AmCham Tax Forum 2023: Navigating New Cambodian Tax Rules And Tackling Common Challenges
The American Chamber of Commerce in Cambodia (AmCham) hosted its annual Tax Forum at Raffles Hotel Le Royal Phnom Penh on December 14, 2023. The event delved into the recent Cambodian tax and administrative decisions announced by the government, and discussed other tax concerns for businesses.
H.E. Kong Vibol, Director General of the General Department of Taxation (GDT) was the forum’s keynote speaker, which also featured the presence of other senior GDT tax officials and experts.
As presented at several previous seminars, Vibol assured businesses that any new amendments introduced, will focus on simplifying tax regulations through the new Law on Taxation (LoT). Devin Barta, President of AmCham Cambodia, however, presented a different perspective and highlighted concerns about tax uncertainty, especially during audits.
He stressed the importance of efficient and timely audit processes, advocating for a one-week completion timeframe. “Businesses don’t generally have issues with taxes as much as they do with uncertainty, which inevitably comes up at audits,” he said.
“The tax department may be a shareholder in our enterprises, but we're also customers, and customer feedback is obviously an important mechanism to understand the efficacy of your business.” Barta also emphasised the crucial role tax revenue plays in funding public services like infrastructure, education, and healthcare, while calling for greater transparency and collaboration between the GDT and the business community.
Navigating Taxation In Cambodia: Common Challenges And Solutions
The forum covered several critical topics, including the necessity of filing tax returns, permanent establishment (PE), and withholding taxes. One question tax experts answered during the forum was how many penalties a business could incur after being officially established as a company in the Kingdom, but not actually starting its business activities.
If a business has no income, expenses, payments, staff or bank account, thus no tax returns are filed, how much would a company owe the tax authority after three years, for example?
According to Edwin Vanderbruggen, a Partner at VDB Loi, in such a situation a company would be liable to pay a penalty of at least USD $48,000. He highlighted that while there might be some flexibility from the GDT in such situations, it is common for businesses to face challenges that prevent them from realising their plans.
He encouraged businesses to address these issues promptly, cautioning against neglecting tax compliance. Vibol also reiterated that all companies are legally obligated to file tax returns in Cambodia even if they have no income, expenses, or other activities. “It is required by law,” he affirmed, and suggested that in cases where business activities come to a halt, companies should officially file a suspension to avoid being penalised.
Tax Implications Of Cross-Border Transactions: A Closer Look
Another critical topic discussed during the forum was on the tax implications of cross-border transactions. One question asked was: If a Cambodian company pays USD $1,000 to a U.S. provider of online subscription databases, and that U.S. provider has no presence whatsoever in Cambodia, and the service is also performed outside of the country, what are the likely minimum taxes applied on this USD $1,000?
In such a case, the Cambodian company would need to pay USD $240 in total Value Added Tax (VAT) and withholding tax – 10 per cent VAT and 14 per cent withholding. Reansey Darith Touch, a tax Partner at Ernst and Young Cambodia, clarified that Cambodian customers are considered consumers, thus tax liability would fall on the Cambodian entity. Withholding tax, on the other hand, is not a tax on the Cambodian company but is the responsibility of the Cambodian company to withhold for the GDT.
Withholding Tax On Payments To Resident Companies in Cambodia
Regarding withholding tax on payments to resident companies in Cambodia, PwC outlined the following rates:
- Interest: 15% (except payments to a Cambodian-registered bank or financial institution).
- Royalties: 15%.
- Rental: 10%.
- Services: 15% (except payments to a registered taxpayer supported by a valid VAT invoice).
Tax Obligations For Foreign Companies In Cambodia
Another scenario considered at the forum was: If you are a U.S.-based supplier of farming equipment without a branch in Cambodia, (no staff, office, or bank account in the country), and use a third party company – an independent agent – to hire staff on your behalf to play a leading role in facilitating the conclusion of transactions with Cambodian customers, would the U.S. company be taxable in Cambodia?
Vanderbruggen explained that such foreign suppliers, even without an official branch in Cambodia, could be considered taxable in Cambodia through the independent agent. Two key factors behind this are:
- Hiring Local Staff: When a foreign company hires staff through a local agent or representative in Cambodia, it can establish a ‘Permanent Establishment’ (PE), potentially making the foreign company liable for Cambodian taxes;
- Facilitation and OECD Model: Cambodia is likely to follow international standards, including the OECD model, which considers the role of agents in facilitating transactions. Even if a foreign company attempts to place its staff under someone else's name in Cambodia, it may still create a permanent establishment for tax purposes.
What Are The Types Of Tax Audits In Cambodia?
The seminar also shed light on the process of tax audits in Cambodia, categorising them into three types:
- Desk Tax Audit: Conducted at the tax department office when a tax officer suspects inaccuracies in tax returns, this involves requesting supporting documents and clarification from the taxpayer and must be completed within 12 months after the submission of tax returns.
- Limited Tax Audit: An onsite audit at the taxpayer's business premises, involves a thorough re-examination of most tax types, excluding tax on income. It covers the current tax year and the preceding tax year.
- Comprehensive Tax Audit: Conducted at the taxpayer's business premises, this audit involves a detailed re-examination of all types of taxes, including an assessment of accounting records. It can be carried out within three tax years of the tax return being lodged, with the possibility of extending to five years in cases of suspected tax evasion or the need to verify losses or tax credits from previous years.
Note: Additional information on tax audits in Cambodia were sourced from ACCLIME Cambodia.
Read More on Cambodia Taxes: