Please direct all inquiries regarding Cambodia to Robert King in the Ho Chi Minh City, Vietnam, office of EY.
Phnom Penh GMT +7
EY
+855 (23) 860-450/451 Block 1-5 Fax: +855 (23) 217-805 5th Floor Emerald Building 64
Norodom Boulevard corner Street 178
Sangkat Chey Chumneas, Khan Daun Penh Phnom Penh Cambodia
Principal Tax Contact
Robert King +84 (8) 3824-5252 (resident in Ho Chi Minh City, Mobile: +84 902-468-806 Vietnam) Email: robert.m.king@vn.ey.com
A. At a glance
Tax on Income Rate (%) 20 Capital Gains Tax Rate (%) 20
Withholding Tax (%) (a)
Dividends 14 Interest 14 Royalties 14 Income from Movable and Immovable Property 14 Fees for Services Performed in Cambodia 14 Technical, Management and Consultation Fees 14 Insurance Premiums 14 (b) Branch Remittance Tax 14 Net Operating Losses (Years) Carryback 0 Carryforward 5 (c)
(a) These withholding tax rates apply to payments to nonresidents only. For a listing of withholding taxes applicable to payments to resident taxpayers, see Section B. (b) This does not apply to reinsurance. (c) See Section C.
B. Taxes on corporate income and gains
Tax on income. Tax on Income (ToI) is calculated on taxable income inclusive of capital gains and passive income, such as interest, royalties and rent.
The ToI is imposed on the worldwide income of resident taxpay ers. It is imposed on the Cambodian-source income of nonresi dent taxpayers. For companies, resident taxpayers are enterprises organized, managed or having a principal place of business in Cambodia. A company that is not a resident taxpayer and that receives income from a Cambodian source is considered to be a nonresident taxpayer.
ToI rates. The standard rate of ToI for legal persons is 20%.
A tax rate of 30% applies to income derived from oil or natural gas production sharing contracts and from the exploitation of natu ral resources including timber, ore, gold and precious stones.
A tax rate of 5% is imposed on the gross premium income of insurance companies providing insurance or reinsurance prod ucts for property or other risks. However, insurance companies providing life insurance or reinsurance in the form of a savings product are taxed at a rate of 20%.
Minimum tax. Minimum tax is a separate annual tax imposed at a rate of 1% of annual turnover inclusive of all taxes, except valueadded tax (VAT). If the ToI liability exceeds the amount of the minimum tax, the taxpayer is not liable for the minimum tax. If taxpayers’ accounting records meet the criteria set by the tax authorities for the maintenance of proper accounting records, these taxpayers are exempt from the minimum tax.
Advance Income Tax on Dividend Distribution. The Additional Income Tax on Dividend Distribution has been renamed the Advance Income Tax on Dividend Distribution (AITDD). It is imposed on the distribution of retained earnings to local and overseas shareholders before ToI is declared to the tax depart ment. The AITDD is payable by the distributing company. It is calculated based on the following gross up calculation of the annual ToI rate:
• Step 1: Divide the amount of the dividend by 0.8.
• Step 2: Apply a rate of 20% to the result of Step 1.
The AITDD becomes a tax credit to utilize against annual ToI. Any excess tax credit can be carried forward to offset against the annual ToI liability in the following year.
From 2020, dividends distributed by Qualified Investment Projects (QIPs) during the tax holiday period are exempt from AITDD.
Investment incentives. A QIP registered and approved by the Council for the Development of Cambodia is entitled to the incentives described below.
An exemption from ToI applies to the trigger period and the pri ority period. The trigger period begins on the date of final regis tration and ends on the earlier of the end of the third year after the first revenue is earned or the end of the year preceding the year in which the first taxable income is earned. The priority period, which is specified in the Finance Law and varies by proj ect, may have a duration of up to three years. Under the new Law on Investment (LoI) issued in October 2021, after the ToI exemp tion period ends, a QIP will continue to be entitled to a reduced ToI rate for six years. The reduced rates are 25% of the standard rate for the first two years, 50% of the standard rate for the next two years and 75% of the standard rate for the last two years.
The taxpayer is entitled to an exemption from the minimum tax if it is confirmed by the tax authorities that the taxpayer is main taining proper accounting records. Under the new LoI, a QIP is
exempt from minimum tax if its accounts are audited by an inde pendent auditor.
QIPs can import construction materials, construction equipment, production equipment and production inputs with customs duty, Specific Tax and VAT borne by the government. However, the incentives of production inputs for domestically oriented QIPs are determined by the Law on Financial Management and/or a Sub-Decree.
Other incentives include a VAT exemption on the local purchase of production inputs, a deduction of 150% of expenses for certain expenses, an exemption from income tax for QIP expansion and additional special incentives for certain potential investments that will contribute to develop Cambodia’s economy. These additional incentives are determined by the Law on Financial Management and/or a Sub-Decree.
