Introductory Guide - Cambodia’s Business Law Firm€¦ · page | 2 Main Laws The main law regarding taxation in Cam-bodia is the Law on Taxation (“LOT”). The LOT was adopted

Introductory GuideTaxation System in Cambodia

* This guide is part of our publication series explaining the tax system in Cambodia. Subsequent publications can be subscribed for at [email protected]

AbbreviAtions 1introduction 2Key FActs 2MAin LAws 2recent deveLopMents 3regiMe systeM oF tAxAtion 4residency And source ruLes 5

1. AnnuAL tAx coMpLiAnce For reAL regiMe tAxpAyers 6 1.1 Corporate Income Tax/Tax on Profit 6 1.1.1 Tax Rate 6 1.1.2 Tax Depreciation 7 1.1.2.1 Tangible Asset 7 1.1.2.2 Intangible Asset 7 1.1.2.3 Depletion of Natural Resources 7 1.1.3 Deductible Expenses 7 1.1.4 Non-Deductible Expenses 8 1.2 Capital Gains Tax 8 1.3 Minimum Tax 8 1.4 Calculation of TOP Liabilities 8 1.5 Tax Relief for TOP 8 1.5.1 Foreign Tax Credit 8 1.5.2 Tax Losses 9 1.5.3 Withholding Tax Credit 9 1.5.4 Prepayment of Tax on Profit Brought Forward 9

2. MonthLy tAx For reAL regiMe tAxpAyers 10 2.1 Prepayment of Tax on Profit 10 2.1.1 1% PTP Exemption 10 2.2 Tax on Salary /Personal Income Tax 11 2.2.1 Rebate of Dependent Child and Spouse 11 2.3 Tax on Fringe Benefit 11 2.4 National Social Security Fund 12 2.5 Withholding Tax 12 2.6 Value Added Tax 12 2.6.1 VAT for Importation 12 2.6.2 VAT Input Non-Creditable 12 2.6.3 Duty Rate For Imported Product 12 2.6.4 Taxable Supplies 13

TABLE OF CONTENTS

2.6.5 Non Taxable Supplies 13 2.7 Accommodation Tax 13 2.8 Public Lighting Tax 13

3. other tAxes 14 3.1 Patent Tax 14 3.2 Property Tax 14 3.3 Stamp Duty Tax 15 3.3.1 Tax Exemption 15 3.3.2 Tax Deduction Allowance 15 3.4 Specific Tax 16 3.5 Indirect Tax 16

4. QuALiFied investMent project 17 4.1 Type of QIP 17 4.2 Investment Incentive for QIP 17 4.3 TOP Incentive 17 4.4 Custom Duty Exemption Incentive 17

5. tAx And stAtutory Audit 18 5.1 Tax Audit 18 5.2 Book Keeping 18 5.3 Statutory Audit Requirement 18

6. dividends And shArehoLder current-Account 19 6.1 Dividends 19 6.1.1 Additional Profit Tax on Dividend Distribution 19 6.2 Shareholder Current-Account 19

7. Anti-AvoidAnce provisions And trAnsFer pricing 20 7.1 Introduction 20 7.2 Controlled Foreign Company Rules 20 7.3 Thin Capitalization 20 7.4 Permanent Establishment 20 7.5 Transfer Pricing 21 7.6 Double Tax Agreement 21

prActice AreAs 22contAct 23

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ASEAN Association of Southeast Asian NationsAT Accommodation TaxCDC Council for the Development of CambodiaGDT General Department of TaxationKICPAA Kampuchea Institute of Certified Public Accountants and AuditorsLOI Law on InvestmentLOT Law on TaxationMEF Ministry of Economy and FinanceMT Minimum TaxNSSF National Social Security FundPE Permanent EstablishmentPLT Public Lighting TaxPTP Prepayment of Tax on ProfitQIP Qualified Investment ProjectSTCMS Specific Tax on Certain Merchandise and ServicesSDT Stamp Duty TaxTOFB Tax on Fringe BenefitTOP/CIT Tax on Profit/ Corporate Income TaxTS Tax on SalaryVAT Value Added TaxWHT Withholding TaxWTO World Trade Organization

Abbreviation

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Main Laws

The main law regarding taxation in Cam-bodia is the Law on Taxation (“LOT”). The LOT was adopted in 1997 and revised in 2003. In 2004, the Ministry of Economy and Finance (“MEF”) also issued the Prakas on Tax on Profit. This Prakas is extremely important for understanding most Cambo-dian tax regulations because it defines many terms used in the other tax regulations;

meaning that the Prakas on Tax on Profit applies to more regulations than the TOP only. In parallel, the Law on Commercial Enterprises is amongst the main legal texts and is largely related to tax matters, so are the Law on Custom and the Law on Investment (“LOI”), establishing rules and incentives regarding the investment in Cambodia and foreign trade.

