Yes|
|7||Cambodia-Hong Kong Special Administrative Region of the People’s Republic of China||20 June 2019 (in Phnom Penh)26 June 2019 (in Hong Kong)||Yes|
|8||Cambodia-Malaysia||3 September 2019||Yes|
|9||Cambodia-Republic of Korea||25 November 2019||Yes|
|10||Cambodia-Macao Special Administrative Region of the People’s Republic of China||24 February 2021 (in Macao)23 April 2021 (in Phnom Penh)||Not yet|
|11||Cambodia-Turkey||27 February 2022 (in Ankara)||Not yet|
Tax registration and taxpayer information updates
The MEF issued Prakas No. 701 to determine rules and procedures for tax registration, taxpayer information updates pursuant to the Law on Taxation, and to abrogate Prakas No. 496, dated 6 April 2016, on tax registration.
Prakas No. 701 provides new updates on the requirements for tax registration and taxpayers’ tax information. Significant updates include:
Persons must register with the tax administration within 15 days after beginning their economic activities or after receiving their registration letters issued by relevant ministries or institutions. They’re required to register taxes in accordance with their self-declaration taxpayer classification or turnover level, as stated in tax laws and regulations.
Tax registration must be done through the online business registration website: www.registrationservices.gov.kh, or by completing the tax registration application form, updating the taxpayer information, and attaching required documents.
Taxpayer information updates
Registered taxpayers must notify the tax administration within 15 working days if any of the following information has changed:
- Legal form of enterprise.
- Name of enterprise.
- Business objectives or activities.
- Shareholders (transfer or change).
- Management, director of enterprise or branch.
- Cessation of business.
- Officer in charge of tax matters.
- Bank account information.
- Contact details (phone number and email).
Negative list for tax registration
A negative list for tax registration will be made to record any identified (natural or legal) persons who: (i) are related to an enterprise, association, or organisation that the GDT refuses to register as they’ve committed tax evasion offences after tax registration, (ii) owe taxes or are related to another enterprise, association, or organisation that owes taxes, (iii) fail to appear and provide additional information or required documents as requested by the GDT, (iv) are related to another enterprise, association, or organisation unilaterally registered with the GDT and doesn’t cooperate in providing information or required documents to complete tax registration, or (v) the tax administration has reason to believe aren’t the real business beneficiaries or directly or purposely conduct, collude, motivate, attract, or help other persons or taxpayers commit criminal acts under tax regulations, such as money laundering or terrorist financing offences.
The negative list for registration will be shared with competent ministries and institutions through the Cambodia Data Exchange (CamDX) for cooperation in reviewing and approving registration requests. Persons in the GDT’s negative list for registration are not allowed to register other businesses through the online business registration, except those who’ve already settled their tax obligations with the GDT.
Those who fail to register or notify the tax administration of any information changes and updates when requested, or the unilateral taxpayer registration as required by this new Prakas, will have to pay taxes and registration service fees and will be penalised for obstructing the implementation of tax laws and regulations.