Cambodian Taxation Guide
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Cambodian Taxation Guide

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Ernst & Young Cambodia is part of the Ernst & Young Indochina Practice with office in Phnom Penh, Ho Chi Minh City and Hanoi. We are the first international accounting firm to establish an office in ...

Ernst & Young Cambodia is part of the Ernst & Young Indochina Practice with office in Phnom Penh, Ho Chi Minh City and Hanoi. We are the first international accounting firm to establish an office in Phnom Penh. With this experience, we are able to serve our International as well as other local clients. Our office details in Cambodia is as follows:



124, Norodom Boulevard,
Sangkat Tonle Bassac,
Khan Chamcar Mon
Phnom Penh,
Kingdom of Cambodia.

Partners in Charge
Peter Tibbitts – Managing Partner
Gerard Holtzer – Partner in Charge of Cambodia

Tax
Senaka Fernando

Audit
Senaka Fernando
Benilda Custodio
Christina M. Calimbas
Vidano Kernem

Consulting/International
Business Services
Senaka Fernando

Tel: 855 23 211431
855 23 360837
855 12 803 891

Fax: 855 23 360437
E-mail: eykoc@camnet.com.kh

Due to the unawareness of the tax regulations and it is implementation you are requested to confirm your understanding when specific decisions are made on these generalized information. If you need any further assistance please do not hesitate to contact Senaka Fernando (mobile 855 12 803 891) or any of our professional staff at our Cambodian officeSource

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Cambodian Taxation Guide Cambodian Taxation Guide Document Transcript

  • CAMBODIAN TAXATION GUIDEFor a foreign invested enterprise and for business operating in Cambodia, there are essentiallyfourteen categories of taxes that have been amended and implemented in the previous years.Attached is a summarized guide for Senior Executives for their immediate perusal. Since the taxlaws are interpreted in a different manner in developing countries such as Cambodia, we wouldstrongly advise you to seek professional advice before you utilize this guide for decisions. Partsof the guide which are in bold characters are major new changes enacted from 1997 onwards.Since these are quite significant, it is highlighted separately. We have also inserted on certainsections, some of our additional comments.1. Profit tax, Advanced tax on dividend distribution and tax on Insurance Companies (New effective from 1997)2. Income tax - Employment3. Withholding tax (Commencing from June 1998)4. Real estate tax5. License tax6. Registration tax7. Legal stamp tax8. Stamp duties9. Specific tax on certain goods10. Import duties11. Value added tax (Applicable from January 1999)12. Additional tax on violation of law1. Profit tax 1.1 Taxable base  Profit tax will be levied on profit earned by Companies which sell goods in their original or processed state and have an annual turnover of more than 500,000,000 riels, or;  have an annual turnover of 250,000,000 riels if more than half their operations fall in the service sector, or;  are import-export companies regardless of annual turnover, or;  are companies which have signed a contract with the Kingdom of Cambodia, or;  are companies which operate under the Investment Law of Cambodia, or;  are companies which operate in the industrial, handicraft, trade and service sectors, including mining, timber exploitation and fishing;  are companies which fall into the Real Regime System of Taxation and/or pay value added tax.This tax shall be applied to the net profit resulting from operations realized during the previous12 months. In the case of a new enterprise the taxable period shall begin from thecommencement of operations up to 31 December of the fiscal year. 1 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDEThe proposed changes to the law applicable in 1997 states “The taxableprofit is the net profit obtained from all the results of all types of operationsrealized by the enterprise including capital gains from the sale of variousparts of the asset during the operation or at the close of the business aswell income from financial or investment operations and interest, rental,and royalty income. 1.2 Allowable deductions/add backAccording to the amendments to the law effective from 1997 allowabledeductions are “Expenses that shall be allowed as a deduction includeexpenses that the tax payer has paid or incurred during the tax year tocarry on a business. Any rent, interest, compensation, payments or feespaid to an officer or director of a enterprise, a partner, a member of abusiness group where there is proof that the payment is for servicesactually performed and to the extent that such payment is reasonable.Amounts paid on new buildings and other tangible assets, permanentimprovement or betterment’s including any construction or acquisitionperiod interest and taxes. These amounts are to be recorded in the relevantassets account and shall be deductible as depreciation. b). Non-allowable (to be added back to book income)According to the amendment of the law effective from 1997 “For the tax onprofit, expenses that shall not be allowed as a deduction are: any expenses on activities generally considered to be amusement, recreation, entertainment or the use of any means in connection with such activities personal living or family expenses except for fringe benefits in cash or in kind subject to withholding tax under the tax on salary any tax imposed under the tax on profit or withholding tax imposed under the tax on salary the loss on any sale or exchange of property, directly or indirectly between related persons and any expense except for expenses already incurred and for which the tax payer can establish the amount of the expense, and the business purpose of the expense”. 