Government Offers SME Tax Breaks For Tax Compliance

Small and medium business (those with annual turnovers from $62,000 up to $500,000) are having a tax holiday carrot dangled in front of them by the Cambodian government.

Sweeping tax incentives are being offered by the Cambodian government to small- and medium-sized enterprises (SMEs) in an attempt to bring them into the regulatory fold. A sub-decree signed by Prime Minister Hun Sen and dated earlier this month grants a two-year tax exemption on profits to businesses that voluntarily register with the General Department of Taxation by the end of 2018.

Encouraging SMEs to be compliant will help create a more transparent and equitable tax system, according to Clint O’Connell, head of Cambodia Tax Practice at foreign investment advisory and tax firm DFDL Cambodia. “These exemptions coupled with the recent amendments to the annual progressive Tax on Profit rates and simplified accounting procedures for small taxpayers are all designed to smooth the transition for SMEs to enter the formal system of taxation,” he said.

Upon first declaring revenue, a business will trigger its two-year tax exemption, which shelters it from paying the 1 percent minimum tax and its monthly pre-payments if they are in a tax loss position. A small business is generously defined as having an annual turnover from $62,000 to $175,000, while medium sized is classified from $175,000 to $500,000.

It remains unclear whether taxpayers that have previously followed the law will get this two-year exemption applied retroactively. However, O’Connell notes this is a “necessary evil to get to a point where all businesses are properly registered for tax in the future”.

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