Tim Watson and Phyllis Lye continue their analysis of corporate obligations
under Cambodian tax law.
Annual declaration
Regardless of whether or not a real regime enterprise is profitable or loss making,
an annual Tax on Profit Declaration is due to be filed within three months after
year-end.
The tax department is known to monitor the timely submission of these declarations
and penalties may be imposed for late submission. The failure to submit a tax declaration,
even if the taxpayer is in a loss making position, may also expose the taxpayer to
a unilateral assessment.
The 1997 Law on Taxation ("the 1997 Law") states that "the Tax on
Profit for real regime enterprises is calculated from the balance sheet results realized
in the previous tax year". This implies that the tax year generally refers to
an enterprise's accounting year-end. Therefore, if an enterprise's accounting year-end
is 30th September, then its annual Tax on Profit Declaration for that year is due
by 31st December. The due date for enterprises with accounting years ending Dec 31
is March 31 the following year.
The annual Tax on Profit Declaration consists of a 17-page form in the Khmer language*.
Although the 1997 Law requires real regime taxpayers to submit a Balance Sheet, a
Profit and Loss Account and other complimentary information together with this Declaration,
it is our experience that the submission of the Declaration alone is sufficient.
This is on the basis that the Declaration itself is fairly detailed and requires
the inclusion of the following information:
- Balance Sheet Assets
- Balance Sheet Liabilities
- Profit and Loss Account
- Current Fixed Assets
- Depreciation Table
- Table of Provisions
- Table of Gain and Loss on the Disposal of Fixed Assets
The account descriptions for the Balance Sheet and Profit and Loss Account in
the Declaration largely follows the Cambodian General Chart of Accounts.
Results for the year
The following are relevant to determine an enterprise's results for the year:
Taxable income - this includes the results realized from all business and investment
operations including disposals of fixed assets.
Taxable profit - this is computed as income over expenses made for acquiring and
preserving profit.
General deductibility criteria - expenses incurred during the year are deductible
to the extent that they are reasonable and incurred for business purposes.
Non-deductible expenses - the following are specifically disallowed as expenses:
- Expenses incurred for amusement, recreation or entertainment;
- Personal expenses, except for fringe benefits (in cash or in kind) subject to
the provisions of Salary Tax;
- Payments of Tax on Profit and Salary Tax;
Deductible interest expense - this is deductible up to the sum of interest income
and 50% of net non-interest income before accounting for interest expense.
Depreciation expense - specific depreciation rates exist and either the straight-line
or reducing balance methods can be used. Investment enterprises are however required
to use the straight-line method of depreciation.
Charitable contributions - a deduction of up to 5% of taxable profit (before taking
the charitable contribution deduction) is allowed.
Carry forward of losses - tax losses since 1997 can be used to offset profits realized
in the next five years on a first-in-first-out basis (prior to this, losses were
generally able to be carried forward for 3 years). In this regard, it is important
to note that any tax losses incurred in 1996 may expire at the end of 1999.
Transfer pricing - To prevent the avoidance of tax, the tax authority has the power
to 'redistribute' income and expenses between parties under "common ownership"
(20% shareholding).
Minimum Tax
Minimum Tax is an annual tax imposed at the rate of 1% on the turnover (inclusive
of taxes) of real regime taxpayers and is payable within three months after year-end,
whether or not the taxpayer is profitable or loss making. It is also important to
note that Minimum Tax is payable even if a taxpayer is an investment enterprise that
has been granted a Tax on Profit exemption.
Although Minimum Tax is separate and distinct from Tax on Profit, the annual Tax
on Profit Declaration is used as a basis to determine the Minimum Tax payable by
an enterprise. In this regard, it should be noted that the Minimum Tax payable by
an enterprise for an accounting year-end is reduced by the Tax on Profit prepayments
made for the year in question.
Where the taxpayer is in a loss making position and on the proviso that the correct
monthly Tax on Profit prepayments have been made, this taxpayer should not have to
make further payments of Minimum Tax.
Where the taxpayer has a Tax on Profit exemption and therefore is not required to
make monthly Tax on Profit prepayments, the Minimum Tax payable is computed at 1%
of annual turnover (inclusive of all taxes including Value Added Tax).
* PricewaterhouseCoopers had previously obtained approval to use a bilingual (English/Khmer)
form.