2 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDEAccording to the amendment applicable in 1997 tax on profits shall notapply to the income of the government and institutions of the government,the income of any organization organized and operated exclusively forreligious, charitable, scientific, literary or educational purposes and no partof the earnings are used for private interest, the income of any labororganization or chamber of commerce, industry or agriculture, the profitfrom sale of agriculture produce.According to the amendments applicable from 1997 there are certainrestrictions placed on the maximum amount allowed as a deduction. Theseare as follows:1. Interest expense - interest expenses incurred for business purposes are allowed to a maximum equal to the sum of the tax payers interest income and 50% of the tax payers net non-interest income in the tax year. The net non-interest income is the gross income other than interest income reduced by the allowable expenses except for interest expense. Any remaining above the maximum that is allowed can be treated as interest expense in the next taxable year.2. Depreciation - The rates stipulated are 5% for building and their basic components and the other rates are 25%, 12.5% and 10%. Enterprises under law on investment shall use the straight line method. Deprecation of intangible property shall be calculated on the life of the property using the straight line method. If the life cannot be determined the rate would be 10%3. Charitable contributions - A deduction shall be allowed but it shall not exceed 5% of taxable profit calculated before taking the charitable contribution.According to the 1997 amendments, losses can be carried forwardsuccessfully to following tax years until the fifth tax year. 1.3 Tax rateThe Standard profit tax rate for corporate individuals (companies that are registered inCambodia) is 20% or 9% special rate specifically granted to an investment enterprise by theCDC. 3 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDEProfit tax shall be paid in accordance with the progressive rate at each level of the amount ofyearly profit for individuals (physical persons) who carry out business activities as fixedbelow: Annual taxable profit Tax rate Less than 1,000,000 Riels 10 % From 1,000,001 to 10,000,000 Riels 15 % From 10,000,001 to 20,000,000 Riels 20 % More than 20,000,001 Riels 30 %According to the amendments made in 1997, 30% for profits realized underan oil or natural gas production sharing contract and the exploitation ofnatural resources including timber, ore, gold and precious stones. Theprogressive rates applicable for individuals have also changed. Therevised rates are as follows:From 0 to 6,000,000 Riels 0%From 6,000,001 to 15,000,000 Riels 5%From 15,000,001 to 102,000,000 Riels 10%From 102,000,001 to 150,000,000 Riels 15%Greater than 150,000,000 Riels 20%Tax on Insurance Companies in the insurance or reinsurance of life,property or other risks, the tax on profit shall be fixed as follows: 5% of the gross premiums received in the taxable year for the insurance or reinsurance of Cambodian risk; and According to the tax rates provided under 1.3 above for other activities that are not insurance or reinsurance.ADVANCED TAX ON DIVIDEND DISTRIBUTION 4 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDEIf an enterprise distributes dividends to its domestic and foreignshareholders during the taxable year (Interim dividend), it shall withholdand pay an amount equal to the product of the amount of the dividendinclusive of the tax on profits multiplied by the appropriate rate of 20% orthe special granted profit tax rate of 9%. The above mentioned withheld taxshall become a tax credit against the tax on profit of the dividenddistributing enterprise for the taxable year in which the withholding takesplace. If the tax credit exceeds tax on profit, such excess shall be carriedforward and shall become a tax credit for the following. The tax withheld ondividends by an insurance enterprise cannot be used as a credit. If anenterprise owns 20% or more in value of equity of another enterprise andreceives dividends and distributes this to its own shareholders, suchdividends are not subject to withholding tax. An individual or enterprisereceiving a dividend from an enterprise required to withhold tax shall notinclude such dividend in income 1.4 Tax DeclarationThe company must file a letter (tax declaration) declaring the profit or loss realized in theprevious year, three months after the statutory year end. The declaration must be registered andshould include the following documents: - Balance Sheet - Profit and Loss Statements - Tables of complementary information.The letter of declaration can be delayed for more than three months provided adequate notice isserved on the tax authorities. An enterprise with a loss must submit a tax declaration in the samemanner and period of time. 1.5 Payment by InstallmentAn enterprise liable to the tax on profit including an investment enterprise liable to the tax onprofit at the rate of 20% or 9% has the obligation to make a monthly prepayment of the tax onprofits at the rate of 1% of turnover inclusive of all types of taxes realized in the previous month.This prepayment will be deducted from the tax on profit at the annual liquidation of the tax.According to the new regulation applicable with effect from 1 January 1996, there is no carryforward allowed of the advance profit tax. This