Cambodia

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:

1. 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.

2. Overseas lawyer service fee expenses supplied by law firms.
3. Independent director fee expenses.
4. Expenses on risk rating assessment services provided by Moody, S&P or Fitch, the agencies recognised by the National Bank of Cambodia.
5. Monthly fees, bank charges and TT fees and charges related to money settlement transactions, money transfers or inward remittance services for customers or the bank itself from overseas banks.
6. Expenses on overseas transfers for customers.
7. Expenses on transactions to obtain overseas loans (e.g. interest and other charges by the lenders).
8. 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.
9. 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.

10. 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 1) tax relief for a rent-free period during construction, improvements or reparation and 2) 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 withholding tax, 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.

Some other 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:

1. Extension of capital gains tax (CGT) 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).
2. Exempt penalty and interest for voluntarily filing amended tax returns until the end of June 2025.
3. 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 General Department of Taxation (GDT) of the Ministry of Economy and Finance

The Cambodian Government issued a sub-decree to establish a special tax audit unit under the supervision of the GDT of the Ministry of Economy and Finance 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 withholding tax (WHT) and specific tax (SPT) rates for airline companies

The Ministry of Economy and Finance (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.​

Amendment to SPT rates for domestically produced non-alcoholic drinks

Effective from 1 September 2023, the SPT rates for domestically produced and supplied non-alcoholic drinks will be as follows:

• 1)  15% SPT rate for all types of energy drinks.
• 2)  5% SPT rate for certain non-alcoholic drinks, including:
  • flavoured UHT milk-based drinks
  • soya milk drinks
  • coconut water-based drinks
  • coffee-based drinks or coffee flavoured drinks, and
  • non-aerated beverages ready for immediate consumption without dilution.
• 3)  10% SPT rate for all other non-alcoholic drinks not mentioned above.

The SPT calculation base will follow Prakas 012 MEF.BrK dated 14 January 2020 on the amendment to the SPT base for certain locally produced goods.

Implementation of value-added tax (VAT) on imported cigarettes

With the Samdech Prime Minister’s endorsement, the MEF issued Instruction 017 on the implementation of VAT on imported cigarettes. It stipulates the following:  

• For all cigarettes imported for sales or redistribution in the domestic Cambodian market, enterprises must collect 10% VAT on them. Input VAT paid at the time of import or on local cigarette purchases is allowed as a VAT credit that can be offset against output VAT.
• For cigarettes imported for export purposes, enterprises must only pay VAT once at the time of importation.
• Enterprises must submit tax returns and pay taxes in accordance with laws and regulations in force.

This Instruction will be effective from 1 August 2023.

Instruction on advance income tax payments on dividend distributions

The instruction sets out the following guidelines:

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:

• For a QIP:
  • Dividends must be paid out of the retained earnings that have been subject to annual income tax at 0%.
  • 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.
  • Dividends must be paid out of the retained earnings that have been subject to the annual income tax rates of 20% or 30%.
  • Dividends must be paid out of the company’s income earned in the current tax year that hasn’t been subject to annual income tax yet.
• For non-QIPs that are subject to 20% or 30% income tax:
  • 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%.
  • Dividends must be paid out of the income earned during the current tax year that hasn’t been subject to annual income tax yet.

Advance income tax payments on dividend distributions

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

• 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.
• 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.
• 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 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:

• 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.
• 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 business-to-business (B2B) transactions. This requirement has been removed.
• For B2B transactions, a credit note issued by a non-resident supplier is allowed to adjust the taxable amount.
• The instruction will be effective 60 days after its issue date stated above.  

Insurance technical reserves

The 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 result in 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.

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

The 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 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 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 MEF 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 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 RGC has announced the delay of implementation of the capital gains tax until the end of 2025.