Decoding Taxes in Cambodia: A Comprehensive Guide to Understanding Taxation Laws and Regulations - Manhattan Special Economic Zone | MSEZ (2024)

Are you interested in learning about the Cambodia tax system? The taxation system in Cambodia is governed by the Law on Taxation (LoT), a comprehensive piece of legislation adopted by the National Assembly in 1997 and amended in 2003. The LoT outlines the general principles and regulations of taxes in Cambodia, while further clarification and detail are provided by the Ministry of Economy and Finance through the issuance of Prakas. The most recent addition to this regulatory framework is the ToI regulation (Prakas no. 098, dated 29 January 2020), which supersedes the previously established ToP regulation (Prakas no. 1059, dated 12 December 2003). In this article, we will provide an overview of the tax laws in Cambodia and explore the key provisions of the LoT and its accompanying regulations.

Cambodian Corporate Income Tax

Corporate income tax refers to the tax imposed on the earnings generated by a company. In Cambodia, the corporate income tax rate varies depending on the company’s size and residency status.

In general, the corporate income tax (CIT) rate in Cambodia is set at 20 percent. However, it’s important to note that the actual rates may differ within a range of 0 percent to 20 percent.

The specific rates of corporate income tax in Cambodia are as follows:

• Medium and large taxpayers are subject to a flat CIT rate of 20 percent.
• Small taxpayers, on the other hand, are subject to a variable CIT rate, ranging from 0 percent to 20 percent.

Additional corporate income tax rates

Expanded Corporate Income Tax Rates in Cambodia In addition to the standard corporate income tax (CIT) rate, there are specific scenarios where different tax rates apply. These additional rates aim to accommodate various industries and business types. Here are some examples:

1. Oil, Natural Gas, and Natural Resources: Companies involved in oil or natural gas production, as well as the exploitation of natural resources such as timber, ore, gold, and precious stones, are subject to a CIT rate of 30%.
2. General Insurance, Reinsurance, and Small-scale Enterprises: This category encompasses general insurance, reinsurance, and small-scale enterprises engaged in property, liability, and health insurance. They are subject to a CIT rate of 5% based on their gross premium income.
3. Life Insurance and Reinsurance: Companies operating in the life insurance and reinsurance sector, offering products such as life, endowment, and annuity insurance, are subject to a CIT rate of 20%.

It’s crucial for businesses to understand these rates and comply with the applicable tax regulations. By gaining clarity on corporate income tax in Cambodia, companies can effectively manage their tax obligations and make informed financial decisions.

Classification of Company Sizes in Cambodia

Small Companies:

Small companies in Cambodia typically include sole proprietorships and partnerships. They can be identified based on the following criteria:

• Annual turnover ranging from KHR 250 million (USD 60,000) to KHR 700 million (USD 167,000).
• Total turnover for any consecutive three months in the calendar year exceeding KHR 60 million (USD 14,000).
• Expected turnover for the next consecutive three months exceeding KHR 60 million (USD 14,000).
• Participation in bidding, price consultation, or surveys for the supply of goods or services.

Medium Companies: Medium companies are characterized by the following attributes:

• Annual turnover ranging from KHR 700 million (USD 167,000) to KHR 4,000 million (USD 955,000).
• Registered as a legal person or representative office.
• Includes national or sub-national state institutions, associations, non-government organizations, foreign diplomatic and consular missions, international organizations, and technical cooperation agencies of other governments.

Large Companies: Large companies are defined as entities that meet the following criteria:

• Annual turnover exceeding KHR 4,000 million (USD 955,000).
• Subsidiaries of multinational companies or branches of foreign companies.
• Qualified Investment Projects (QIP).
  • Certain activities are restricted from applying for QIPs, including commercial activities related to import, export, and transportation services, tourism services, entertainment services, casino and gambling businesses, currency and financial services, activities related to newspapers and media, professional services, production and processing of wood products, production of tobacco products, and real estate development.

Understanding the categorization of small, medium, and large companies in Cambodia is essential for compliance with relevant regulations and taxation requirements based on the company’s size and activities.

What is The Principal Taxation Law in Cambodia

The principal taxation law in Cambodia is the Law on Taxation (also known as the Tax Law), which serves as the primary legislation governing taxation in the country. The Law on Taxation provides the legal framework for various types of taxes, their administration, collection, and enforcement. It was enacted to regulate the taxation system in Cambodia and ensure compliance with tax obligations.