means that the 1% advance profit tax is aminimum tax imposed on tax payers. The minimum tax is a separate and distinct tax from the taxon profit. In the case of sale of a Company, the advance payments will be transferred to thepurchaser who will be fully responsible for payment of the profit tax.Sources of income - Income from Cambodian source 5 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDEExcept as otherwise provided in a law, the income below shall be treated as fromsources within Cambodia. Interest on debt obligations issued by a resident enterprise or resident business group or a governmental institution of Cambodia; Dividends distributed by a resident enterprise person of Cambodia; Income from services performed in Cambodia; Income from the rental of moveable or immovable property for use in Cambodia; Royalties from the use or right to use intangible property in Cambodia; Gain from the sale of immovable property located in Cambodia or from the transfer of any interest in immovable property situated in Cambodia; Gain from the sale of movable property, other than inventory, where the seller is a resident of Cambodia; Premiums for insuring or reinsuring risk in Cambodia.Foreign tax creditA resident tax payer who has received income from foreign sources andwho has paid taxes according to foreign tax law shall receive a tax creditwhich is to be deducted from the tax on profit provided presentation ofdocuments confirming this tax payment abroad. This credit allowed is thesmaller of: the tax amount actually paid in foreign country; or the amount obtained by multiplying the total tax on profit from all sources for the same period with the ratio of income received in that foreign country to the total income from all sources.Determination of tax liability on the tax on profitThe final tax liability shall be determined according to the following order: Calculate the tax liability on either 20% or the special 9%; less any foreign tax credit; less any tax paid by the taxpayer on interim dividend distribution.If the result from the above calculation is greater than the withholding taxmade on behalf of the tax payer (for things such as royalties, managementservices, rental of movable and immovable property) and prepayments ofthe tax on profit made at 1% by the tax payer for the year, the tax payershall pay the difference to the tax administration. 6 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDEIf the result from the above is less, after properly accounting for anyminimum tax liability (1% of the annual turnover inclusive of all taxes),apply for a refund of the difference or carry the difference forward to beused as a prepayment in the following year. 1.6 Contractual RegimeThe taxpayer must file a declaration to the Tax Authorities on the basis of his on-going businessoperations in conformity with the model provided by the Tax Authorities. The Tax Authoritiesshall determine the amount of the contractual net profit after examination of the accounts anddiscussion with management of the Company.2. Income Taxes - Employment (Personnel income tax) 2.1 Who is liableResidents who derive income from rendering services within and outside of Cambodia are liableto personal income tax. Non-residents are liable to Cambodian income tax only with respect toCambodian source salary. The term salary means remuneration’s, wages, bonuses, overtime,compensation and fringe benefits which are paid to an employee or which are paidfor the direct or indirect advantage of the employee for employment activities.The term resident when used for an employee, tax payer, or individualmeans domiciled in or having a principal place of abode in, Cambodia orpresent in Cambodia on more than 182 days during the calendar year. 2.2 Taxable IncomeMonthly taxable salary for a resident employee includes salary received from Cambodian source,salary received from foreign source andAdvance money, loan or installment made by the employer to the employeewhich shall be added to the taxable salary of the month in which they arepaid out and shall be deducted from salary in the month of any repaymentmade by the employee.For a non-resident tax payer taxable salary includes salary from Cambodian sources.According to the changes applicable in 1997, the following income shall beexempt from tax: 7 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE - Real refunds on professional expenses made by the employee under the assignment and for the benefit of the employer and which satisfy the 3 following conditions: 1. made for the direct and exclusive interest of the enterprise; 2. not exaggerated nor extravagant 3. supported by detailed invoices already paid and made in the name of the recipient of the real expense refund. - Indemnity for the lay off within the limit as stated in labor law - Additional remuneration with social characteristics - Supply gratis or below acquisition cost of uniforms or special professional equipment - Flat allowance for mission and travel expenses which should not overlap the real expenses refund 2.3 Income tax ratesThe rates effective from July 1997 are as follows: Monthly taxable income Tax rate (Riels) (%) 0 to 500,000 0 500,001 to 1,250,000 5 1,250,001 to 8,500,000 10 8,500,001 to 12,500,000 15 12,500,000 and above 20 2.4 Deductible expensesThe regulations on personal income tax in Cambodia do not specify any deductible expense.THE DETERMINATION OF THE TAX ON FRINGE BENEFITSFor fringe benefits, every month, the employer shall withhold and pay taxby the time specified at the rate of 20% of the total value of the fringebenefits given to all employees. The value of the fringe benefits is the fairmarket value inclusive of all taxes.DETERMINATION OF THE TAX ON SALARY FOR A NON-RESIDENT TAXPAYER 8 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDEExcept for fringe benefits to be taxed separately, for a non-residenttaxpayer the tax shall be withheld by the payer at the rate of 15% on everypayment of taxable salary. This withholding tax is the final tax on salary forthe non-resident receiving the salary.Foreign Tax CreditA resident tax payer who has received foreign source salary and who havepaid taxes according to foreign tax law shall receive a tax credit which is tobe deducted from the tax on salary to be paid in Cambodia under theconditions that there is presentation of documents confirming thispayment abroad. 