INVESTING IN CAMBODIA

1.Taxation of Companies
Introduction
Corporate taxpayers in Cambodia are classified as either resident taxpayers, or non-resident
taxpayers. A resident taxpayer is primarily an enterprise that has a place of management and
carries on business in Cambodia, as defined below. A non-resident taxpayer is an enterprise that
derives Cambodian source income, but does not have a place of management in Cambodia.
A non-resident taxpayer will be deemed to be Cambodian resident for tax purposes if it is found to
have a Permanent Establishment (PE) in Cambodia (see 6.2 for PE definition).
A resident taxpayer is subject to Tax on Profit (ToP) or Corporate Income Tax (CIT) on income
derived from both Cambodian and foreign sources, whereas, a non-resident taxpayer is subject to
ToP/CIT in respect of its Cambodian source income only.

1.1  Residence
A company is resident in Cambodia if:
•   It is organised or managed in Cambodia; or
•   It has its principal place of business in Cambodia.
1.2 Taxable Income
Taxable income is the net profit obtained from all types of business operations including capital
gains realized during the business operation or at the cessation of the business, interest, rental,
and royalty income as well as income
and gains from financial or investment assets including immovable assets.
Taxable income shall also include all capital gains realized from operations other than business
operations. The determination of taxable income, and the rules and procedures for the collection of
the tax due, are determined by Prakas (Regulation).
1.3  Capital Gains Tax
All realized gains (including capital gains) are treated  as income. Cambodia does not impose a
separate tax on capital gains. Gains arising from the disposal of real
property and other assets are treated as ordinary income and are therefore subject to tax at the
prevailing tax on profit rate.

1.4  Dividends
A dividend is defined as a distribution of property or money, made by a legal person to a
shareholder. A distribution arising from a complete liquidation is specifically excluded from the
definition of a dividend.
Dividends received from resident companies are not subject to income tax.
Dividends received from non-resident companies are subject to income tax in Cambodia. A credit is
allowed for tax paid overseas on foreign source income, subject to certain conditions.

1.5 Exempt Income
Dividends received from resident companies are not subject to income tax.

1.6  Deductions
Allowable Deductions
Allowable deductions include most expenses incurred in the course of carrying on a business, with
certain limitations.
The deductibility of charitable contributions is limited to five percent of taxable profit of the
taxpayer.
Depreciation is allowed as a deduction in accordance with the rates determined by the tax
provisions. There are also certain restrictions on the deductibility of interest.
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Non-deductible Expenses
Non-deductible expenses include:
•   increase in provisions
•   any expense on activities generally considered to be amusement, recreation, entertainment
•   personal expenses, except for fringe benefits which are subject to fringe benefit tax
•   any loss on sale or exchange of property, directly or indirectly, between related parties
•   penalties, additional tax and late payment interest imposed for violation of the LoT
•   non-deductible tax expenses
•   donations, grants or subsidies and
•   extravagant and / or unrelated business expenses.
1.7  Losses
Losses can be carried forward for a maximum of 5 years. Losses cannot be carried back. Tax losses
may be forfeited upon a change in ownership of the business or if there is a change in business
activity.
Tax losses will also be forfeited in the event a taxpayer is subject to a unilateral tax
assessment.

1.8   Grouping/Consolidation
There are no grouping provisions in Cambodia.

1.9 Tax Depreciation/ Capital Allowances
Depreciation is deductible in accordance with specified rates if the assets are used in the course
of carrying on a business.
Land is not a depreciable asset. Depreciable assets are divided into the following classes, and are
depreciated at the following rates:

Class 1:  Buildings and structures – 5% straight line Class 2:  Computers, electronic information
systems,
software and data handling equipment – 50%
diminishing value
Class 3:  Automobiles, trucks, office furniture and equipment – 25% diminishing value
Class 4:  All other tangible property – 20% diminishing value
Assets in classes 2 to 4 are accounted for on a pooled basis, and therefore capital gains or losses
on the disposal of fixed assets are not calculated individually but are calculated based on the
result of the pooled asset account.
Additions for fixed assets from class 1 to 4 are depreciated for the full year in the year of
acquisition.

1.10  Amortization of Expenditure
Intangible assets, including preliminary and formation expenses, R&D, patents, copyrights,
trademarks, computer software, and purchased goodwill can be amortized over the useful life of the
property. If the life of the intangible assets cannot be determined, a tax depreciation rate of 10%
based on the straight-line method is used.
All exploration and development costs of a natural resource, including interest, shall be
capitalized and written-off in accordance with the depletion of the resource recorded as a
percentage of the estimated total production from the resource.

1.11 Interest Expense
Interest expense allowable as a deduction is limited to an amount equal to the total interest
income plus 50% of net non-interest profit earned for the year. Net non-interest profit is the
gross income, other than interest income, less allowable non-interest expenses. The excess amount
can be carried forward to future years.

                                                                       
                                                         
1: Tax year is calendar year, but a company can apply for a tax year other than calendar year, for
example, to be consistent with its parent company/ if the foreign parent company owns more than 51%
equity shares.
2: The minimum tax is exempted for Qualified Investment Project.
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1.12 Tax Rates
The Cambodian Tax Law provides corporate income tax or annual tax on profit (ToP) rates as follows:
•   20% for the profit realised by a legal person.
•   30% for the profit realised under an oil or natural gas production sharing contract and the
exploitation of natural resources including timber, ore, gold and precious stones.
•   9% for profit of Qualified Investment Project (QIP) approved by the Council for Development of
Cambodia (This rate expires in 2010).
•   0% for the profit of QIP during the tax exemption period as determined by CDC.
•   5% on gross premiums received in Cambodia for Insurance Companies engaged in the insurance or
reinsurance of life, property or other risks and 20% on non-insurance income.

1.13  Tax Administration
Tax Identification Number
Taxpayers are required to register with the GDT and obtain a Tax Identification Number (TIN) within
15 days after the commencement of business. As a matter of practice, taxpayers are required to
register with the GDT within 15 days after obtaining the Ministry of Commerce’s approval to conduct
business.

Tax Returns
The annual tax return must be filed within 3 months following the tax balance date. The tax year is
generally a calendar year. The return must be filed irrespective of whether the company is making a
profit or loss.
Payment of Tax
A company is subject to a monthly prepayment of tax on profit (PTP) during the year, which is
self-assessed at 1% on monthly turnover inclusive of all taxes except for VAT. However, insurance
companies are required to declare and pay the monthly PTP at the rate of 5% on gross premiums from
insurance or re-insurance income and at the rate of 1% on non insurance related income. Payments of
PTP are due by the 15th day of the following month.
The liquidation of the tax on profit is the balance of tax payable after deduction of all tax
credits and PTP and must be paid upon the submission of the annual tax on profit return to the GDT
by the 31st March in the year following the tax year1.
The minimum tax2 is a separate and distinct tax from the tax on profit, and is payable by companies
regardless of whether they are in a profit or loss situation. The minimum tax is calculated at 1%
on annual turnover inclusive of all taxes except for VAT. However, if the tax on profit is greater
than the minimum tax, the minimum tax is not payable. The minimum tax is calculated at year-end,
however it should be totally liquidated by the monthly PTP.

Tax Credits
Tax paid overseas on foreign source income is available as a tax credit, subject to the taxpayer
providing sufficient
evidence to substantiate the foreign tax paid. The tax credit is calculated separately for each
foreign country and is the lower of the foreign tax paid or Cambodian tax payable on foreign source
income.

Record Keeping
All books of accounts, accounting records and other documents must be maintained in the Khmer
language and in KHR, and kept for a period of 10 years.