Introduction

This guide sets out a brief introduction to the tax regulations of the Kingdom of Cambodia.

Key Facts

Membership of Economic GroupsCambodia is a member of the United Nations, the World Bank and the International Mon-etary Fund. Cambodia joined the WTO on 13th October 2004 and has been a full member of ASEAN since 30th April 1999.

Website of Tax/Finance Authorities

General Department of Taxation of Ministry of Economy and Finance www.tax.gov.kh/en/

Ministry of Commerce www.moc.gov.kh/

Ministry of Economy and Finance www.mef.gov.kh/

Main Tax Rates

CIT/TOP rate 20%

VAT/GST standard rate 10%/0%

Personal Income Tax/TS top rate 20%

WHT ratefor resident taxpayers: 4-15%for non-resident taxpayers: 14%

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Recent Developments

Stamp Duty Tax and New Scheme (“SDT”)The Stamp Duty Tax was initially enacted by the Cambodian government in 1991, fol-lowed by an amendment in 1995. Currently, the National Assembly has amended Arti-cle 40 of the Financial Law 1995 which in-cluded the second amendment of the SDT which was promulgated on 26 December 2012 under the name Financial Law 2013. According to the SDT, the Royal Govern-ment of Cambodia has imposed a new tax at 0.1% of the value of the transferred share capital, and increased the flat tax rate from 100,000 (one hundred thousand) Khmer Riel (approximately US$25) to 1,000,000 (one million) Khmer Riel (approximately US$250) on legal documents (for example, registration letters, merging approval letters, and de-registration approval letters).

Immovable Property TaxThe Property Tax Law was promulgated in 2010, and was implemented in 2011. Under the Property Tax Law, the immoveable prop-erty tax is an annual tax to be collected every year at the rate of 0.1% of all property val-ued over 100 million (one hundred million) Khmer Riel (approximately US$25,000). For purposes of calculating one’s tax liability under the Property Tax Law, the tax base is 80% of the property value (land value and building value), and the property value will be determined by the Property Evaluation Commission.

Rice Enterprises Enterprises carrying on a business related to the growing and trading of paddy rice and exporting milled rice will obtain an invest-ment incentive similar to that of a QIP. Un-der this tax incentive scheme, there is a MT and TOP exemption for a “Trigger Period,” plus 3 (three) years, with an additional “Pri-ority Period” of 3 (three) years. Some VAT exemptions are also included in the invest-ment incentives: supplies of paddy rice in Cambodia are

taxable at a rate of 0% supplies of milled rice in the Cambodia

are taxable at the rate of 10% exports of rice are taxable at the rate of 0% a tax credit is allowed for the input tax

paid for growing, trading and exporting of rice.

In addition to these tax incentives, there are additional VAT incentives for the agriculture sector. Generally, the VAT is not applied to supplies and the importation of certain prod-ucts of the agriculture sector. The products included in this VAT exemption include fertilizer, seeds, animal medicines, animal feed, animals, and agricultural machinery and tools.

Initial Public Offerings Another recent development, concerning the economic environment of Cambodia, has been the launch of the Cambodian Stock Exchange. Wanting to ease the flow of capi-

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tal and increase the economic development of the country, the MEF and the Korea Ex-change have established the Cambodia Se-curities Exchange Co., Ltd, in 2010. There are two types of incentives in the Securities Sector:

listed equity and/or debt issuing companies shall benefit from a TOP rate of 18% for 3 (three) years after the issuance of its securities.

public investors shall receive a 50% reduc-tion of WHT on interest and/or dividends for 3 (three) years starting from the launch of the securities market.

Regime system of taxation

The Cambodian Tax system is divided into three regimes:• realregime•simplifiedregime•estimatedregime

Enterprises which are not registered as a sole proprietorship are taxable under the real regime system regardless of the type of business activity or the level of turnover. The sole proprietor-ship shall be classified under real regime system if one of following conditions is met:•levelofturnoverexceedsacertainthreshold•typeofbusinessactivitiesfallintocertaincategories

Level of Turnover

business Activities

LeveL oF turnover

(KhMer rieL)

LeveL oF turnover

(us$)note

Supply of goods or mixed supply (i.e goods and services)

125 million or more

31,250 or more

Within any period of 3 (three) consecutive months

Supply of service60 million or more

15,000 or more

Within any period of 3 (three) consecutive months

Government contract30 million or more

7,500 or more

Within any period of 3 (three) consecutive months

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Type of Business ActivitiesA sole proprietorship engaging in import and export, or classified as a QIP will be taxed under the real regime system.