The Law on Taxation covers a wide range of taxes, including but not limited to:

1. Corporate Income Tax (CIT): Imposed on the income generated by businesses and corporations operating in Cambodia.
2. Personal Income Tax (PIT): Levied on the income earned by individuals, including employment income, rental income, and other sources of personal income.
3. Value Added Tax (VAT): A consumption tax imposed on the value added at each stage of the production and distribution chain of goods and services.
4. Specific Tax on Certain Merchandises and Services (S.T.M): Applied to specific goods and services, such as alcoholic beverages, tobacco products, and luxury goods.
5. Tax on Salary: Withheld by employers on behalf of their employees and based on the employees’ income.
6. Withholding Tax: A tax deducted at the source on specified types of income, such as interest, royalties, dividends, and services rendered by non-resident individuals or entities.

The Law on Taxation outlines the rates, exemptions, deductions, procedures, and penalties related to each tax. It also establishes the roles and responsibilities of the General Department of Taxation (GDT), the government agency responsible for tax administration and enforcement.

It’s important for individuals, businesses, and taxpayers in Cambodia to be familiar with the provisions of the Law on Taxation to ensure compliance with their tax obligations and understand the rights and obligations associated with taxation in the country.

Understanding Taxpayer Classification in Cambodia: Resident vs. Non-Resident Taxpayers Explained

In Cambodia, a resident taxpayer is typically defined as a company that is organized or managed within Cambodia or has Cambodia as its principal place of business. This means that the company is considered a resident for tax purposes and is subject to taxation on its worldwide income in Cambodia.

On the other hand, a non-resident taxpayer refers to a person or entity that does not meet the criteria of being a resident taxpayer. Non-resident taxpayers are individuals or companies that do not have a permanent establishment in Cambodia but may have business activities or transactions within the country. The following scenarios would classify an individual or entity as a non-resident taxpayer:

1. Fixed Place of Business: If a non-resident person or entity has a fixed place of business in Cambodia, it would be considered a non-resident taxpayer.
2. Branch of a Foreign Company: A non-resident taxpayer can be a branch of a foreign company conducting business activities in Cambodia, including online activities such as e-commerce.
3. Supply or Use of Goods/Services: If goods or services are supplied or used in Cambodia by a non-resident person or entity, they would be classified as non-resident taxpayers.
4. Exploration or Business of Natural Resources: Non-resident taxpayers include individuals or entities engaged in exploration or business related to natural resources in Cambodia for a total of more than 90 days at a time or more within any 12-month period, including heavy equipment operations.

It’s important for both resident and non-resident taxpayers to understand their tax obligations and comply with the relevant tax laws and regulations in Cambodia based on their residency status and business activities conducted within the country.

Residence Requirement

A company is considered a resident of Cambodia if it meets either of the following criteria:

• It is organized or managed in Cambodia.
• It has its principal place of business in Cambodia.

CIT on worldwide and Cambodia-sourced income?

CIT, or Corporate Income Tax, refers to the tax levied on the income of corporations or businesses. The tax treatment for worldwide income and Cambodia-sourced income depends on the residency status of the taxpayer.

1. Resident taxpayers: Resident taxpayers in Cambodia are subject to tax on their worldwide income. This means that if a resident company or business earns income from both domestic and foreign sources, they are required to report and pay tax on the total income earned worldwide.
2. Non-resident taxpayers and branches: Non-resident taxpayers and branches are only taxed on income sourced within Cambodia. If a non-resident company or business carries out business activities or earns income solely within Cambodia, they are only liable for tax on that specific Cambodian-sourced income. They are not subject to tax on income earned outside of Cambodia.

Tax incentives available in Cambodia

The Ministry of Economy and Finance (MEF) issued Prakas No. 159 Prk established the implementation of tax incentives for small and medium-sized enterprises (SMEs).

Tax Depreciation & Capital Allowances

In Cambodia, tax depreciation or capital allowances refer to the deduction of the cost of assets over their useful life for tax purposes.

The Law on Taxation specifies the useful life of various types of assets and the allowable percentage that can be depreciated each year. The depreciation rate may vary depending on the type of asset and industry. The cost of the asset is spread over its useful life, and this depreciation expense is used to reduce the taxpayer’s taxable income.

Capital allowances, on the other hand, allow businesses to claim a deduction for the cost of capital assets when calculating their taxable income. The deduction is based on the cost of the asset and the type of asset. The allowable deduction may be spread over a number of years.

• In Cambodia, tax depreciation, also known as full-year depreciation, will start in the tax year when the asset was put into service or in the commencement year of production.
• Taxpayers cannot claim any tax depreciation in the year of disposal.
• Fixed assets falling under classes 2 to 4 in Cambodia are accounted for on a pooled basis. As a result, capital gains or losses on the disposal of fixed assets are not calculated individually but are determined based on the result of the pooled asset account.

