E-document submission system
The General Department of Taxation (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.
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 until the end of 2021.
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|
13 October 2017(in Phnom Penh)
23 October 2017 (in Jakarta)
|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)
|8||Cambodia-Malaysia||3 September 2019||Yes|
|9||Cambodia-Republic of Korea||25 November 2019||Not yet|
|10||Cambodia-Macao Special Administrative Region of the People’s Republic of China||
24 February 2021 (in Macao)
23 April 2021 (in Phnom Penh)
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.
Implementation of value-added tax (VAT) on the disposal of tangible fixed assets
To strengthen the effective implementation of the tax law and regulations, the General Department of Taxation (GDT) has issued the following guidelines for VAT implementation on the disposal of tangible fixed assets used in the business. This new instruction has been issued to supersede the instruction No. 11581 GDT dated 5 May 2020.
The main contents of the new instruction are summarised below:
- Any enterprise that disposes of a tangible fixed asset used in business, or has donated or supplied at below the real price, or transferred to another enterprise except in the case of a business transfer, is subject to 10% VAT on its disposal market value.
- For any tangible fixed asset for which a VAT credit has been received and which is no longer used in the business of the taxable person, the asset is considered as being sold and is subject to VAT on its market value at the time it is no longer used. Any tangible fixed asset for which input VAT credit has not been received, at the point at which it is no longer used in the business, is not considered as being sold and is not subject to 10% VAT; however, if there is a real sale of that asset, the enterprise shall be subject to 10% VAT. ‘Fixed assets that are no longer used in the business’ are defined as fixed assets that are not used in business to create output but are still maintained by the enterprise.
- Any enterprise that makes non-taxable supplies and purchases a tangible fixed asset where its input VAT credit is not allowed at the time of purchase is subject to VAT at the rate of 10% when the fixed asset is sold.
Tax measures to reduce impacts on garment industrial enterprises
The MEF issued Prakas No. 319 to provide guidelines for tax relief measures to provide supports for garment, textile, footwear, bag, handbag, and hat manufacturing enterprises affected by the suspension of ‘Everything But Arms’ (EBA).
The level of actual impact used for assessment of entitlement to the CIT incentives shall be determined according to the following formula: The level of actual impact = (Volume of affected exports / Volume of total exports) x 100
The covered enterprises mentioned above will receive CIT incentives for the 2020 tax year as follows:
- An exemption of 50% of CIT liability if the level of actual impact ranges from 20% to 39%.
- An exemption of 100% of CIT liability if the level of actual impact ranges from 40% to 100%.
In order to enjoy the CIT exemptions mentioned above, the covered enterprises must submit documents proving the level of actual impact from the suspension of the EBA when filing annual CIT returns to the tax authorities. However, the expected proof isn’t defined or detailed in the Prakas.
Law on Financial Management for 2020
The Law on Taxation promulgated by Royal Kram No NS/RKM/0297/03 dated 24 February 1997 has been amended by the 2020 financial law. The key changes from the previous tax law include:
Article 23 New (two): Advance income tax on dividend distributions
- Except for a Qualified Investment Project (QIP) during tax holidays, if any enterprise distributes its dividend from its income before annual income tax payment to local or foreign shareholders, the enterprise shall pay tax equal to the multiple of grossed-up dividends according to their income tax rates and the annual income tax rates.
- The tax paid above shall be allowed as a tax credit for offsetting against taxable annual income tax distributed. If tax credit amounts exceed the annual income tax, the exceeded amount is allowed to be carried forward to offset against the income tax of the following taxable years.
- When an enterprise continues to distribute the taxed dividend under point 1 above, it shall not be subject to the advanced tax on this dividend distribution again.
- Advance tax on dividend distributions isn’t applicable on the income from insurance or reinsurance premiums on properties or other risks in Cambodia.
Tax exemption for seniority payments from 2020
To comply with Prakas No. 098, No. 1173, No. 443, and Circular No. 003 for the improvement of living standards of workers/employees of enterprises in Cambodia, the MEF has issued the following guidelines:
- Tax on salary (ToS) exemption for seniority payments prior to 2019 and in 2019 for Cambodian workers/employees in the textile, garment, footwear, and other sectors by complying with Circular No. 003 MEF dated 11 April 2019.
- From 2020, seniority payments for workers/employees in those sectors will be implemented as follows:
- ToS exemption for a seniority payment with an amount less than 4 million Cambodian riel (KHR) for one year.