Additionally, the simplified regime has not been implemented yet, and most of the companies fall under the real regime system. As such, only the tax obligations of the real regime taxpayers will be further elaborated upon.

Residency and Source Rules

Under the real regime taxation system, residency and source of income shall be a benchmark in determining the applicable tax rate on incorporated entities’ and physical persons’ income. In that, resident taxpayers are required to pay taxes on their worldwide income, and non-resident taxpayers shall be subject to pay taxes on their Cambodian source income. Cambodian source income for physical persons (i.e. salary) and incorporated entities are a bit different.

Residency Rule for Physical PersonThere is no personal income tax applicable in Cambodia. Therefore, a natural person’s income refers to salary and other benefits ob-tained under the scope of their employment activities only. This income shall be subject to Tax on Salary (“TS”). The residency of a nat-ural person referred to as an employee shall be a benchmark in determining the applica-ble rate for TS. By law, a resident employee refers to an employee who has a residence or has a principle place of abode in Cambodia, or is present in Cambodia for more than 182 (one hundred and eighty-two) days in any period of 12 (twelve) months ending in the current tax year. A non-resident employee refers to an employee who is not a resident employee, and receives salary from a Cam-bodian source. For the details of TS, please refer to TS section.

Residency Rule for Legal Entity/Incorporated EntityFor legal entities, the term “resident taxpay-ers” refers to an entity which is established, managed in, or has a principle place of busi-ness in Cambodia. An entity, which is not a resident entity, which maintains a Perma-nent Establishment (“PE”) in Cambodia, is referred to as a non-resident taxpayer. Ad-ditionally, a PE is required to pay tax on its Cambodian source income only.

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1.1.1 Tax Rate

description tAx rAte note

Insurance 5% Plus 0.5% contribution

QIP 0% During Tax Holiday Period

Oil or Natural gas production, natural resources exploitation including timber, ore, gold, and precious stone

30%

Paddy Rice and Milled Rice Industry 0%

Enterprise cultivating paddy rice, trading paddy rice, and producing milled rice for expor-tation during incentive period

Legal Entities 20%Standard rate for incorporated entities

1. Annual Tax Compliance For Real Regime Taxpayer

1.1 Corporate Income Tax/Tax on Profit (“CIT”)/(“TOP”)

TOP is imposed on all real regime taxpay-ers and is due within 3 (three) months of the end of the tax year. All resident compa-nies, registered under the real regime system in Cambodia, are subject to TOP on their worldwide income. Non-resident taxpayers/

companies will be subject to TOP on their Cambodian source income only. In general, TOP is calculated based on taxable profit, which includes active and passive income generated during the tax year.

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1.1.2.1 Tangible Asset

Class 1Buildings and structures and their basic components

5% Straight-line

Class 2Computers, electronic information systems, software and data handling equipment

50% Declining Method

Class 3Automotives, truck and office furniture and equipment

25% Declining Method

Class 4 Other tangible properties 20% Declining Method

1.1.2.2 Intangible Asset• Forintangiblepropertyhavinga limited

life, the depreciation rate of each property will be calculated based on the life of the property, using the straight-line method.

• For intangible property with an indefi-nite life, the intangible property shall be depreciated at the rate of 10%, using the straight-line method.

1.1.2.3 Depletion of Natural ResourcesTax depreciation for the depletion of natural resources shall be determined by multiplying the balance of the account for the natural resource with the ratio of the quantity of natural resources produced from the natural resource in the tax year.

1.1.3 Deductible ExpensesUnder the current tax laws, any expenditure to carry on the business of a company is de-ductible in the tax year it was incurred and if that expenditure meets the 3 (three) condi-tions as follows:• theexpenseisactuallyincurredwithsup-

porting documents (i.e. invoice, loan agreement, custom declaration, commer-cial correspondences, etc.);

• itistheresultofeconomicactivities;and• the amount of the taxpayer’s liability is

precisely determined.

Any expenditure that meets the general cri-teria shall be allowed to be deducted unless a specific provision prohibits such a deduction.

1.1.2 Tax Depreciation Per tax regulation, depreciations are calcu-lated according to a straight-line method for class 1 and declining balance method for

classes 2, 3 and 4. The rates to be used are synthesized in the table below. Land is not a depreciable asset for tax purpose.

