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Logo of Phnom Penh Post newspaper Phnom Penh Post - New tax obligations for all

New tax obligations for all

Michael Kennedy, senior associate with Australian law firm Coors Chambers Westgarth, details

wide changes to the Cambodian tax laws.

THE Financial Law passed last

December - and now effective after a two month moratorium - affects all people

working in Cambodia as well as Cambodian citizens living abroad.

The law

imposes income taxes on individuals and clarifies the impact of profits taxes,

which were first introduced by former Finance Minister Sam Rainsy in March


The tax base has been substantially widened, which is important

given the historic reliance on import duties as the government's biggest revenue

earner - now threatened by widespread smuggling.

However to its credit

and consistent with the philosophy of the Investment law which offers very

competitive incentives, the scales of taxes are not at all onerous when compared

with those in Thailand and Vietnam. There is no disincentive to pay taxes on

this score alone.

On the other hand, the new law extends the obligation

to pay taxes not just to the tax debtor, but also those who deal with the debtor

in certain ways, such as transferring land.

More unusually, the tax

authorities can also recover tax debts and penalties from third parties who hold

the moneys of the tax debtor, such as banks or trustees or investment companies.

These third parties are personally liable for the tax debts. Likewise, senior

executives who are involved in tax evasion activities on behalf of their

companies are financially responsible for those company tax debts and


This article is not exhaustive on the tax law and does not

attempt to deal in depth with the issues discussed. Readers who wish to take

action in relation to such issues should seek legal advice before so acting.

Income tax:

Personal income taxes are levied monthly on total

income, which arises from activities in Cambodia, regardless of the form of

income and includes benefits in kind, which are valued at their net present

value. It also purports to cover the activities of residents of Cambodia who are

working abroad (Articles 10-11).

Tax is levied on the taxable income of

foreigners, unless exempted by international conventions or the Investment Law

(Article 13). The total income liable to tax includes payments made abroad for

the benefit of employees and loans or advances made by employers (Article


The income tax threshold starts at a monthly remuneration of 750,000

Riels (currently around $300 a month), with a tax rate of 5% for incomes between

750,001 to 1 million Riels: 10% for incomes between 1,000,001 to 10 million

Riels; 15% for incomes between 10,000,001 to 20 million Riels and a top tax rate

of 20% for incomes which exceed 20 million Riels ($8000 a month). A tax

deduction of 75,000 Riels applies for each dependent child. An expatriate

resident who receives a salary outside Cambodia and has paid tax on that salary,

will be allowed a tax credit for the amount of tax paid (Article


Apart from setting the tax rate scales, Article 16 also stipulates

that employers and employees are collectively responsible for the payments of

income tax in Cambodia. To compliment this, Article 19 requires the deduction of

income taxes by the employer on each pay day, while Article 20 requires the

payment of tax so deducted within 15 days.

Article 21 requires an

employer to maintain a register or ledger which records salaries paid and taxes

deducted. It requires receipts to be kept for three years.

Profits tax:

Profits tax is payable monthly, by a pre-payment

based on 2% of monthly turnover (Article 25). The actual Profits tax payable at

the year end is calculated at the rates set out in Directive 012 issued by the

Minister of Economics and Finance on 9 March 1994. This set tax rates of 10% of

profits below 1 million Riels, of 15% of profits between 1 to 10 million Riels,

of 20% of profits between 10-20 million Riels and 30% of profits exceeding 20

million Riels.

If the amount of monthly (provisional) tax payments

exceeds at the end of the financial year the actual amount payable when the

profit of the enterprise is calculated, a credit will be allowed against the

monthly payments in the following year. Likewise, additional payments will be

required if the sum of the monthly provisional payments were insufficient to

meet the amount of profits tax due. However in either event, a minimum of 0.5%

of the monthly turnover payments will be retained by the Treasury, whether or

not a profit has been earned by the enterprise (Article 25.2)

Undeveloped Land tax:

A tax on undeveloped land has been

created (Article 26). It extends to urban areas on which buildings are

undeveloped or abandoned. The basis of the tax will be set by an Assessment

Committee, with land areas of less than 1200 square meters to be exempted, and a

market value to be assessed within each financial year (Article 30). The tax

rate is 2% of the assessed market value of the land, payable by September


Turnover (Sales) tax:

A flat rate of 10% of turnover has been

set, by Article 37, on the turnover of hotels and related services, rented

rooms, massage premises, nightclubs and resorts, restaurants and drink shops.