- For seniority payments of more than KHR 4 million for one year, the salary tax will be applied by using the formula: Tax base added to taxable salary = (First/Second seniority payment received - KHR 2 million).
- Expenses for seniority payments are allowed as deductible expenses in the tax year in which the seniority payments are made.
Reduction of withholding tax (WHT) rate on loan interest
The MEF has issued a temporary measure to support local banks and financial institutions by reducing WHT rates on interest payments to residents and non-residents as follows:
- Existing loans: At the rate of 10% starting from April 2020 to the end of December 2020.
- New loans: At the rate of 5% starting from April 2020 to the end of December 2020, then at the rate of 10% from January 2021 to the end of December 2021. Any enterprise is not entitled to the incentive if it terminates the existing loan before the maturity date in order to enter into a new loan agreement.
Implementation of Sub-Decree on tax incentives for small and medium enterprises (SMEs) in priority sectors
The MEF issued Prakas No. 159 on the tax incentives for SMEs in priority sectors.
The tax incentives apply to SMEs in these priority sectors: (i) agricultural or agro-industrial products; (ii) food processing and manufacturing; (iii) manufacturing of local consumable goods, waste recycling, and production of goods for the tourism sector; (iv) manufacturing of finished products, spare parts, or assembly parts for supplying other manufacturers; (v) IT research and development (R&D) and IT-based management services; and (vi) enterprises located in SME cluster zones and cluster zone development enterprises.
The tax incentives for the SMEs are as follows:
- Income tax exemption for three years from the date of tax registration for newly registered enterprises or from the date of the existing enterprises’ tax registration update.
- Income tax exemption for five years from the date of tax registration for newly registered enterprises or from the date of the existing enterprises’ tax registration update if the SME meets one of the following conditions:
- Enterprise uses at least 60% local raw materials.
- Enterprise increases its employee number by 20%.
- Enterprise is in an SME cluster zone.
- Exemption of prepayment of income tax and minimum tax during the income tax exemption periods above.
Incentives for deductible expenses:
- A 200% tax deductible expense for use of accounting record software.
- A 200% tax deductible expense for accounting record maintenance training or employee technical training.
- A 150% tax deductible expense for investment in machinery or new technology equipment that increases productivity.
In order to enjoy these tax incentives, SMEs must be registered, update their enterprise information with the tax authorities as required by tax laws and regulations, be in a priority sector, and maintain accurate accounting records. These SMEs must still submit monthly and annual income tax returns by the deadline to tax authorities even though they are exempt from income tax.
Tax on income
The MEF has issued a new Prakas No. 098 to provide guidelines for implementing income tax provisions. This Prakas applies to self-declaration taxpayers, except for small taxpayers complying with separate provisions.
Under the Prakas, there are various amendments, including changes for WHT provision as follows:
- Any payment in cash or in kind for a service supply worth less than KHR 50,000 isn’t subject to WHT.
- Any payment in cash or in kind among self-declaration taxpayers won’t be subject to WHT if the income is from the supply of shrink-wrap software, site license, downloadable software, and software bundled with computer hardware.
- Any payment in cash or in kind among self-declaration taxpayers won’t be subject to WHT if the income is from the rental of movable or immovable properties. However, the amount must be recorded in the invoice properly issued by another self-declaration taxpayer.
This new Prakas comes into effect from 29 January 2020. The Prakas No. 1059 MEF.BrK.TD dated 12 December 2003 on tax on profit and other provisions contrary to this new Prakas shall be abrogated.
Adjustment to the determination of specific tax base for certain locally produced goods
The purpose of this Prakas is to modify Prakas No. 139 MEF.BrK dated 19 January 2015 and to provide guidelines for implementing the determination of a specific tax base for certain locally produced goods. This Prakas applies to self-declaration taxpayers doing their businesses of producing certain specific tax goods for supply in Cambodia.
The specific tax base for the locally produced goods, such as beers, wines, cigarettes and cigars, non-alcoholic drinks, and other specific tax goods, is 90% of the invoice price issued to customers, excluding VAT, tax for public lighting (TPL), and specific tax.
This specific tax is due and paid when supplied. The rules for these supplies are the same as the rules for VAT supplies as stated in the tax law. Any provision contrary to this Prakas shall be abrogated.
