Are you interested in learning about the Cambodian tax system? Cambodia's tax system is governed by the Law on Taxation (LoT), a comprehensive legislation passed by the National Assembly in 1997 and amended in 2003. The LoT outlines the general principles and regulations governing taxation in Cambodia, while the Ministry of Finance provides further clarification and detail by issuing "Prakas". The latest addition to this regulatory framework is the ToI regulations (Prakas no. 098, issued on 29 January 2020), which replace the previously enacted ToP regulations (Prakas no. 1059, issued on 12 December 2003). In this article, we will provide an overview of Cambodia's tax law and explore the key provisions of the LoT and its subsidiary legislation.

Important points to note when paying taxes:

1. If the company's products are used for export, it should apply for an export tax exemption permit, that is, an income tax exemption permit.
2. If the company's products are intended for export but due to lack of orders, it needs to do processing with supplied materials, it should apply for industrial support approval in order to enjoy the preferential treatment of exemption from processing tax (value-added tax).
3. A subsidiary of a company that supplies exporting companies instead of exporting its products must apply for a permanent import VAT exemption permit after completing company registration procedures. After the company begins operations, it must also apply for an industrial support permit before it can enjoy the preferential treatment of VAT exemption.

Under Cambodia’s Self-Reporting System (SAR), taxpayers are divided into three categories:

In Cambodia, companies must pay taxes and are classified as small, medium and large taxpayers based on their annual turnover.

• Small taxpayers: Small taxpayers are those whose annual turnover is less than or equal to 250 million Cambodian riels (KHR), equivalent to approximately US$62,500.
• Medium-sized taxpayers: Medium-sized taxpayers are taxpayers whose annual turnover is greater than KHR 250 million but less than or equal to KHR 4 billion (approximately US$1 million).
• Large taxpayers: Large taxpayers are those whose annual turnover exceeds KHR 4 billion (approximately USD 1 million).

Taxpayers are classified based on their turnover, which is the total value of goods and services provided by the taxpayer during the tax period. Each type of taxpayer has different tax obligations and requirements, including the frequency of filing tax returns and paying taxes. Small taxpayers can file their taxes monthly through an app, while medium and large taxpayers must file their taxes through GDT's online system.

Main Tax Laws in Cambodia

The main tax law in Cambodia is the Tax Code, which is further defined by the "Prakas" issued by the Ministry of Finance.

Resident or non-resident

Corporate taxpayers are classified according to whether they are resident or non-resident. Resident taxpayers are subject to income tax or corporate income tax on income from Cambodia and foreign sources. Non-resident taxpayers may be considered resident taxpayers if they have a fixed establishment in Cambodia.

• If a non-resident taxpayer has a fixed establishment in Cambodia, he or she will be regarded as a Cambodian resident taxpayer.
• Resident taxpayers are subject to income tax or corporate income tax on income derived from Cambodia and foreign sources.

Non-resident taxpayers are only required to pay income tax or corporate income tax on income derived from Cambodia.

Place of residence

In Cambodia, a company is considered a resident of Cambodia if it meets any of the following conditions:

• Incorporated or managed in Cambodia.
• Have its principal place of business in Cambodia.

Taxable income

In Cambodia, taxable income is defined as the net income from all business and non-business activities of an individual or legal person. This includes capital gains, interest, rent, royalties, and income from financial or investment assets such as real estate.

For legal persons, taxable income is determined after adjusting accounting results during the tax year in accordance with the tax law; for individuals, it is determined by deducting expenses and allowances from the total income during the tax year in accordance with a decree. Cambodia's tax rules and procedures are further regulated by the "Prakas" document issued by the Minister of Finance.

Capital Gains

In Cambodia, when a resident legal person realizes capital gains, these gains are considered income and are taxed at the current income tax rates.

Dividends

In Cambodia, dividends are distributions of property or money from a legal person to shareholders, but do not include distributions of capital or equity interests during the full liquidation of a company. Dividends received from non-resident companies are taxable but can be credited against foreign income tax, provided certain conditions are met.

Tax-free income

In Cambodia, dividends received from resident companies are not subject to income tax.

deduct

In Cambodia, deductions are expenses and allowances that can be subtracted from a taxpayer’s gross income to determine their taxable income. These deductions are set out in the Tax Law and can include expenses such as wages, salaries and bonuses paid to employees, rent and utility bills, depreciation of assets, and interest on loans. Deductions can also include specific allowances, such as family allowances or children’s education allowances, which are set out in a decree. The specific expenses that can be deducted may vary depending on the type of taxpayer and the nature of the business or activity.

Non-deductible expenses

In Cambodia, certain expenses are considered non-deductible when filing your tax return:

• Increase in reserves
• Expenses for entertainment, recreation and recreational activities
• Personal expenses (excluding fringe benefits subject to surtax)
• Losses on sales or exchanges of property between related parties
• Penalties, additional taxes and late fees for violations of the Tax Code
• Non-deductible tax expenses
• Donations, grants or subsidies
• Extravagant and/or unrelated business expenses
• Unpaid salaries and related party expenses are not deductible unless they fall within the “180-day rule” payment period prescribed by the recent Income Tax Prakas no. 098.

These non-deductible expenses need to be taken into account when filing your Cambodian taxes to ensure compliance with the Tax Law.

loss

Tax losses can generally be carried forward for up to five years, but tax losses in oil and mineral resource businesses are subject to separate limits. It is important to note that tax losses cannot be carried back.

In addition, tax losses may be waived based on certain criteria, such as changes in business activities or where the taxpayer is subject to a unilateral tax reassessment. Taxpayers must therefore monitor their tax losses and ensure that they are carried forward within the permitted timeframe.

Tax depreciation and capital allowances

In Cambodia, tax depreciation or capital allowances refers to the deduction of the cost of an asset over its useful life for tax purposes.

The tax code specifies the useful life of various types of assets and the percentage allowed to be depreciated each year. Depreciation rates may vary by asset type and industry. The cost of an 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 taxable income. The deduction is calculated based on the cost of the asset and the type of asset. The deduction allowed can be spread over a number of years.