Cambodia

Income tax incentives for the expansion of Qualified Investment Projects

The Ministry of Economy and Finance (MEF) issued Prakas 313 dated 10 May 2024 to provide further guidelines for income tax incentives for the expansion of QIP projects 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 QIP projects:

1. expansion of existing production
2. expansion through product line diversification within the same lines
3. expansion through equipping new technologies for improvement of productivity and environment projection
4. other expansion activities to be approved by the government.

The expansion of the QIP project 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 incentivised QIP 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). If the investment capital is paid on an instalment basis, the tax exemption shall be proportionate based on the amount paid and used for construction materials and new production equipment in each tax year.

Please refer to the Prakas for various examples of income tax-exempt income calculation, including the proportional calculation based on the instalment injection of the investment capital each year.

The income tax exemption from the QIP expansion shall start when the enterprise earns its first income from the QIP expansion activities.

The QIP expansion is also exempted from monthly prepayment of income tax of 1% during the tax holiday period. Minimum tax exemption for the expansion is also granted if there is an independent audit report. 

However, income tax incentives could be revoked if certain conditions aren’t met, including failure to use the expansion investment capital on new construction materials and production equipment, failure to inject the full amount of the expansion investment capital before the expiry of the tax holiday period or failure to comply with tax obligations in Cambodia. In this case, the tax authority notifies the Council for the Development of Cambodia (CDC) or the Municipal/Provincial Investment Sub-committees of the CDC to take necessary actions per the laws enforced.

Any provisions which are contrary to this Prakas shall be abrogated.      

Market interest rates of loans in 2023

The General Department of Taxation (GDT) has issued notification No. 3830 to determine the market interest rates of loans in 2023 based on the annual average interest rates of 12 local commercial banks. Under this Notification, the 2023 market interest rates are:

1. for borrowing in KHR = 9.66%
2. for borrowing in USD = 8.75%.

The above interest rates only calculate tax on fringe benefits for loans provided to staff and determine the capped interest rates of loans from related parties.

Reminder of annual income tax return filing for 2023

The General Department of Taxation (GDT) has issued notification No. 2284 to inform enterprises and taxpayers of their payment and return filing obligations for the 2023 annual income tax.

Key instructions for filing 2023 income tax are as follows:

1. Enterprises need to file annual income tax returns using the online ToI E-filing system by 31 March 2024.
2. Enterprises approved to use a tax-year end different from the calendar year must file their tax returns and pay annual income tax no later than three months after the end of the tax year.

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

4. Employees or tax agents responsible for filing annual and monthly tax returns on behalf of a taxpayer 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 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.

Public Lighting Tax (PLT)

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

Effective from 1 April 2024, the PLT rate for the supply of alcoholic or tobacco products will be 5% (five percent).

Detailed rules and procedures for managing the PLT collection will be determined by a Prakas of the Minister of Economy and Finance.​

Amendment to Specific Tax (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
• 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 Ministry of Economy and Finance issued Instruction 017 on the implementation of VAT on imported cigarettes. It stipulates the following:  

1.  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.

2.  For cigarettes imported for export purposes, enterprises must only pay VAT once at the time of importation.

3.  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 qualified investment project (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 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:

• 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 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 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 2024.