Authorisation of tax debt instalment payments
To comply with Prakas No. 571, the GDT has provided guidelines for tax debt instalment payments as follows.
Taxpayers can apply to the GDT for tax debt instalment payments by attaching relevant documents, such as latest patent tax certificate, notification letter of tax debt collection, proof of inability to pay taxes for one time, etc.
The GDT will review or analyse some criteria, including taxpayer’s registration update, taxpayer’s ability for tax debt payments, instalment amount requested, taxpayer’s compliance with tax law and regulations, and evidence of taxpayer’s ability to pay instalments on time.
The period for tax debt instalment payments shall be a maximum of three years, and the interest rates are as follows:
- The first year: Exempt from interest.
- The second year: Average market interest rate calculated by the GDT.
- The third year: Additional interest of 2% per month.
If a taxpayer fails to meet the approved instalment schedule, the GDT will revoke its approval and the taxpayer will be subject to penalty and interest, as well as other fines under tax law and regulations.
Rules for using invoices
The MEF has issued Prakas 723 to strengthen the rules for proper use of invoices to ensure the effectiveness and transparency of tax collection.
Under this Prakas, invoices are classified into tax invoices and commercial invoices:
- Tax invoices require the following data: (i) enterprise name, address, and tax identification number of seller or supplier; (ii) invoice serial numbers and issuance date; (iii) name and address of buyer, as well as tax identification number; (iv) description of goods or service, quantity, and unit price; (v) total price of each good, exclusive of all taxes; (vi) each tax amount (i.e. specific tax, TPL, and accommodation tax) and VAT; and (vii) signature and name of seller and buyer.
- Commercial invoices require the following data: (i) enterprise name, address, and tax identification number of seller or supplier; (ii) invoice serial numbers and issuance date; (iii) name and address of buyer; (iv) description of goods or service, quantity, and unit price; (v) price inclusive of taxes of each good; and (vi) signature and name of seller.
Medium and large taxpayers supplying goods or services shall issue tax invoices to customers who are self-declaration regime taxpayers, and issue commercial invoices to end-user customers. Small taxpayers shall issue commercial invoices to their customers.
Financial and banking institutions, insurance enterprises, and other business operations that aren’t able to issue invoices are exempt from the above invoicing obligations, but other clear and valid records or documentation are required to be reviewed by the tax authority.
It’s important to note that medium and large taxpayers aren’t allowed to input credit claims on purchases from small taxpayers, but the disallowed input VAT is treated as a deductible expense for CIT calculation purposes.
Anyone who issues fake invoices will be required to pay taxes as shown on the fake invoice within seven days of the date of issuing that invoice. Failure to issue invoices, or issuance of improper or fake invoices, will be considered as acts of obstruction in implementing tax regulations and will be penalised under the tax law. This Prakas will be effective from 1 January 2020 onwards. Any provision contrary to this Prakas shall be abrogated.
Implementation of WHT for insurance enterprises
To comply with the new Article 21 of the tax law and Article 8 of Prakas No. 490 MEF.BrK dated 30 April 2018, the GDT has provided guidelines for WHT implementation for insurance enterprises who reinsure their life insurance policies with a non-resident taxpayer.
The guidelines are:
- Any insurance enterprise who makes any net life reinsurance premium payments to a non-resident taxpayer is subject to WHT as stated in Article 26 new (one) of the tax law.
- If the amount of net life reinsurance premium is negative, the insurance enterprise is allowed to take the negative net amount to offset against the gross life reinsurance premiums in the following months.
- Life insurance enterprises will have the penalties and interest waived if they voluntarily file their amended WHT returns and pay the past underpaid WHT by 31 December 2019.
The GDT requires all life insurance enterprises carrying out their businesses in Cambodia to comply with the instruction.
Amendment to guidelines on implementation of WHT on dividend distributions
The MEF issued Prakas No. 372 to replace Prakas No. 518 MEF.BrK of 2017 on the guidelines for implementation of WHT on dividend distributions as stated in the new Articles 26 and 33 of the Law on Taxation.
Notable points of the new Prakas include the following:
- The conversion of retained earnings to share capital is not considered a dividend distribution if the conversion is approved by the company’s board of directors and the relevant competent authorities.
- If a resident taxpayer has undistributed retained earnings, any reduction of share capital is considered a dividend distribution and subject to 14% WHT on the portion distributed to non-residents. The amount considered distributed dividends subject to WHT is capped at the amount of undistributed retained earnings of the company in the balance sheet.
