A General Department of Taxation (GDT) official on February 22 listed some of the assets that would be exempt from capital gains tax once it comes into force in January 1, 2022 and shed light on some of the finer subtleties of the tax.
Capital gains tax will be levied on taxpayers’ gains from the sale, transfer or establishment of property rights, or the registration of ownership or possession rights, according to Prakas No 346, which was signed by minister Aun Pornmoniroth on April 1.
Individuals will be required to pay a 20 per cent capital gains tax rate on calculated profits from the sale of certain assets including land, buildings, stocks, bonds, licences, patents and currencies.
Speaking at a seminar on the upcoming capital gains tax, GDT deputy director Ken Sambath said property belonging to state institutions, foreign missions, international organisations and government technical cooperation agencies are exempt from the tax, according to a GDT press release.
The government decided to waive tax on capital gains made through the sale or transfer of agricultural land that remains in production and whose owner or operator resides in the same commune as the farmland, according to Sambath.
He said “principal residences” of taxpayers of at least five years before the sale or transfer are also exempt, and the exclusion applies only to the “principal residence” of spouses with different addresses.
Exemption also extends to immovable property sales and transfers among relatives as outlined in the regulation on stamp duty tax – between siblings, parents and children, parents-in-law and children-in-law and grandparents-in-law and grandchildren-in-law (but not between siblings-in-law), as well as assets sold or transferred for “public benefit” as stated in the Law on Expropriation, he added.
He asserted that the administration of capital gains tax will provide a level playing field among the legal entities liable for the tax, or taxation equity.
“It will ensure sustainable tax revenue growth in line with the public financial management reform programme and the 2019-2023 revenue mobilisation strategy,” Sambath said.
He said capital gains tax will also control and direct housing speculation, reinforce the stability of property prices and ensure affordable real estate for investors and the general public.
“In this sense, it’ll be able to attract more investors, create more jobs and income for the people, increasing [positive] spillover effects in the economic system,” he said.
GDT said in the release that capital gains declared and taxed as ordinary income will not be subject to capital gains tax, adding that the tax will not apply to assets sold for break-even or at a loss.
Taxpayers can choose one of the “Determination Based Expense Deduction” or “Actual Expense Based Deduction” methods to pay the 20 per cent capital gains tax rate.
Anthony Galliano, group CEO of renowned accounting and auditing firm, Cambodia Investment Management, previously told The Post: “Based on the Actual Expense Based Deduction, the taxpayer can deduct the cost of acquisition and expenses holding and transferring the immovable property which qualify as deductible expenses.
“On this basis, if the costs are higher than the sale proceeds, there is no tax.
“The GDT has been very generous to investors in regards to the calculation of the capital gains tax. If an investor has made a substantial capital gain from holding an asset that cost a fraction of the sale proceeds, they can choose the Determination Based Expense Deduction option.
“The investor can deduct 80 per cent of sales proceeds as the cost and just pay the tax on only 20 per cent of the gain, rather than a true larger gain.
“On the other hand, the Actual Expense Bases Method is favourable in cases where the investor has a small gain or suffers an overall loss when considering the cost of the asset acquisition cost and inclusion of additional expenses, such as consulting, legal, registration, advertising and commission fees.
“This is more favourable for developers who can include most costs of the property development,” he said.
GDT in October said the government had decided to postpone the implementation of the capital gains tax from January 1, 2021 to January 1, 2022 due to Covid-19 concerns and to provide taxpayers more time to gain a better grasp of how capital gains tax works and what it implies for investments.