2.5 Personal Deductions and AllowancesThe taxpayer is entitled to a deduction of 75,000 Riels for each child from gross income and75,000 Riels for spouse who has the occupation “ housewife”. a). Income Taxes - Self Employment / Business Income 1. Who is liableAll profits accruing in Cambodia are subject to tax. 2. Deductible expensesDeductible expenses are those incurred wholly and exclusively in the production of the grossincome. b). Director’s FeesDirector’s fees are considered as employment income and are thus, taxable as such. c). Investment incomeThe tax treatment of interest and dividends is not specially mentioned in the regulations onpersonal income tax. It is however, stated therein that all types of income (which may includeinterest, dividends and capital gains) are subject to tax. In practice though, only the employmentand business income are being reported for tax purposes. d). Relief for LossesBusiness losses cannot be carried forward. e). Capital Gains and LossesThe tax treatment of Capital Gains and Losses is not taken up in the personal income taxregulations. 9 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE f). Net worth TaxTaxes in Cambodia are not being determined based on net worth. g). Estate (inheritance) and Gift TaxesThe Cambodian Government is still clarifying the regulations on estate and gift taxes. h). Social Security TaxesThere are no social security taxes in Cambodia. i). AdministrationThe personal income tax is to be calculated on a monthly basis. The employer or anyrepresentative of the taxpayer, if he is staying overseas, shall be responsible for withholding thetax, filling the monthly taxes return and remitting the tax. The tax should be remitted within 15days after the end of each month. j). Non-residentsNon-residents are subject to Cambodia income tax only on income arising in Cambodia. k). Double Tax Relief and Double Tax TreatiesCambodia has not yet concluded any tax treaties with any foreign country. Residents can,however, obtain tax credit for income taxes paid overseas.3. WITHHOLDING TAXGeneral Withholding taxAny resident payer making any payment in cash or in kind to a residentperson shall withhold and pay as tax, an amount according to the ratesmentioned below which are applied to the amount paid before withhold thetax. The rate of 15% on income received by individuals from the performance of services including management, consulting and similar services, royalties for intangibles and interest in minerals or oil and gas, and interest paid to an individual or an enterprise except interest paid to a domestic bank or savings institution. The rate of 10% on the income from the rental of movable and immovable property The rate of 5% on interest paid by a domestic bank or savings institution to a resident individual having a non-fixed term savings account.The term resident payer means any resident enterprise or business groupor any individual, but only with respect to payments made by suchindividual in carrying on a business in Cambodia.Withholding on payments to foreign persons 10 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDEA resident payer making any payment of Cambodia source income to anon-resident person shall withhold, and pay as tax, an amount equal to15% of the payment before withholding. This shall not apply to dividends.Definition of Cambodian source income is provided in an earlier section ofthe guide.Withholding tax as final taxThe tax withheld on distributions of dividends, on payments to a residentindividual and on payments to a non-resident individual or legal personshall be considered the final tax on the recipients of the payments ordistributions.Special commentThe announcement to implement the withholding tax was issued by the Ministry of Economyand Finance on 8 June 1998. Therefore all payments made after June 1998 is subject towithholding tax.4. Real Estate TaxReal estate tax is levied on unused land, including unused land with buildings existing in anabandoned state and is to be paid by the owner of the land. The tax rate is fixed at 2% of the market value of the land.5. License Tax (Referred also to as Patent tax)For a newly incorporated entity this is fixed at Riel 240,000. For existing and other entities, it isbased on the previous years revenue and the progressive rates are as follows: License Class Annual turnover License tax Industrial Service sector and Trading excluding Hotel & Restaurant I up to 7,500,000 up to 3,000,000 15,000 R II 7,500,001 - 12,500,000 3,000,001 - 5,000,000 21,000 R III 12,500,001 - 25,000,000 5,000,001 - 10,000,000 27,000 R IV 25,000,001 - 30,000,000 10,000,001 - 12,000,000 40,000 R 11 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE V 30,000,001 - 37,500,000 12,000,001 - 15,000,000 60,000 R VI 37,500,001 - 50,000,000 15,000,001 - 20,000,000 90,000 R VII 50,000,001 - 62,000,000 20,000,000 - 24,800,000 140,000 R VIII 