Tax depreciation and capital allowances are important deductions for businesses in Cambodia as they can help reduce taxable income and result in lower tax liability.

Charitable contribution

• The deductibility of charitable contribution expense is limited to 5% of the taxable income after tax adjustments and before deduction of the charitable contribution itself.
• Taxpayers cannot carry forward unutilized charitable contribution expense as a deduction against taxable income in future years.

Interest Expense

There is no specific thin capitalization legislation; however, a limitation on interest expense deduction is provided under the Tax on Income (ToI) regulation.

• The deduction for interest expense in Cambodia is limited to an amount equal to the total interest income plus 50% of “net non-interest income” earned for the year. Net non-interest income is the gross income, other than interest income, less allowable non-interest expenses.
• Interest expenses not allowed for deductions in the current tax year can be carried forward as interest expense for subsequent tax years within the same limitation until the fifth ta
• Interest expense to related parties in Cambodia is allowed as a tax deduction, subject to the interest expense limitation rule and the “180-day” rule.
• The interest rate between related parties in Cambodia must comply with the requirements under the Transfer Pricing (TP) regulations on “arms-length” principle, and proper TP documentation must be kept.

For petroleum and mineral resource operations in Cambodia, different rules apply to interest expense deductions.

Tax on Petroleum and Mineral Resources Operations

Taxpayers conducting Petroleum and Mineral Resources operations in Cambodia are subject to specific tax rules and rates. These rules include a 30% Annual Tax on Income (ToI) rate for taxable income during a tax year and a Tax on Excess Income (ToEI) with a progressive tax rate based on tranches. The tax rules also cover depreciation, deduction, and transfer of interest, including provisions for losses and decommissioning costs. Furthermore, there are specific guidelines for sales agents supplying goods on behalf of principals. To be recognized as sales agents, enterprises must meet specific criteria and receive an agent certificate from the GDT. Failure to comply with these guidelines may result in sales agents being liable for the principal taxes related to sales on behalf of the principals as if these sales were their own income.

• Taxpayers conducting Petroleum and Mineral Resources operations are subject to an annual ToI rate of 30% on taxable income during a tax year.
• Tax on Excess Income (ToEI) at a progressive tax rate by tranche based on specific rules on depreciation, deduction, and transfer of interest shall apply.
• Transfers (in part or in full) of interest in rights or share in a mineral resource agreement shall be treated as a taxable transaction subject to the applicable tax.
• Loss carried forward is allowed until the tenth (10) year for petroleum operations and the fifth (5) year for mineral resource operations.
• Losses incurred in a contract area cannot be carried forward and/or offset as a deduction in another contract area.
• Deduction for interest expense is subject to a debt to equity ratio of 3:1.
• Deductible provision for decommissioning cost reserve based on an approved decommissioning plan.
• If the actual decommissioning cost is higher than the decommissioning plan claimed as a deduction, the difference shall be treated as a deductible expense, otherwise, the difference shall be treated as a taxable income.
• Specific depreciation rules are set on depreciating prospecting, exploration, and development costs.
• Sales agents supplying goods on behalf of principals are not required to declare and pay taxes on the sales on behalf of the principal.
• To get recognition as sales agents, enterprises must fulfill certain conditions such as being medium or large taxpayers, having contracts with the principals, no change of ownership of the goods, maintain invoices compliance, and keeping inventory of the goods.
• A sales agent can apply and receive an agent certificate from the GDT which is valid for 2 years.
• Without proper recognition and certificate, the sales agents would be liable to all kinds of the principal taxes relating to sales on behalf of the principals as if these sales were their own income.

Tax Administration

Tax Identification Number (TIN) is an important requirement for businesses operating in Cambodia. All business entities must register with the tax administration within fifteen working days from the commencement of economic activities or after receiving the registration approval certificate or approval letter from the relevant ministries or institutions.

In order to ensure compliance, it is important for businesses to obtain a TIN as it is required for various tax-related transactions, such as filing tax returns and paying taxes. Failure to obtain a TIN or register with the tax administration can result in penalties and fines.

For QIP-registered enterprises, separate TIN should be maintained per activity, which means that if an enterprise is involved in both QIP and non-QIP activities, it should have separate TINs for each.

It is important for businesses to stay up to date on tax regulations and requirements to ensure they comply with the laws and regulations in Cambodia. This includes registering for a TIN and maintaining separate TINs for QIP-registered enterprises engaged in multiple activities.