- If shareholders sell all or a portion of the shares of a resident company, the retained earnings attributable to the disposed shares are considered a dividend distribution at the time of the share disposal, regardless of whether the retained earnings were previously converted to share capital.
The retained earnings that are subject to WHT as noted above will not be subject to WHT again when the company distributes retained earnings as dividends to shareholders in the future. Prakas No. 518 MEF.BrK is abrogated.
Cambodia introduces transfer pricing rules
On 10 October 2017, the MEF issued Prakas No. 986 to provide ‘rules and procedures on income and expense allocation among related parties’ (known as the ‘Local Transfer Pricing Rules’), which is effective immediately. The Prakas represents one of the most important developments in the Cambodian tax regulations in the last 20 years. In addition to being in line with Cambodia’s tax reform plans, this regulation also demonstrates Cambodia’s commitment to aligning with global tax frameworks on transparency and combatting tax avoidance. See Transfer pricing in the Group taxation section for more information.
Incentives for employment/training of Cambodian workers
To comply with Prakas No. 1059, No 1173, and No. 443 as a contribution to improving the living standards, expanding the overseas working market, and providing more skills training for Cambodian workers, the MEF has issued the following guidelines:
- ToS exemption for seniority payments prior to 2019 and from 2019 onwards for Cambodian staff.
- An enterprise’s expenses for seniority payments prior to 2019 and from 2019 onwards are allowed as deductible expenses in the current tax year for CIT purposes.
- VAT exemption for private recruitment agencies when providing services involving the recruitment, training, sending, and supervision of Cambodian workers or new trainees to work abroad.
Determination of tax base for stamp tax on the transfer of ownership rights of immovable property
The MEF recently issued Prakas No. 343 to determine the tax base for stamp tax on the transfer of ownership rights of immovable property. This Prakas applies to the transfer of ownership rights of immovable property, only buildings or/and land, located in the capital and provinces in the Kingdom of Cambodia.
The Prakas states that stamp tax is 4% of the price of the immovable property. The price used in this calculation is the higher of the price as determined by the information in the annexes of the Prakas and the price determined in the ownership transfer agreements or other related legal documents.
Prakas No. 962 MEF.BrK, dated 28 August 2014, on the determination of the tax base for stamp tax on the transfer of ownership rights of immovable property, and any other provisions contrary to this new Prakas, will be abrogated.
Revised tax base for tax for public lighting (TPL)
The MEF has issued Prakas No. 976 to revise the current tax base for the TPL on the supplies of alcohol and tobacco products for each supply transaction. This Prakas applies to the supplies of alcohol and tobacco products after the products are imported or produced in Cambodia.
The revised TPL base shall be determined as follows:
- For producers and importers, the TPL base is the price recorded on the invoice inclusive of all taxes, except VAT and TPL itself.
- For further supply of the products to distributors/consumers, the TPL base is equal to 20% of the price recorded on the invoice inclusive of all taxes, except VAT and TPL itself.
Please note that before this Prakas, TPL was imposed at 3% on the invoice price at every supply of alcohol and tobacco products. TPL is due and payable at the time of supply. The rules of supply for TPL purposes shall be the same as the rules of VAT supply as stated in Article 62 of the Law on Taxation. Taxpayers who supply TPL products shall have their obligations to submit tax returns and make monthly payments of TPL no later than the 20th day of the following month. Prakas 976 is now effective.
Amendment to Article 7 of the Sub-Decree on the Establishment of a Social Security Scheme on Healthcare for Persons Defined by the Provisions of the Labour Law
The Royal Government of Cambodia has issued Sub-Decree No. 140 dated 26 August 2017, which amends Article 7 of Sub-Decree No. 1 (dated 6 January 2016) on the Establishment of a Social Security Scheme on Healthcare for Persons Defined by the Provisions of the Labour Law.
Previously, an employer and employee who are under the provisions of the Law on Social Security Schemes for persons defined by provisions of the Labour Law were required to continue paying healthcare benefits based on a 50% split between the employer and employee (i.e. 1.3% of average monthly wage each) to the National Social Security Fund (NSSF) until 31 December 2017.
Under the amended Sub-Decree, which is effective from 1 January 2018, the obligation to pay the contribution of healthcare as stated in the above paragraph is the full burden (100%) of the employer.