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1.1.4 Non-Deductible ExpenseSome expenses will not be allowed to be de-ducted for tax purposes. By law, the follow-ing payments will be non-deductible for tax purposes:• entertainment,• extravagantand/orunrelatedbusinessex-

penditures, • non-charitabledonations,• TOPitselfandWHT,TS&TOFBborne

by a company,• taxfinesandpenalties,• various accrued expenses depending on

stipulated conditions, and • lossonanysaleorexchangeofpropertydi-

rectly or indirectly between related persons.

1.2 Capital Gains TaxesThere is no separate capital gains tax in Cam-bodia. By law, gains realized by an enterprise from all types of operations, including capi-tal gains from the sale of various assets dur-ing the business operation or at the close of the business, will be subject to the TOP. As such, capital gains are considered profit and are subject to the TOP at the applicable rate.

1.3 Minimum Tax (“MT”)The MT is an annual tax, and is calculated at the same time as the TOP. The MT is imposed at the rate 1% of annual turnover inclusive of all taxes, except VAT, to all types of legal entities except for QIPs. The MT might become an annual tax liability of an incorporated entity if the MT is higher than the taxable profit multiplied by the applica-ble TOP rate.

1.4 Calculation of Annual TOP liabilitiesHaving adjusted the taxable profit by non-deductible and deductible expense for tax purpose, legal/incorporated entities will be liable for annual TOP liabilities at MT or TOP 20% whichever is higher.

1.5 Tax Relief for TOP1.5.1 Foreign Tax CreditA resident taxpayer who has received income from foreign sources and who has paid taxes according to foreign tax laws shall receive a tax credit to be applied against the TOP to be paid in Cambodia. However, receiving the tax credit is conditioned on the presen-tation of documents confirming the foreign tax payment. The foreign tax credit allowable by the Cambodia Tax Administration is the lower of:• thetaxamountpaidintheforeigncountry,or• theamountobtainedbymultiplyingthe

total TOP from all sources for the same period calculated at the applicable TOP rate (i.e. 20%, 30%, 5%, or 0%) with the ratio of income from that foreign source to total income from all sources.

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1.5.2 Tax Losses Tax losses may be credited against the taxable profit for the following tax year, for a period of five (5) consecutive years, where the fol-lowing conditions are met:• thebusinessactivityofthecompanymust

not have changed;• theownershipofthecompanymustnot

have changed; • nounilateraltaxreassessmentonthetax

losses has been made by the tax adminis-tration; and

•thecompanyfilesitstaxlossesinitsannualtax return within the prescribed deadline.

1.5.3 Withholding Tax (“WHT”) CreditAny income having been withheld by a payer before making a payment will create a WHT credit for the payee to offset against annual tax liabilities by that withholding amount, where the payee has declared said income in gross amount (i.e. inclusive of WHT with-held by payer).

1.5.4 Prepayment of Tax on Profit (“PTP”) Brought ForwardThe PTP will be used to offset against an-nual tax liabilities, and if the PTP amount paid during the year exceed the annual tax liabilities, the PTP paid that exceeds the an-nual tax liabilities will be carried forward to offset against the annual tax liabilities of the following tax year.

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2. Monthly Ta x For Real Regime Taxpayer

The following is an executive summary for monthly tax obligations, applicable tax rates, and prescribed deadlines for the submission and payment of taxes to the Cambodian Tax Administration for all taxpayers under the real regime.

type oF tAx tAx rAte due dAte reMArK

Prepayment of TOP

1% 15th of the

following month

TS 0% - 20% 15th of the

following month

TOFB 20%15th of the

following month

VAT 0%/10% 20th of the

following month

WHT 4%-15%15th of the

following month

Tax rate: Exemption, 4%, 6%, 10%, 14%, and 15%. Refer to WHT Section below

AT 2%15th of the

following monthHotel and Guest House Service

Public Lighting Tax

3%15th of the

following monthDistribution of Cigarettes and Alcohol

Specific TaxTax Rate based ontype of

goods and service supplied.15th of the

following monthPlease refer to the Specific Tax section

2.1 Prepayment of Tax on Profit (“PTP”)Resident taxpayers must pay monthly 1%PTP on monthly turnover inclusive of all taxes, except VAT. The PTP must be paid by the 15th day of the following month. The PTP can be used to offset against the annual TOP or MT liability, whichever is higher.

2.1.1 1% PTP ExemptionThe following entities are exempt from paying the 1% PTP: • QIPindustryduringtheTaxHolidayPeriod• anylegalentitieswhichpurchaseandculti-

vate paddy rice, and produce milled rice for exportation during the tax incentive period

• non-for-profitorganizationrecognizedbyMEF

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2.2 Tax on Salary (“TS”)/Personal Income TaxThere is no personal income tax applicable in Cambodia. However, there is TS applicable to an individual as an employee. A resident employee’s salary is subject to a progressive tax rate from 0% to 20% per month. Specifically, a non-resident employee is subject to a flat rate of 20% on salary received from Cambodian sources.