62,000,001 - 75,000,000 24,800,001 - 30,000,000 180,000 R IX 75,000,001 - 100,000,000 30,000,001 - 40,000,000 240,000 R X 100,000,001 - 1,000,000,000 40,000,001 - 400,000,000 Maximum tax to be paid 1 per 1000 Maximum tax to be paid 2.5 per 10006. Registration tax Registration tax is fixed at 4% of the investment. This tax usually applies to registering a construction contract and not necessarily the registration of a business with either the CDC (CIB) or the Ministry of Commerce. The charge for the application fee with the CDC is two folds. If the investment is less than US$ 1 million, US$ 100 should be paid upon submitting the application and US$ 500 on receiving the approval in principle. If the investment is more than US$ 1 million, US$ 200 upon submitting the application and US$ 1,000 on receiving the approval in principle. The charge with the Ministry of Commerce is US$ 300. 12 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE In addition, the following legal acts generate a fixed registration tax: Forming a company 100,000 Riels Merging companies 100,000 Riels Dissolving a company 100,000 Riels Government contracts 100,000 Riels7. Legal Stamp TaxThe legal stamp tax is levied on all administrative, legal and extra-legal acts, including posting ofpublic notices. Legal stamps are available in the following values: 100 Riels 200 Riels 500 Riels 1,000 Riels 2,000 Riels8. Stamp Duties8.1. Stamp duties determined pro-rata of 4% for the transfer of property or transfer of ownership of the land without any building under the image of selling, exchanging, receiving aid, putting share capital in the Company.8.2. The liability of stamp duties of 4% for the transfer of name by way of transport and carriage are as follows: - Heavy truck or lorry, light truck, car, motorbike; - Boat, ferry, small boat.8.3. The following legalized letters will be liable to the stamp duties: - Letter for the establishment of a Company is 100,000 riels; - Letter requesting for combining 2 Companies is 100,000 riels; - Letter for the dissolution of a Company is 100,000 riels; - Contract of providing service or material/goods to public organizations is 1,000,000 riels. 13 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE9. Specific tax on certain goods Tax on local goods which has been established by Decree number 28-D dated 14 June 1985 was revised and is now referred to as “specific tax on certain goods”. Since the promulgation of the revisions, the following products such as unprocessed tobacco, ice cream and lotus seeds shall not be liable to specific tax. Otherwise, previous specific tax rates which were up to 50% was reduced to 20% and 10%. The specific tax will be imposed irrespective of whether the goods are imported goods or locally manufactured in the Kingdom of Cambodia and the details are as follows:- 20% on petroleum products  Supper or normal automobile gasoline  Lubricating oil- 10% for the following Beverages  Soda, soft drinks with sugar or other sweet elements or aromatic ingredients and other non-alcoholic drinks;  Beer;  Wine;  Liquors and other alcoholic beverages Water, mineral water, fruit and vegetables juices shall not be subjected to specific tax on certain goods. Cigarettes and all types of cigars For goods from overseas sources, importers or distributors in the Kingdom of Cambodia shall be liable to pay specific tax on certain goods to the customs according to the same conditions and regulations applicable to customs duties and special consumption tax. For goods which are locally manufactured or produced in the kingdom of Cambodia, the specific tax payers shall submit the tax declaration to the tax administration within or not later than the 10th of the following month, and shall pay this specific tax immediately. 14 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE Persons who sell goods which are not liable for specific tax on certain goods shall present evidence to certify that all such goods were subject to duties and such duties were paid accordingly.Specific tax on certain merchandise and servicesFrom the date of the promulgation of this law applicable from 1 January1997 the specific tax on certain goods tax shall be called specific tax oncertain merchandise and services. The tax rates from 1997 shall bechanged as follows:1. 20% for all petroleum products and automobiles classified under the harmonized tariff heading 8703 and spare parts for those automobiles;2. 10% for all types of beverage and tobacco products, hotel and other entertainment services and all types motor vehicles and spare parts classified under the harmonized tariff headings 8702, 8704.21 through 8704.90, 8706,8708,8711 and 8714.3. 2% for the domestic sale of tickets for the transport by air of passengers from inside the Kingdom of Cambodia to abroad and telecommunication services from inside the kingdom of Cambodia to abroad.Other amendments to the law of specific tax on certain goods1. The phrase “the sales price recorded on invoice shall be changed to “ the ex-factory sales price recorded on invoice” .2. For services supplied in the Kingdom of Cambodia, the invoice price of the service supplied.3. For telecommunication and transport services in the Kingdom of Cambodia, a separate register containing the date and value of services supplied from points inside Cambodia to points outside Cambodia. 