Representatives from the tax authorities of Cambodia and Thailand have agreed in principle to speed up a proposed double taxation agreement that would protect their nationals from dual taxation and encourage bilateral investment.
The agreement was made last week during a two-day consultation workshop in Bangkok for tax officials from the two countries, the General Department of Taxation (GDT) announced in a press release late on Tuesday. It said the GDT and Thailand’s Revenue Department had agreed in principle to establish technical teams that would work together as early as next month to prepare a final draft agreement.
“This is good news for investors and businesses in the two countries as it provides them a tax benefit,” it said in the release.
While the framework for proposed DTA between the two countries has yet to be released, Cambodia has been aggressively pushing for agreements that shield investors from being onerously taxed twice on multinational operations.
Currently, Cambodia has signed DTA agreements with Singapore and China that aim to lower withholding tax on dividends, interest and royalties for individuals and corporations, as well as set up mechanisms to halt tax evasion. The government is also developing framework agreements for DTAs with Russia, South Korea and Hong Kong.
Hang Sochivin, a Ministry of Commerce official and commercial counsellor for the Cambodian Embassy in Thailand, said yesterday that the Cambodia-Thai DTA would provide an additional incentive for companies to expand operations in both countries.
“Over the long term, [a DTA] provides benefits to investors of both countries to expand their business operations,” he said. “Right now, Thai exports to Cambodia are bigger than ours and Thai companies in our country are also bigger than ours. So, this agreement would help attract more Thai investors to our country.”
According to data from Thailand’s Ministry of Commerce, there are over 200 Thai companies investing into the Cambodian sectors of agriculture, manufacturing, tourism, retail and digital finance. Meanwhile, data from the Council for the Development of Cambodia show that the government approved nearly $122 million worth of Thai investment last year.
Hiroshi Suzuki, chief economist of Business Research Institute for Cambodia, said a Cambodia-Thai DTA could spur more interest from Japanese manufacturers pursuing the “Thailand Plus One” model that shifts segments of their Thai operations to neighbouring countries.
“Recently, Japanese factories in Thailand are seeking next destinations [in response to] increasing costs of labour in Thailand,” he said.
“Cambodia is one of the best candidates for this kind of new investment, so the streamlining of taxation in two countries could enhance this trend.”
Clint O’Connell, head of tax practice for DFDL Cambodia, said it is clear that the Cambodian government is actively pursuing DTAs as part of the Asean Economic Community integration blueprint. Nevertheless, he added that it was a top government priority given the geographic proximity of the two countries and the volume of cross-border investment.
“A DTA with Thailand would certainly be a step in the right direction to ensure Cambodia captures the outflowing investment from Thailand Plus One,” he said. “The elimination of double taxation and the reduction of withholding taxes on cross-border transactions should help to encourage foreign direct investment.”
However, he added that a DTA in itself would not necessarily be enough to entice Thai investors, adding that Cambodia should take a broader approach and review and update its current investment laws to help create more incentives for establishing special economic zones along the border.
Additional reporting by Kali Kotoski