EuroCham, the largest Western business association in Cambodia, recently published its first “White Book”, an annual publication that is intended to constructively engage the government on legal, regulatory, and administrative issues most important to advancing the ease of doing business in Cambodia and attracting more foreign investment.
The White Book presents a set of policy proposals intended to assist the government in improving the ease of doing business and to constructively address issues identified by its members that EuroCham believes represents the perception and aspirations of compliant investors.
In September of 2015, EuroCham surveyed its members in its first annual EuroCham Business Confidence Survey. A majority of companies surveyed reported they had met their financial targets over the last year, however, only 13 per cent considered Cambodia to be more competitive than other Southeast Asian countries.
Member companies contributing their input to the White Book also expressed their concern about unfair competition as the single most cited deterrent to expanded investment, and called for the need for more formalisation of the business environment.
Members contributing their input to the White Book also reinforced the need to address this issue and welcomed simplification of bureaucratic procedures and improved communication between the public and private sector.
It was my great pleasure to be part of the Taxation Committee, which with the increased introduction of new laws, processes and procedures, and heightened enforcement and oversight, has required companies to invest more attention and effort to comply with the changes in the Law on Taxation.
The Committee, together with input from the membership, consolidated the issues into five priority topics. They were tax registration, withhold tax, value-added tax, tax on profit, and minimum tax and tax administration. As is the intention of the White Book, constructive solutions to the concerns identified were offered for the government to consider.
With respect to Tax Registration, the White Book highlighted the difficulties some companies had with Prakas 1139 which introduced revisions to the tax registration process. In particular, the requirement for the principal, being either the Chairman or Sole Shareholder, to physically present themselves to the General Department of Taxation (GDT) to have a photo taken and have their fingerprints scanned.
Prakas 496, issued in April, provides an alternative to the chairperson/owner of foreign nationality who resides outside of Cambodia and cannot come to have their photo taken and finger prints scanned.
Under that scenario, a power of attorney may be granted to a representative in the company’s board of directors to meet the requirements on behalf of the chairperson/owner.
This was a key recommendation in the White Book. An additional recommendation was for the GDT to consider accepting digital photographs and fingerprints, verified by foreign authorities.
Although tax reforms have been introduced to register more businesses into the tax regime, a majority of service providers still remain unregistered. Registered businesses that receive payments from businesses unable to provide a valid VAT receipt are required to withhold 15 per cent from the payment, which is to be paid as withholding tax in the tax filing.
Unregistered businesses are rarely prepared to accept a proportion of their fee to be withheld and as a result, the tax-compliant company ends up paying 115 per cent of the fee. In this case, the provision places an additional tax burden on compliant businesses and unfairly advantages non-compliant businesses. The White Book recommended reconsidering or even abolishing the principle of withholding tax on services.
The issues raised with respect to VAT centred around the qualification of zero-rating for exports, as the exporter of the service has to be able to demonstrate that the service provided was consumed outside of Cambodia. The recommendation offered was for the government to provide more specific guidance and to provide a more generous definition to help attract investment in the export sector.
Other salient recommendations were more tax incentives for qualified investment projects, allowing an allowance for entertainment expenses which are currently not tax-deductible, and revising requirements for invoicing in consideration of the difficulties businesses are having in complying with the recent GDT Instruction No. 1127, which introduced a Khmer language and customer signature requirement, and supplier compliance with the instruction in order to claim the expense and VAT credit.
The White Book is available on EuroCham’s website in both Khmer and English. The reception from the government has been very positive, and EuroCham looks forward to further engagement with the government in finding constructive solutions on the issued presented in the White Book.
Anthony Galliano is Chair of the Tax Committee of EuroCham and CEO of CIM