15 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE10. Import dutiesImport duties are levied on a variety of products and the specific rate tables contained in a bookis available in the customs house. However a few of such rates are tabled hereunder.Item imported RateEssential consumer goods (Medicine, salt, vegetables, 7%Metals, packaging materials, sugar etc.)Machinery and equipment, spare parts, mechanical 15%Appliances, tobacco (raw) wheat and many industrial mineralProductsOil, gas, diesel, lubricants 20%Cosmetics, garments, textile products, footwear, leather 35%Goods, household electrical appliances, fabrics, starches,Glues and enzymesCars under 2000 cc 40%Alcohol, beverages, cigarettes and motor cycles 50%Cars between 2000 cc and 3000 cc 90%Cars over3000 cc 120%At present there are no export duties applied in Cambodia other than those levied on restrictedexport products such as timber and some forms of sea food. 16 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE11. Value added taxThe value added tax is newly introduced from 1 January 1999. The sub-decree to implement VAT has not been issued yet.The VAT Summary as per the 1997 Finance Law is as follows.Nature of the taxFrom January 1999 onward, there shall be a Tax on Value Added on taxable supplies forthe benefit of State Budget.Non Taxable Supplies Non taxable supplies are as follows :1. Public postal service.2. Hospital, clinic, medical, and dental services and the sale of medical and dental goods incidental to the performance of such services .3. The service of transportation of passengers by a wholly state owned public transportation system.4. Insurance services.5. Primary financial services which shall be determined by a notification to be issued by the Ministry of Economic and Finance.6. The importation of articles for personal use that are exempt from customs duties and that are within the value level which shall be determined by a notification to be issued by the Minister of Economy and Finance.7. Non profit activities in the public interest that have been recognized by the Ministry of Economic and Finance. 17 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDETaxable entitiesThe taxable entities refer to any person subject to the real regime system of taxation whoprovides for a taxable supply.A person subject to the simplified regime system of taxation may apply to be classified asa taxable entity. The conditions and procedures for this application shall be determined bya notification to be issued by the Ministry of Economic and Finance.For the purpose this law on VAT, an employee shall not be treated as taxable person withrespect to activities engaged in as an employee.Taxable SupplyExcept for provision in the law on VAT, the term "taxable supply" means :1. the supply of goods or services by a taxable person in the Kingdom of Cambodia;2. the appropriation of goods for his own use by the taxable person;3. the making of a gift or supply at below cost of goods or services by the taxable person;4. the import of goods into the customs territory of the Kingdom of Cambodia.The rules and procedures for the application of this shall be provided in sub-decree to beissued.Taxable ValueThe taxable value shall be determined as follows :1. The taxable value for any supply shall be the price of the goods or services the seller charged the buyer. The taxable value includes any charges for transportation and other items payable to the seller with respect to the supply, including any specific tax on certain merchandise and services but excluding the tax on value added. Procedures for the adjustment of the taxable value at the time of supply and after the time of supply shall be determined by the sub-decree to be issued. 18 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE2. When the payment for a taxable supply involves any consideration other than money for the direct or indirect benefit of the seller, this consideration shall be included in the taxable value at its fair market value.3. The taxable value for any imported good shall be the customs value including insurance and freight plus any customs duties and any specific tax on certain merchandise and services. If there is no such adjusted customs value, the fair market value shall be used.4. If the taxable value of the goods or services supplied does not represent the true value, the tax administration may determine a value for such goods or services and such value shall be presumed to be the correct value until proven otherwise to the satisfaction of the tax administration.5. The taxable value of used goods that the taxable person regularly purchases from consumers for resale or sells on behalf of other persons shall be the differential between the selling price and the purchase price, or the commission from the sale of those goods.Time of SupplyThe time of Supply shall be determined as follows:1. The tax on value added becomes due and payable at the time of supply.2. The time of supply of goods and services shall be the time by which the seller must issue the invoice or the time the seller issue the invoice if that invoice is issued before the time it must be issued by the seller.3. A value added tax invoice must be issued within seven days after the goods are shipped or services rendered. If a shipment is not accompanied by an invoice, there shall be attached a shipping document which has been recorded in the shipping journal.4. For the supply of goods or services which are made continuously or which involve multiple payments, the time of supply shall be determined by a notification to be issued by the Ministry of Economic and Finance.5. In the case of the import of goods, the time of supply shall be the time the importer files a declaration to the customs administration according to the regulations in force.Location of Supply 19 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDEThe location of supply shall