2.2.1 Rebate for Dependent Child and SpouseOnly resident employees, with a minor de-pendent or spouse having only an occupa-tion as housewife, are entitled to a rebate of 75,000 (seventy-five thousand) Khmer Riel (approximately 18.75 US$) for every de-pendent child and spouse of the employee.

The minor dependent is defined as follows:• achildoftheemployeewhoislessthan14

(fourteen) years old; or• achildoftheemployeewhoisafulltime

student at a recognized degree granting educational institution and who is not older than 25 (twenty-five) years old. The education certificate of the child must be supported.

2.3 Tax on Fringe Benefit (“TOFB”)Fringe benefits provided directly or indirectly to physical persons in cash or in kind are sub-ject to TOFB at a rate of 20% of the gross value of the benefits. The value of fringe benefit is the fair market value inclusive of all taxes. The following benefit will be con-sidered fringe benefits:• avehicleofanykind;• food;• ahouseorhousing;• utilities;• loanlessthanmarketrateofinterest;• discountonthesaleofgoods;• educationalassistancenot related to the

work of the employee;• lifeandhealthinsurancepremiumunless

the same benefit is provided to each em-ployee regardless of employment or job classification;

MonthLy sALAry (KhMer rieL)

MonthLy sALAry (us$) 1us$ = 4,000 KhMer rieL

ts rAte

0 to 500,000 0-125 0%

500,001 to 1,250,000 125.01 – 312.50 5%

1,250,001 to 8,500,000 312.51 – 2,125 10%

8,500,001 to 12,500,000 More than 2,125.01 – 3,125 15%

Over 12,500,000 Over 3,125 20%

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• un-reasonableandun-necessaryexpensetothe business of the employer;

• contribution to social security funds inexcess of the levels provided in law;

• pensionplaninexcessof10%oftheem-ployees monthly salary exclusive fringe benefits;

• expensesonentertainment,amusement,orrecreation which is not part of an employ-ment relationship.

2.4 National Social Security Fund (“NSSF”)Companies employing 8 (eight) or more employees are required to contribute to the NSSF for work related accidents. Such a con-tribution is deemed to be a particular obliga-tion of the company. The contribution rate is 0.8% of the average wage with a maximum contribution 8,000 (eight thousand) Khmer Riel (equivalent to 2 US$). The contribution payment is due on the 15th of the following month.

2.5 Withholding Taxes (“WHT”)Any resident taxpayers who make payments on interest, royalties, rental and other in-come connected to use property, dividend and compensation of technical or manage-ment services to non-resident taxpayers shall be required to withhold the WHT at 14%.Certain payments to resident taxpayers are also subject to WHT at the following rates:• rental(10%WHT),• interest(15%WHT,exceptpaymentto

local financial institutions), • services(15%WHT,exceptpaymentto

registered taxpayers with a proper VAT

invoice), and • royalties(15%WHT).WHT is due whenever the payment is made or when the expense is recorded.

2.6 Value Added Tax (“VAT”)The Tax Administration imposes 2 (two) VAT rates. The standard VAT rate of 10% applies to all taxable supplies. Additionally, goods exported from Cambodia and services rendered outside of Cambodia will be sub-ject to a VAT rate of 0%. The deadline for submission and tax payment shall be on the 20th of the following month.

2.6.1 VAT for Importation VAT base for the importation of products is as follows:CIF x Import duty = “X”(CIF + “X”) x Specific tax rate = “Y”(CIF + “X”+ “Y”) = VAT base; [VAT = VAT base x 10% VAT]

2.6.2 VAT Input Non-CreditableIt would not be allowed for claiming VAT input as credit for the following payment:• entertainment (except forVATtaxpayer

holding such entertainment business)• carwhichisequippedwith less than10

(ten) seats (except for business of car trad-ing or car rental)

• gasoline(exceptforgasolinetrading)

2.6.3 Duty Rate for Imported Products Before releasing the imported goods from Customs, import duties will be levied on all imported goods, except for qualified goods

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which are specifically exempted by law and regulation.There are three types of duties and taxes that will be imposed on imported goods:• CustomsImportDutiesatanad-valorem

rate;• SpecialTaxforcertaingoods;• VAT.The tariff bands:• 0%forexemptgoodssuchasmedicaland

educational materials (covering 5% of tar-iff lines)