Capital gains. All realized gains (including capital gains) are considered to be taxable income. Tax on capital gains is not separately imposed in Cambodia. Capital gains derived from the disposal of fixed assets are treated as ordinary income and generally taxed at the standard ToI rate of 20%.
Administration. Resident taxpayers must file annual ToI or mini mum tax returns within three months after the end of the tax year.
Resident taxpayers must make monthly prepayments of ToI, which are each equal to 1% of monthly turnover inclusive of all taxes, except VAT. Effective from the December 2020 monthly tax return, the prepayments must be made by the 25th day of the fol lowing month in which the tax liability arose through an e-filing system. The tax payment can be used to offset the annual ToI or minimum tax liability. Prepayments of ToI are not required during the period of exemption from ToI.
Dividends. Dividends paid to nonresident taxpayers are subject to withholding tax at a rate of 14%.
Withholding taxes
Payments to resident taxpayers. Resident taxpayers carrying on business in Cambodia must withhold tax from payments made to other resident taxpayers at the following rates.
Payment Rate (%)
Interest paid to recipients other than domestic banks 15
Interest paid on non-fixed term saving accounts by domestic banks 4
Interest paid on fixed-term saving accounts by domestic banks 6
Royalties 15 (a) Rent paid for movable and immovable property 10 (b) Payments to individuals for services, including management, consulting and similar services 15 (c)
(a) This withholding tax is not applied to payments made to registered resident taxpayers with valid value-added tax (VAT) invoices on shrink-wrap soft ware, site licenses, downloadable software and software bundled with com puter hardware.
(b) This withholding tax is not applied to payments made to registered resident taxpayers with a valid VAT invoice.
(c) This withholding tax is not applied to payments if the amount is lower than KHR50,000 (approximately USD12.5).
Payments to nonresident taxpayers. Resident taxpayers must with hold tax at a rate of 14% on payments to nonresidents that earn Cambodian-source income, which is defined to include the fol lowing:
• Interest paid by resident enterprises, resident pass-through enti ties or Cambodian governmental institutions
• Dividends distributed by resident taxpayers
• Income from services performed in Cambodia
• Compensation for management and technical services paid by resident persons
• Income from movable or immovable property, if the property is located in Cambodia
• Royalties from the use of, or the right to use, intangible property paid by residents or by nonresidents through a permanent establishment that the nonresident maintains in Cambodia
• Gains from sales of immovable property located in Cambodia or from transfers of interests in immovable property located in Cambodia
• Insurance premiums paid on the insurance of risks in Cambodia
• Gains from the sale of movable property that is part of the business property of a permanent establishment maintained by a nonresident taxpayer in Cambodia
• Income from business activities carried on by nonresidents through a permanent establishment in Cambodia (branch remit tance tax)
In general, the above withholding taxes are considered a final tax. If withholding tax is not withheld from the recipient, it is borne by the payer. Accordingly, the withholding tax is not deductible for purposes of the ToI.
Withholding tax returns and payments. Effective from the December 2020 monthly tax return, resident taxpayers must sub mit withholding tax returns and remit withholding taxes to the tax authorities by the 25th day of the following month through an e-filing system. The hard-copy tax returns are no longer accept ed, unless the taxpayer obtains specific approval from the tax authorities to submit hard-copy tax returns as a result of difficul ties in implementing the e-filing system.
Foreign tax relief. Cambodia allows a credit against the ToI for foreign taxes paid on foreign-source income if supporting docu mentation exists.
C. Determination of trading income
General. Taxable income equals the difference between total income and allowed expenses that are incurred to carry on the business.
Allowable deductions include most expenses incurred in the course of carrying on a business enterprise with certain limitations. These limitations include the following:
• The deduction of charitable contributions to specified organiza tions is limited to 5% of taxable income before deducting the amount of the charitable contributions.
• Depreciation is allowed as a deduction in accordance with rates and methods set forth in the tax regulations.
• Deductions for interest are limited to interest income plus 50% of taxable income excluding interest income and expenses. The disallowed interest may be carried forward to subsequent years and deducted subject to the same limitations (also, see Special rules for loans). Effective from 2020, the disallowed interest can be carried forward for only five years.
Nondeductible expenses include the following:
• Expenses incurred on activities generally considered to be amusement, recreation, entertainment or on the use of any means with respect to such activities
• Losses on direct or indirect sales or exchanges of property between related parties
• Penalties, additional tax and late payment interest imposed for violation of the tax regulations
• Donations, grants or subsidies made to other than specified organizations
Special rules for loans. According to Cambodia’s tax regulations, a limitation of interest rates on loans obtained from banks and other enterprises should be determined in accordance with the following rules:
• Before 19 March 2020, a taxpayer could not get a tax deduction for interest to the extent the rate on loans from third parties exceeded 120% of the market rate at the time of the loan trans action. From 19 March 2020, this limit on deductibility no longer applies.