be determined as follows:1. The supply of goods takes place in the Kingdom of Cambodia if goods are delivered in the Kingdom of Cambodia, whether that delivery takes on the characteristic of a transfer of the right to use or to dispose. In the case where the supply must include transportation, the supply takes place in the Kingdom of Cambodia when the transportation commences.2. The supply of a service takes place in the Kingdom of Cambodia if the service is performed in the Kingdom of Cambodia, except that: a. the supply of a service in connection with immovable property is deemed to take place where the property is located; b. the supply of a service in connection with transport is deemed to take place where the transport occurs.3. Goods are imported into the Kingdom of Cambodia if they are brought within the customs territory of the Kingdom of Cambodia.Tax RateThe tax rate shall be as follows:1. The tax on value added shall be imposed at the rate of 10 percent on the taxable value of each taxable supply in the Kingdom of Cambodia.2. The tax on value added shall be imposed at the rate of 0 percent on the taxable value of each taxable supply of a service rendered outside of the Kingdom of Cambodia.3. The tax administration may use a number of documents to certify that export has in fact occurred including export certification from the Custom Department, import documents from the country of import, executed letters of credit, and payments received by a domestic bank.Input Tax Credit and Non Taxable SuppliesThe input tax credit and the non taxable supplies shall be determined as follows: 20 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE1. The tax paid by a taxable person on goods and services for use in the business which are supplied by another taxable person or the tax paid by the taxable person as an importer on imported goods or services for use in his own business shall become an input tax credit deductible against the output tax. Input means any goods or services purchased and output means any goods or service sold.2. In the case where goods and services purchased are used partly for taxable supplies and partly for non taxable supplies, the tax credit shall be allowed only for that portion used for taxable supplies.Necessary Documentation to Claim an Input Tax CreditThe request for an input tax credit should be accompanied with the following documents:1. a value added tax invoice, drawn up in accordance with the VAT law;2. a customers Bill of Entry for Import, certified by customs authorities, which must state the name of the taxable person as consignee or importer and the amount of tax paid at the time of import.Input Tax Not Allowed as a Tax CreditThe input tax that shall not be allowed as a tax credit includes the tax paid by a taxableperson on entertainment; amusement; or recreation expenses; the purchase ofautomobiles; or the purchase of certain petroleum products.The Monthly Filing of the Value Added Tax DeclarationThe value added tax declaration for any month shall be submitted to the taxadministration on or before the 20th day of the following month and the tax shall be paidaccording to the amount declared at the time the declaration is filed. 21 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDETreatment of Excess CreditsIf the input tax paid by the taxable person exceeds the output tax collected by that personfor any month: a. the excess shall be used as a tax credit against any outstanding liability of such person for tax on value added for prior month; b. the remainder of the excess shall be treated as an input tax credit for the succeeding months.Refunds for ExportersThe tax administration may refund the monthly excess input tax credits according to therequest of the taxable person who has a primary activity of export if that person hasshown proper certification of exports and has complied correctly with his obligations inmaintaining books and other record keeping.Refunds where excess credits continue for three months or moreIf the taxable person has excess input tax credits for three months or more that personmay apply for a refund of the tax at the end of the third month or in any month thereafter.To be effective for any month, the request must be filed in a period of 20 days after theclose of such month.Liability for the Collection and Payment of TaxThe liability for the collection and payment of tax is follows:1. A taxable person or importer has obligation to pay the tax imposed with respect to every taxable supply in which the taxable person or importer engages in.2. Special conditions for the liability of purchaser for tax where the supplier is not engaged in business in the Kingdom of Cambodia or where are other obstacles to the collection of the tax from the supplier shall be provided by a sub-decree to be issued.3. Any person making a supply of goods and services on behalf of the owner, other than as an employee, and having control of the supply shall be treated as a taxable person with respect to that supply. 