• 7%forprimaryproductsandrawmaterials• 15% for capital goods, machinery and

equipment, and locally available raw ma-terials

• 35%forfinishedproducts,alcohol,petro-leum products, vehicles, precious metals and stones

2.6.4 Taxable SuppliesTaxable supplies for real regime taxpayers include the following:• thesupplyofgoodsorservicesbyataxable

person in Cambodia• theappropriationofgoodsforhisownuse

by the taxable person• makingagiftorsupplyofgoodsorservices

at below cost by the taxable person• importationofgoodsintothecustomter-

ritory of Cambodia

2.6.5 Non Taxable Supplies Supplies that meet the following criteria will be considered non-taxable supplies:• publicpostalservice• hospital,clinic,medical,anddentalser-

vices and the sale of medical and dental goods incidental to the performance of such services

• serviceoftransportationofpassengerbywholly owned government entities

• insuranceservices• primaryfinancialservices• importationforpersonalusethatexempt

from custom duties• non-profitactivitiesrecognizedbyMEF

2.7 Accommodation Tax (“AT”)The AT is imposed at 2% of the accommo-dation charge/fee in a hotel while including other taxes and service charges except VAT. In addition, “Hotel” refers to Hotel, Hotel Apartment, Suite Hotel, Resort Hotel, Mo-tel, Bungalow, Guesthouse, Tourist Camp-ing, and other accommodation services.

Incorporated entities who supply accommo-dation services are responsible for the pay-ment of this tax to the tax administration by the 15th of the following month that the supplies were made.

2.8 Public Lighting Tax (“PLT”)The PLT is imposed at the rate of 3% on the supply of all alcoholic drinks and cigarettes. Appropriation for personal purpose, for em-ployees, or third parties of such a product shall be also subject to PLT. The person who supplies these products is responsible for the payment of this tax to the tax administration by the 15th of the following month the sup-plies were made.

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3.1 Patent TaxA new company that is registered during the first 6 (six) months of the tax year will be re-quired to pay the Patent Tax of 1.14 million (one million one hundred and fourty thou-sand) Khmer Riel (approximately US$285) of for the whole year, but a company regis-tered during the last 6 (six) months of the tax year will only be required to pay half of the Patent Tax. Existing company shall be required to pay the annual Patent Tax of US$285 by 31 March of the following year.

A taxpayer who has branches, warehouses, factories or workplaces for the same business activity in one jurisdiction is only required to make one Patent Tax payment. However, if the taxpayer has branches, warehouses, facto-ries or workplaces in different jurisdictions or different business activities, then the taxpayer will be required to pay the Patent Tax in each jurisdiction it operates and for each business activity.

3.2 Property TaxImmoveable property means land, houses, buildings, and other construction attached to the land. The immoveable property tax is an annual tax to be collected every year by the end of September. The immovable property tax is applied to 80% of the property valued above 100 million (one hundred million) Khmer Riel (approximately US$25,000) at the flat rate of 0.1% of the value of the prop-erty. The property value will be determined by the Property Evaluation Commission.

Certain properties are exempt from the im-moveable properties tax. Those properties include:• agriculturalland• landownedby the stateor government

institutions• landownedbythecommunityoraperson

for the purpose of: •religiousandcharitableactivities,and •nopartofthepropertyorearningsofsuch property is used for any private interest• landownedbythediplomaticandcon-

sular missions, international organizations and agencies of technical cooperation of other governments

• buildingthatarelessthan80%completed

The following calculation demonstrates how the immovable properties tax is to be calculated:Immovable properties tax = [(total properties value x 80%)-100,000,000] x 0.1%.

3. Other Taxes

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3.3 Stamp Duty Tax (“SDT”)The Financial Law 2013 provides that the SDT will be applied in the following situations:

TransacTion Tax raTe

Value of immovable property for the transfer of ownership or pos-session right constituting a building and/or land, or capital contri-bution into company in the form of immovable property

4%

Value of vehicles or other means of transportation for the trans-fer of ownership or possession right of vehicles or other means of transportation

4%

Value of the transferred share capital 0.1%

Value of goods or service agreement by using government’s budget 0.1%

Legal documents (for example: registration letter, merging approval letter, and de-registration approval letter)

1,000,000 Khmer Riel (250US$)

3.3.1 Tax Exemption Any transfer of ownership or possession of a land concession which has been granted by the government is exempted from the SDT.

3.3.2 Tax Deduction AllowanceAny transfer of ownership or possession of immovable property between relatives is allowed a deduction from the price before calculating the SDT liability. The amount

allowed to be deducted from the price of the property is as follows:• 200,000,000 (two hundred million)

Khmer Riel ( approximately 50,000US$) in an immovable property transfer in the form of a succession;

• 100,000,000 (one hundred million)Khmer Riel (approximately 25,000US$) in an immovable property transfer in the form of a donation.