• Business entities must register with the tax administration within 15 working days of starting economic activities or receiving relevant approval.
• Each QIP-registered enterprise must maintain a separate TIN per activity.

Tax Returns

Recently, the General Department of Taxation (GDT) in Cambodia has required taxpayers to submit the Tax on Income (ToI) via the GDT’s online tax return management system, also known as E-filing. This is in line with the country’s digital transformation initiatives to modernize tax administration and make it more efficient for taxpayers.

In addition to the annual tax return, monthly tax returns are also required to be filed by the 25th day of the following month via the GDT’s E-Filing system. This ensures that taxes are being paid in a timely manner throughout the year.

It is important for businesses operating in Cambodia to stay up-to-date with the tax laws and regulations and comply with the filing and payment requirements to avoid any penalties or legal issues.

• The annual tax return must be filed within 3 months following the tax year.
• The tax year is usually a calendar year, unless the taxpayer receives specific approval to use a different taxable period.
• The tax return must be filed regardless of whether the company makes a profit or loss.
• Taxpayers are required to submit the Tax on Income (ToI) via the GDT’s online tax return management system (E-filing).
• Monthly tax returns are due by the 25th day of the following month via the GDT’s E-filing system.

Payment of Tax

Cambodia imposes monthly prepayments of Tax on Income (PToI) and Minimum Tax (MT) for companies, which must be self-assessed and paid through the E-Filing system. The PToI is credited against the annual ToI or MT payable, while the MT is computed based on gross annual turnover. Exemptions from these prepayments may apply based on certain conditions.

• Companies are required to make monthly prepayments of Tax on Income (PToI) during the year.
• The PToI is calculated at a rate of 1% on monthly turnover.
• The payments of PToI are due by the 25th day of the following month and must be made through the E-Filing system.
• The total monthly PToI paid during the year can be claimed as tax credits against the annual Tax on Income or Minimum Tax payable, whichever is higher, at yearend.
• Excess tax payments may be carried forward to the succeeding taxable periods.
• A 1% Minimum Tax (MT) shall be computed based on the gross annual turnover.
• The taxpayer shall be liable for the annual Tax on Income or Minimum Tax, whichever is higher.
• Payments of the remaining tax payable must be made within 3 months following the tax year.

Tax Credits

Tax credits may be claimed as a deduction against the ToI payable at year-end. These include monthly PToI paid during the taxable year, excess tax payments from the previous taxable period, ATDD payments, WHT credits withheld by payors, foreign tax credits on tax paid overseas, and special tax credits granted to specific industries and/or activities as provided by the government under specific regulations. However, certain limitations apply to foreign tax credits.

Record Keeping

The following passage discusses the requirements for bookkeeping and accounting records in Cambodia. Taxpayers in Cambodia must maintain records of their financial transactions and keep relevant documents for a specified period. The passage also covers the consequences of non-compliance with these regulations.

• Taxpayers must keep books of accounts, accounting records, and other relevant documents for ten years after the end of the tax year.
• The books of accounts must be maintained according to the accounting standards in effect in Cambodia.
• QIP-registered enterprises must maintain separate books of accounts per activity.
• Accounting records must be maintained in the Khmer language and Khmer Riel.
• Non-compliance with the above requirements may result in a unilateral tax assessment being issued by the GDT.

In conclusion

It is important for businesses to be aware of the tax regulations and requirements in order to avoid any penalties or issues with the tax authorities. The guide provides valuable information on topics such as tax rates, allowable deductions, tax depreciation, and tax credits.

If you are a business owner looking to invest in Cambodia, it is important to also consider factors such as land and manufacturing sites. For this, we encourage you to contact the Mekong South East Economic Zone (MSEZ) who can provide you with valuable assistance and guidance in your business ventures. Don’t hesitate to reach out to MSEZ for any questions or assistance.

References

• Cambodia – Corporate – Group taxation. (n.d.). https://taxsummaries.pwc.com/cambodia/corporate/group-taxation
• Cambodia – Corporate – Taxes on corporate income. (n.d.). https://taxsummaries.pwc.com/cambodia/corporate/taxes-on-corporate-income
• Briefing, A. (2023, January 24). A Guide to Taxation in Cambodia. ASEAN Business News. https://www.aseanbriefing.com/news/a-guide-to-taxation-in-cambodia/
• Cambodia – indirect tax guide. (2019, October 1). KPMG. https://kpmg.com/xx/en/home/insights/2019/10/cambodia-indirect-tax-guide.html