22 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDERegistrationThe principles of registration shall be as follows:1. A taxable person must complete registration for the tax on value added within a period of 30 days of the day on which the person becomes a taxable person. The rules and procedures for registration shall be determined by the sub-decree to be issued.2. Where a person required to register fails to register, the tax administration may register that person from the time that the person should have been registered. The person so registered shall be liable for all tax from the date person should have been registered.3. Where a taxable person registered under this article expects not to be classified as a taxable person for the current and succeeding year, such person may apply for de-registration.4. For a group of two or more related persons where one or more of those persons is not a taxable person, the tax administration may treat a taxable person as registered in respect to all or part of the related economic activities. Where none of the related persons is a taxable person the tax administration may register one or more of those persons of the group in respect to all or part of the related economic activities.5. For registration purposes and with the approval of the tax administration, for a group of taxable persons who are related, the activities of various members of the group may be treated as the activities of one designated member. In any such case, each member of the group must undertake to be jointly and severally liable for compliance with the provisions of this chapter.Value Added Tax InvoiceThe principles for the value added tax invoice shall be as follows:1. Any taxable person who makes a supply shall provide the buyer a serially numbered Value Added Tax Invoice.2. The invoice required by paragraph 1 of this article with respect to any supply shall have the title of "Value Added Tax Invoice" and shall contain the following: 23 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE a. the name and registration number of the seller; b. the date of issue of the invoice; c. the name of the purchaser or purchasers employee or agent; d. the quantity, description and selling price of the goods or services; e. the total value excluding the specific tax on certain merchandise and services and the tax on value added; f. the total taxable value if different from the amount in subparagraph e above; g. the amount of the tax payable; h. the date of supply of the goods or services if different from the date of issue of the invoice.3. A person cannot issue any invoice or other document indicating an amount which claims to be tax on the supply of any goods or services unless such person is a taxable person registered according to the VAT law, and the goods or services supplied are taxable goods or services.4. Without prejudice to any other penalties, where any invoice falsely claims to be a Value Added Tax Invoice and shows that an amount of tax is payable, the person issuing such invoice shall pay to the tax administration within seven days of the date of issue of the invoice any amount shown on the invoice whether or not such tax amount would otherwise be properly payable.5. In the case of sales at retail where most sales are not to a taxable person, the invoice as required in paragraph 1 of this article shall be considered satisfied if the seller has provided a detailed cash register receipt or other documentation which shall be determined by the sub-decree to be issued.6. In the case of an import, the customs Bills of Entry properly filled and containing certification of the payment of the tax shall be used as the control document for establishing eligibility for a tax credit.IMPORTANT NOTICE 24 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE“The above summary has been prepared based on the VAT section of the 1997 financelaw. The implementing sub-decree is yet to be issued. Once the implementing sub-decree has been issued, clear and specific details will be provided on each of thesections above”.12. Additional tax on violation of law1. For a person who fails to pay tax by the due date, additional tax shall be 10% of the amount of the late tax payment plus 2% interest on the amount of the late payment for each month or part of a month that the tax amount is not paid.2. Where a person fails to pay tax within 15 days after receiving a reminder letter of notification for tax collection, additional tax shall be 25% of the amount of the late tax payment plus 2% interest on the amount of the late tax payment for each month or a part of the month that the tax amount is not paid.3. In case of a unilateral tax assessment for the non-submission of a tax declaration, additional tax shall be 40% of the amount of the tax assessed plus 2% interest on the amount of the tax assessed for each month or a part of a month that the tax amount is not paid.Late interest shall be calculated from the first day of the month following themonth in which the tax must be paid.Ernst & Young Cambodia is part of the Ernst & Young Indochina Practice with office in PhnomPenh, Ho Chi Minh City and Hanoi. We are the first international accounting firm to establish anoffice in Phnom Penh. With this experience, we are able to serve our International as well asother local clients. Our office details in Cambodia is as follows: 25 ERNST & YOUNG - PHNOM PENH
  • CAMBODIAN TAXATION GUIDE 124, Norodom Boulevard, Sangkat Tonle Bassac, Khan Chamcar Mon Phnom Penh, Kingdom of Cambodia. Partners in Charge Peter Tibbitts – Managing Partner Gerard Holtzer – Partner in Charge of Cambodia Tax Senaka Fernando Audit Senaka Fernando Benilda Custodio Christina M. Calimbas Vidano Kernem Consulting/International Business Services Senaka Fernando Tel: 855 23 211431 855 23 360837 855 12 803 891 Fax: 855 23 360437 E-mail: eykoc@camnet.com.khDue to the unawareness of the tax regulations and it is implementation you are requested toconfirm your understanding when specific decisions are made on these generalized information.If you need any further assistance please do not hesitate to contact Senaka Fernando (mobile 85512 803 891) or any of our professional staff at our Cambodian office. 26 ERNST & YOUNG - PHNOM PENH