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3.4 Specific Tax on Certain Merchandise and Services (“STCMS”)STCMS is an excise tax which imposes various tax rates to the importation or local produc-tion or supply of certain merchandise and services. The local taxpayer producing or supplying the merchandise or services is responsible for paying this tax to the tax administration by the 15th of the following month that the supplies are made. STCMS shall be applied, but not limited to the following:

ProducT/service Tax raTe

Beer 25%

Wine 10%

All kind of Cigarette 10%

Motorcycle cylinder volume of more than 125 CC 10%

Entertainment services such as massage, karaoke, snooker, disco-theque, and spa

10%

Air ticket 10%

Telecommunication services 3%

3.5 Indirect TaxVAT is an applicable indirect tax under the Cambodian taxation scheme. For more details on the VAT, please refer to the VAT section (i.e. 2.6. Value Added Tax)

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4. Qualified Investment Project (“QIP”)

The CDC functions as a one-stop service office for licensing QIPs. After obtaining the Final Registration Certificate, QIP will be duly established and will benefit from the investment incentive and investment guarantee. However, all QIPs are required to submit documents to the CDC annually in order to receive a Certificate of Compliance. The required documents must be submitted to the CDC within 90 (ninety) days after financial year end. If such documents are not submitted, and no Certificate of Compliance is issued, then the enterprise might lose its QIP status.

4.1 Type of QIPThe QIP shall be categorized as follow: • DomesticQIPmeansaQIPthatdoesnot

produce goods or services for the purpose of exporting them.

• ExportQIPmeansaQIPthatdoesprod-uct goods or services for the purpose of exporting them.

• Supporting Industry QIP means a QIPthat produces goods or services with the aim of supplying to export QIPs as substi-tution for regularly imported raw materials or accessories.

4.2 Investment Incentive for QIPAn enterprise that qualifies as a QIP can choose only one of the three options as below:a. TOP Incentive and Investment Guaranteeb. Special Depreciation and Investment

Guaranteec. Investment Guarantee (investor does not

require any incentives)All of these choices still benefit from custom duties exemptions. Generally, most investors select option “a”.

4.3 TOP IncentiveA QIP is entitled to an exemption from the TOP imposed under the LOT by obtaining a profit tax exemption period as below:• thetaxexemptionperiod(taxholidaype-

riod) is composed of a Trigger Period + 3 (three) years + Priority Period.

Normally, Priority Period of QIP shall be de-termined by the type of project and capital investment.

4.4 Customs Duty Exemption IncentiveCustoms incentives will be based on the type of QIP, as mentioned above:• DomesticQIP:ProductionEquipments

and Construction Materials-Domestic QIP are exempt from Customs Duty.

• ExportQIP:CustomsDutyExemptionsfor Production Equipments, Construction Materials, and Production Inputs-Export QIP are exempt from Customs Duty.

• SupportingIndustryQIP:CustomsDutyExemptions for Production Equipments, Construction Materials, and Production Inputs.

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5. Tax And Statutory Audit

5.1 Tax AuditThe tax authority has the power to perform tax audits• withinthree3(three)yearsofthedateofsubmissionofthetaxreturns.• withinten10(ten)yearsofthedateofsubmissionofthetaxreturnsifthereisevidenceof

obstruction of the implementation of the law.• atanytimewiththewrittenconsentofthetaxpayer.

TyPe of Tax audiT descriPTion

Desk Audit/Limited Audit

Conducted by Department of Large Taxpayers for all large taxpayers; or conducted by Tax Branch for medium taxpayers and covers some types of tax issue.

Comprehensive Audit Conducted by the Department of Enterprise Audit for large and medium taxpayers, and covers all details of all tax compli-ance obligations.

5.2 Book KeepingAll legal entities are required to keep all their documents related to the performance of business in Cambodia for at least 10 (ten)years.

5.3 Statutory Audit RequirementLegal entities located in Cambodia, that meet 2 (two) of the following criteria, are required to have their financial statements audited by an independent auditor registered with the KICPAA:

• annualturnoverof3billion(threebillion)Khmer Riels (approximately US$750,000) and above.

• totalassetsof2billion(twobillion)KhmerRiels (approximately US$500,000) and above, based on the average value of as-sets held during the year subject to audit requirements.

• numberofemployeesof100 (onehun-dred) and above, based on the average number of employees employed during the year subject to audit requirements.

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6.1 DividendsUnder the LOT, a dividend means any distri-bution of money or property that a legal en-tity distributes to a shareholder, with the ex-ception of stock dividends and distributions in complete liquidation of the company.