All other turnover tax has been abolished.

Patent fees:

A new sliding

scale of patent fees has been prescribed for trading and industrial activities,

with the threshold being 15,000 Riels for annual turnover up to 7.5 million

Riels, while the same threshold applies to the services sector (excluding hotels

and restaurants) for annual turnovers up to 3 million Riels.

Registration tax:

A range of transactions will now incur a

registration tax of 4% of the declared value. By Article 40.1 these include

transfers of land or fixed assets, whether by sale, gift or purchase of shares

in a company. The same ad valorem tax is levied on the transfer of motor

vehicles and vessels.

The registration of various documents will now

incur a fixed fee of 100,000 Riels ($40) under Article 40.3. These include

company registrations, mergers and liquidations and contracts for the supply of

goods and services to public enterprises. The tax is payable within 3 months and

a100% penalty applies if the tax is paid out of time (Article 42). Perhaps more

importantly, a new certificate of title or evidence of ownership cannot be

issued unless the new owner has paid the registration tax (Article 43).

Stamp duties:

By Articles 46-48 a range of minor stamp duties are levied on administrative

directives of the government and court orders, as well as public announcements.

The directives and orders cannot be issued unless the stamps are attached.

Tax identification:

By Article 50 each business which is liable to tax shall be allocated an

identity number by the Tax Department. Article 51 requires the identity number

to be placed on all business documents such as invoices, receipts and bid

documents. If receipts are issued without the identity number, the receipt

cannot be used for the calculation of profits tax.

Cash transactions:

All small business enterprises which operate on a cash basis with the public

with sales exceeding 10 million Riels in 1994 are required to keep income

accounts and issue receipts to record all daily transactions (Article


Trading firms are also required to keep accounts of all purchases

with receipts or other documentary proof attached. By Article 54.3 all accounts

are required to be produced to the tax authorities on demand; failure to do so

makes the business liable to unilateral determination of tax liability by the

tax authorities.

Tax collections:

By Article 54 the tax authorities are responsible for both determining the

tax base, computing taxes payable and collecting the assessed tax. A tax

assessment letter is to be sent to the taxpayer (Article 57) and if the assessed

taxes have not been paid within one month, a reminder letter is sent which

requires payment within 15 days together with a penalty of 10% (Article


Article 60 prescribes two "tough measures" to collect unpaid taxes.

The first invoices the confiscation of assets and the closure of the

enterprise's offices, factories or workshops. The second involves the sale of

the assets. By Article 61 the debt collection division is required to record the

specific measure to be taken. By Article 63 the sale of assets can proceed one

month after the record is made. Under Article 64 the lodging of a protest by the

tax debtor does not prevent the implementation of the specific measures and

anyone who acts violently or with contempt against the tax collectors will be

liable to criminal charges.

The tax collector can recover unpaid taxes

and penalties from third parties who hold the tax debtor's money. This appears

to apply to banks or trustees who, as a "third person who is entrusted with

debtor's money" is obliged by Article 66 to pay the taxes, duties and penalties

on behalf of the debtor from the money in his possession. By Article 68 such a

third person who fails to pay taxes as requested by the tax authorities is

personally liable to pay such taxes from his own assets.

Article 71 puts

a purchaser of an enterprise or real estate at risk as both the buyer and seller

are collectively held responsible for the payment of taxes and penalties payable

by the seller at the time and up to the value of the sale.

- (Michael Kennedy is currently advising the Ministry of Industry, Energy and

Mines on the preparation of a new Electricity Act and the establishment of

Electricite du Cambodge as a legal entity. He also acted as Legal Advisor to the

previous Minister of Economics and Finance in the period March to October




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