Cambodia

Instruction on advance income tax payments on dividend distributions

The instruction sets out the following guidelines:

I.  Tax base for advance income tax payments on dividend distributions

In the current taxable year, if an enterprise distributes dividends derived from different sources of income that are subject to different annual income tax rates, the enterprise must comply with the following rules:

1. For a qualified investment project (QIP)

 a. Dividends must be paid out of the retained earnings that have been subject to annual income tax at 0%.

 b. Dividends must be paid out of the retained earnings that have been subject to the following progressive income tax exemption rates:

• 25% for the first two years
• 50% for the next two years
• 75% for the last two years. 

 c. Dividends must be paid out of the retained earnings that have been subject to the annual income tax rates of 20% or 30%.

 d. Dividends must be paid out of the company’s income earned in the current tax year, which hasn’t been subject to annual income tax yet.

2. For non-QIPs that are subject to 20% or 30% income tax

a. Dividends must be paid out of the retained earnings that have been subject to annual income tax payment at the rates of 20% or                30%.

b. Dividends must be paid out of the income earned during the current tax year, which hasn’t been subject to annual income tax yet.

II.  Advance income tax payments on dividend distributions

Advance income tax payments on dividend distributions are determined as follows:

1. If an enterprise needs to distribute dividends to local or foreign shareholders, the enterprise must pay income tax in advance if it hasn’t paid annual income tax yet. The tax amount will be equal to the multiple of grossed-up dividends according to their annual income tax rates. The tax paid can be an income tax credit and offset against the annual income tax when it’s due for filing. If the tax credit amount exceeds the annual income tax due, the exceeded amount can be carried forward and offset against income tax liabilities in following years.
2. Advance income tax payments on dividend distributions are not applicable to QIPs during the income tax holiday period. This includes the accumulated retained earnings earned during tax holidays before 2020.
3. After the tax holidays, QIPs that are still entitled to tax incentives to pay income tax on a progressive basis and distribute dividends out of income that hasn’t been subject to annual income tax, income tax must be paid in advance based on these income tax portions: 25% for the first two years, 50% for the next two years and 75% for the last two years.

Updated value added tax (VAT) instruction on eCommerce

The General Department of Taxation (GDT) has issued Instruction No. 2520 dated 24 January 2023 on the reverse VAT charge. This replaces Instruction No. 20522 dated 8 December 2021. The contents of both instructions are largely the same, except for these changes that may have an impact on your company:

1. Non-resident parent companies or head offices that only supply digital goods/services, or carry out eCommerce transactions for subsidiaries or branches in Cambodia, don't need to register for the simplified VAT system with the GDT. However, their local subsidiaries or branches need to notify the GDT of their supplies.
2. Non-resident suppliers who are registered under the simplified VAT system must file VAT returns and disclose their customers' TIN numbers, entity names and bank account numbers in Cambodia. In the previous instruction, customers needed to make payments from their bank accounts for these to be considered B2B transactions. This requirement has been removed.

3. For B2B transactions, a credit note issued by a non-resident supplier is allowed to adjust the taxable amount.
4. The instruction will be effective 60 days after its issue date stated above.  

Insurance technical reserves

The Ministry of Economy and Finance (MEF) has issued Prakas No. 063 to provide guidelines on calculating the technical reserves of companies in the insurance industry in Cambodia. These guidelines are to be used for income tax computation purposes. Failure to maintain sufficient insurance technical reserves, to submit a quarterly technical reserve report, as well as prepare an annual report on insurance premium computing recommendations by the stipulated deadlines, will receive penalties based on this Prakas and current tax laws and regulations.       

For 12 months from the date of this Prakas, the previous calculation method for technical reserves can still be used by insurance companies.

Reminder of annual income tax return filing for 2022

The General Department of Taxation (GDT) has issued notification No. 5735 to notify enterprises/taxpayers of their obligations to the 2022 annual income tax payment and return filing.

Instructions for the 2022 income tax filing are summarised as follows:

1. Enterprises should file their annual income tax returns using the online ToI E-filing system by 31 March 2023.

2. Enterprises have received approval to use a different tax-year end from the calendar year should file their tax returns and pay annual income tax within three months after the end of the tax year.

3. Enterprises that have branches must file their annual income tax returns using their consolidated financial statements of the principal office and all branches. The enterprise should attach lists of their revenue, expense accounts and fixed assets for each branch to the ‘local branch section’ in the system.

4. For employees or tax agents who are responsible for filing annual and monthly tax returns on behalf of a taxpayer, they must upload their employee cards (for the taxpayer's employees) or their power of attorney from the taxpayer (for tax agents) to the system.

5. All enterprises who are obligated to file their annual income tax payment and returns must upload their balance sheets, profit and loss accounts (income statements), and any additional information to the system.

Market interest rates of loans for 2022

The General Department of Taxation (GDT) has issued notification No. 5367 to determine the market interest rates of loans for 2022 based on the annual average interest rates of 11 local commercial banks. Under this Notification, the 2022 market interest rates are:

1. For borrowing in KHR = 8.78%.
2. For borrowing in USD = 8.35%.

The above interest rates are for the purpose of calculating tax on fringe benefits on loans provided to staff and determining the capped interest rates of loans from related parties.

Use of official exchange rates for taxpayers under the self-declaration regime

The General Department of Taxation (GDT) has revised the use of the official exchange rates as follows:

The daily official exchange rate

Taxpayers shall use the official exchange rate issued daily by the National Bank of Cambodia (NBC) or a market exchange rate, but it must not be lower than the NBC’s official daily exchange rate for Cambodian riel (KHR) 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 value-added tax (VAT) are not required to use Cambodian riel for the total price of the invoice.​ For preparing tax returns in Cambodian riel and calculating VAT to be paid, non-resident taxpayers shall use monthly official exchange rates (see below).

Official exchange rate for tax on salary

Taxpayers will use the official exchange rate issued by the 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.

Monthly official exchange rate

Taxpayers will use the official exchange rate issued by the 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 Cambodian riel 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 the 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.

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.

E-document submission system

The GDT has cancelled the E-document facility from 10 January 2023.

Capital gains tax

The Ministry of Economy and Finance (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 have been effective from 1 July 2020. However, the MEF has announced the delay of implementation of the capital gains tax to 1 January 2024.