• Before 21 August 2018, the interest rate for loans from related parties could not exceed the market rate at the time of loan transaction. From 21 August 2018, for loans from related par ties, the interest rate is required to be at arm’s length.
In this context, the term “market rate” is the average interest rate on loans from at least five of the largest commercial banks in Cambodia to their customers. The market rate is published annu ally by the General Department of Taxation (GDT) for the preceding year.
For loans referred to in the first two bullets above, the taxpayer is required to notify and submit the agreements and other support ing documents to the tax authorities within 30 days after entering into the transaction. If the taxpayer fails to notify the tax author ities by providing it with the supporting documents, the loan amount may be added to the taxpayer’s taxable income for that year.
For loans referred to in the third bullet above, a copy of the loan agreement is not required to be submitted to the GDT. However, the taxpayer is required to maintain the following supporting documents to provide to the GDT on request:
• Loan agreement
• Business plan relating to the loan
• Benchmarking study of the interest rate
• Board of directors’ resolution (for single membership)
In addition, deductions for interest are limited to interest income plus 50% of taxable income excluding interest income and
expenses. Any disallowed interest may be carried forward and a deduction can be claimed in subsequent years, subject to the same limitations. From 2020, the disallowed interest can be car ried forward only five years.
Provisions. Provisions for losses or expenses that have not oc curred are not allowed for tax purposes even if the incurrence of such losses or expenses is probable. However, domestic financial institutions may establish provisions for bad debts within the threshold provided by the GDT.
Tax depreciation and amortization. The tax regulations divide fixed assets into four classes for purposes of depreciation and specify the depreciation methods and rates for the classes. The following are the classes.
Classes Assets Method Rate (%)
Concrete buildings and structures Straight-line 5
Non-concrete buildings Straight-line 10
Computers, electronic information systems and data handling equipment Decliningbalance 50
Automobiles, trucks, office furniture and equipment Decliningbalance 25
Other tangible property Decliningbalance 20
A QIP (see Section B) may apply a special depreciation rate of 40% in the year of purchase or in the first year the tangible assets are placed into operation, if later. If the enterprise elects to use the exemption period for the ToI, the special depreciation rate does not apply.
Intangible assets with a limited useful life, such as patents, copy rights, drawings, models, and franchises, can be amortized over their useful life on a straight-line basis. If the life of intangible assets cannot be determined, the assets are amortized using the straight-line method at a rate of 10%.
Relief for losses. Losses can be carried forward to offset future taxable income for the following five years. The carryback of losses is not allowed.
The carryforward of losses is not forfeited by a change of owner ship. However, it is required that there be no change in the busi ness objectives and activities of the entity.
Groups of companies. Cambodia does not allow consolidated tax filing or provide other group tax relief.
D. Other significant taxes
Value-added tax. Resident taxpayers providing taxable supplies must register for VAT. Taxable supplies include supplies of goods or services by taxable persons in Cambodia.
The standard rate of VAT is 10%. A 0% rate of VAT applies to exports of goods and services including international transportation of passengers and goods and services with respect to such transportation. It also applies to enterprises in supporting indus tries and subcontractors that supply certain goods and services to exporters.
The tax law specifies certain nontaxable supplies.
A resident taxpayer must complete the registration for VAT within 30 days after the date on which it becomes a taxable per son. The filing of VAT returns and payment of VAT must be made by the 25th day of the following month, effective from June 2020. Hard-copy tax returns are no longer accepted, unless the taxpayer has received approval from the tax authorities to submit hardcopy tax returns as a result of difficulties in implementing the e-filing system.
Other taxes. Cambodia imposed various other taxes, including the following:
• Specific Tax on Certain Merchandises and Service
• Tax for Public Lighting
• Accommodation Tax
• Patent Tax
• Registration Tax (property transfer tax)
• Fiscal Stamp Tax
• Tax on Immovable Property
• Tax on Unused Land
• Tax on Means of Transportation
E. Foreign-exchange controls
The Cambodian currency is the Khmer riel (KHR).
Cambodia does not impose any restrictions on the purchase of foreign currencies through authorized financial institutions.
F. Tax treaties
Double tax treaties with Brunei Darussalam, China Mainland, the Hong Kong Special Administrative Region (SAR), Indonesia, Korea (South), Malaysia, Singapore, Thailand and Vietnam have been ratified. A treaty with the Macau SAR is not yet effective. The treaties reduce the withholding tax rate from 14% to 10% on dividends, interest, technical services and royalties paid to resi dents of treaty jurisdictions. An application to apply treaty relief must be made to the Cambodian tax authorities.