Dividend income received from a resident taxpayer, by a resident taxpayer shall be ex-empt from TOP and WHT, however, divi-dend income received from a resident tax-payer, by a non-resident taxpayer is subject to a 14% WHT.

6.1.1 Additional Profit Tax on Dividend Distribution (“APTDD”)APTDD is levied at a different rate where the enterprise distributes the dividend to its shareholders. The APTDD will be due on the 15th of the month following the divi-dend distribution.

If an enterprise receives a dividend from an-other enterprise that has paid APTDD al-ready, it shall record the amount of that divi-dend into its dividend account. When that enterprise subsequently distributes dividends to its shareholders, the amount distributed which is taken out of the dividend account shall not be subject to APTDD.

6.2 Shareholder Current-AccountIn the case of one or several shareholders lending money to its/their company, the in-terest rate must be determined at the market rate. The tax department may challenge the interest rate by comparing the rates used by different commercial banks or different legal entities in arm’s length principle.

type oF entitytype oF AnnuAL

top rAteAptdd rAte reMArKs

Legal Entity 20%/30% 0%Based on Dividend Distribution

Legal Entity: TOP rate

0% 20%Based on Dividend Distribution

6. Dividends And Shareholder Current-Account

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7.1 IntroductionCurrently, there is no specific anti-avoidance provision in the law of Cambodia; however, there are several penalties being developed that will apply in the case of violations of tax provisions, including tax avoidance. These penalties are under the form of a 10% to 40% additional tax based on the seriousness of the negligence involved in the violation of tax provisions. Tax evasion (generally defined as the systematic and repeated violation of tax provisions with the intention of reducing or eliminating the tax amount required to be paid by tax provisions) is considered serious negligence and falls under the scope of the penalties being developed.

Penalties are also planned for “obstruction of the implementation of the law.” In other words, the obstruction of any requirements of the law which are not respected (for in-stance not maintaining proper records of account or other documentation or failing to issue invoices on transactions, etc.). The obstruction of the implementation of the law can be considered a criminal violation and subject to different additional taxes and further prosecution. For example, tax evasion can be punished by a fine from 10 million (ten million) to 20 million (twenty million) Khmer Riels (approximately 2,500US$ to 5,000US$), or imprisonment from 1 (one) to 5 (five) years or both.

7.2 Controlled Foreign Company RulesThere are no specific rules regarding Con-trolled Foreign Companies.

7.3 Thin CapitalizationCurrently, there is no thin capitalization rule in Cambodia. However, the interest expense is limited to specific deductibility calcula-tions. For more details, please refer to the Interest Expense section.

7.4 Permanent Establishment (“PE”)By law, the PE is considered a fixed place of business or a resident agent in Cambodia through which a non-resident taxpayer car-ries out business wholly or partially in Cam-bodia. A PE also includes any other associa-tion or connection or means through which a non-resident taxpayer engages in economic activities in Cambodia. Additionally, PEs are subject to TOP, but only on their Cambodia source income.

7. Anti-Avoidance Provisions And Transfer Pricing

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7.5 Transfer PricingCurrently, there are no transfer pricing rules in Cambodia. However, tax regulations pro-vided the tax authority with wide powers to reallocate income and expenditures between related parties. Related parties are consid-ered taxpayers with 20% or more common ownership. Transactions between related parties may be subject to redetermination by the GDT for the purpose of preventing tax avoidance and evasion. Therefore, relat-ed party transactions must be conducted at arm’s length.

7.6 Double Tax AgreementAccording to the LOT, the provision of in-ternational treaties related to taxation which have been ratified by the National Assembly shall take precedence over provision of LOT. However, currently, Cambodia has no dou-ble taxation agreements with any countries yet.

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Mr. Antoine FONTAINEPartner|Bun&Associates

T +855 (0) 23 999 567F +855 (0) 23 999 566E [email protected]

#29, Street 294, P.O. Box 2326Phnom Penh, Cambodia, www.bun-associates.com

Disclaimer: This guide is intended to provide general information only and is not meant to be exhaustive, compre-hensive or authoritative. The information in this guide should not be treated as a substitute for specific legal advice concerning particular situations. Legal advice should always be sought before taking any action based on this guide.

Bun&Associatesdoesnotprovideinvestmentadviceandnothinginthisguideshouldbetakenas investmentadvice.Bun&Associatesdoesnotwarranttheaccuracyorcompletenessofthisguidenoracceptanyliabilityforany loss or damage arising from any reliance. Views expressed are personal to the authors and do not necessarily reflect views of the respective firms.

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