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Individual taxes payable in Cambodia

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THERE IS no personal income tax per se in Cambodia. Instead, individuals are

taxed either as employees or as business persons.

A monthly Salary Tax is

imposed on individuals who derive income from employment. Unless consultants are

deemed employees, general consulting income is considered to be business

income.

An individual's business income is subject to Tax on Profit.

Business income would generally arise from the habitual conduct of commercial

activities with the aim of profit making.

In this article, we will

concentrate on Salary Tax.

Residency and source

Employment income is

taxed based on internationally familiar residency and source principles.

A Cambodian resident is one who is domiciled in or lives predominantly

in Cambodia. Additionally, any individual who is present in Cambodia for more

than 182 days in a calendar year is also considered to be resident in Cambodia.

This later classification will be of interest to most expatriates.

A

Cambodian resident is subject to Cambodian Salary Tax on his worldwide salary.

In other words, once an individual is considered to be a Cambodian resident for

tax purposes, his salary from employment activities throughout the world will be

subject to Cambodian Salary Tax.

Non-residents are taxed only on their

Cambodian-sourced salary. Under Prakas No 396, their Cambodian-sourced salary

may be exempt from Salary Tax if this salary is not claimed as an expense in

computing taxable profits for Cambodian Tax on Profit purposes.

Source is

determined with reference to where employment activities are carried out. It is

important to note that the place of salary payment is irrelevant for the

purposes of determining the source of salary. Therefore, even where an

individual is employed to work in Cambodia but is partially paid in another

country, his entire salary from his employment in Cambodia will be

Cambodian-sourced and so generally subject to Cambodian Salary Tax.

Determination of taxable

salary

Salary Tax is payable on monthly taxable salary. Salary

includes remuneration, wages, bonuses, overtime, fringe benefits and

compensation paid for fulfilling employment activities, whether or not paid for

the direct benefit of the employee.

A distinction is, however, made

between cash salary and fringe benefits.

Cash salary is generally the

basic wages, overtime and bonuses paid for employment activities.

Quite

importantly, however, cash advances and loans from the employer to the employee

are also considered cash salary, with the repayments being deductible.

We

understand this provision was introduced to overcome the common practice of

advancing non-taxable loans to expatriates and forgiving these loans on

completion of the expatriates' assignments.

Fringe

benefits are considered to be supplementary salary and include the provision

of:

  • accommodation support including of utilities and domestic helpers
  • education assistance for an employee's minor dependants
  • all kinds of motor vehicles for private use
  • low interest loans and discounted sales
  • "excessive or unnecessary" cash allowances, social welfare and pension

    contributions

  • life and health insurance, unless provided to all employees
  • entertainment or recreational expenditure

To-date, the tax authorities have been most interested in pursuing the

declaration of accommodation and domestic helper benefits.

Deductions to

reduce taxable salary are limited to small amounts for an employee's spouse who

is a housewife, his minor dependants and for repayments of employer loans or

advances.

Tax rates

The cash salary of residents is taxed on the

following rates, assuming an exchange rate of Cambodian riel 3800:

US$1.

Where monthly cash salary is in the range

of:

  • 500,001 to 1,250,000 riels (US$132 to $329), the tax is 5%;
  • 1,250,001 to 8,500,000 riels ($329 to $2,237): 10%;
  • 8,500,001 to 12,500,000 riels ($2,237 to US$3,289): 15%;
  • 12,500,001 ($3,289) or more: 20%.

Non-residents are taxed at a flat rate of 15%, which also constitutes a final

tax, that is, no further Cambodian Salary Tax is due on the

income.

Fringe benefits are taxable on the employer at a flat rate of 20%

of the market value of the "grossed up" fringe benefit. Note that the market

value is to be divided by 0.8 to determine taxable value.

Salary tax liability

Salary Tax is computed

on the payment of cash salary and fringe benefits. Employers must deduct Salary

Tax from employees' salaries in accordance with the tax tables above on a

'pay-as-you-earn' basis.

Note that there is a distinction between Salary

Tax on cash salary and that on fringe benefits. Salary Tax on cash salary is the

liability of the employee, while Salary Tax on fringe benefit is the liability

of the employer. Salary Tax has to be paid in riels and official exchange rates

are provided monthly by the tax authorities.

Tax administration

Although it is a tax on

an individual's employment income, employers are responsible for withholding the

Salary Tax monthly. The tax withheld must be submitted to the tax authorities,

together with a monthly Salary Tax declaration, not later than 15 days after the

end of the month in which the salaries were paid. Late submission of the Salary

Tax declaration and late payments are subject to penalties. There is no

requirement for the employee to file any return.

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