The Law of Taxation in Cambodia serves as the primary framework for tax regulation, outlining the tax responsibilities of individuals and businesses. The General Department of Taxation (GDT) oversees the collection and administration of taxes, with taxpayers required to submit and pay their taxes on a monthly and annual basis. In Cambodia, businesses are subject to various types of taxes, including:
Corporate Income Tax (CIT): This tax applies to the net profits earned by companies operating in Cambodia. The current CIT rate is 20% for most businesses. Resident companies are taxed on their worldwide income, while non-resident companies are taxed only on their Cambodian-sourced income.
Minimum Tax: The Minimum Tax is a separate tax imposed on businesses, calculated based on their annual turnover. The standard rate of the Minimum Tax is 1% of the annual turnover, inclusive of all taxes except for VAT. However, this tax may be exempt for qualified investment projects, enterprises in specific sectors, or businesses that can prove a lower profit margin.
Value-Added Tax (VAT): VAT is an indirect tax levied on the consumption of goods and services. The standard VAT rate in Cambodia is 10%. Businesses with an annual taxable turnover above a certain threshold are required to register for VAT, charge VAT on their taxable supplies, and submit VAT returns to the GDT.
Withholding Tax: This tax is deducted at source on certain types of income, such as interest, royalties, rent, and certain service fees. The withholding tax rates vary depending on the type of income and the residency status of the recipient.
Personal Income Tax (PIT): PIT is levied on the worldwide income of Cambodian residents and the Cambodian-sourced income of non-residents. The tax rates are progressive, ranging from 0% to 20%, based on income levels. Employers are responsible for withholding and remitting employees’ PIT to the GDT.
Taxpayer Classification
Under Cambodia’s self-declaration tax regime, businesses are classified into three categories: small, medium, and large taxpayers. Classification is based on sectoral turnover, legal form, and other criteria.
- Small Taxpayers: Sole proprietorships or partnerships with annual turnovers ranging from KHR 250 million to KHR 1 billion for agricultural, service, and commercial sectors, and KHR 250 million to KHR 1.6 billion for the industrial sector.
- Medium Taxpayers: Businesses with annual turnovers ranging from KHR 1 billion to KHR 4 billion for the agricultural sector, KHR 1 billion to KHR 6 billion for service and commercial sectors, and KHR 1.6 billion to KHR 8 billion for the industrial sector. This category also includes legal persons, representative offices, and organizations affiliated with state institutions, NGOs, foreign diplomatic missions, international organizations, or other governments.
- Large Taxpayers: Businesses with annual turnovers above KHR 4 billion for the agricultural sector, KHR 6 billion for service and commercial sectors, and KHR 8 billion for the industrial sector. Large taxpayers also include subsidiaries of multinational companies, branches of foreign companies, and Qualified Investment Projects (QIPs).
Resident Taxation
Resident taxpayers are subject to tax on worldwide income, while non-residents are taxed on Cambodian-sourced income only. Permanent establishments (PEs) are taxable solely on their Cambodian-source income.
Corporate Tax Rates
The standard CIT rate for medium and large taxpayers is 20%. For small taxpayers, CIT rates are progressive, ranging from 0% to 20%.
Industry-Specific Tax Rates
- Oil, Gas, and Mineral Exploitation: These industries are subject to a CIT rate of 30%.
- Insurance Companies: Taxed at a rate of 5% on gross premium income and 20% on other income derived from non-insurance/reinsurance activities. Net interest income received after 4% or 6% withholding tax (WHT) is not taxable income.
Minimum Tax (MT)
Self-declaration regime taxpayers are subject to a separate annual MT equal to 1% of their annual turnover, inclusive of all taxes except VAT. The MT is due irrespective of a taxpayer’s profit or loss position. As of 1 January 2017, the MT is no longer applicable to enterprises that maintain proper accounting records, although a clear definition of ‘proper accounting records’ is yet to be established.
Local Income Taxes
Provincial and local income taxes are not applicable in Cambodia.
Cambodia’s CIT system offers a competitive environment for investors looking to establish or expand their businesses in the country. By understanding the intricacies of taxpayer classification, tax rates, industry-specific taxation, and other tax policies, investors can make informed decisions and take advantage of the attractive CIT landscape in Cambodia. As the Cambodian economy continues to grow, staying up-to-date with the latest tax regulations and maintaining accurate financial records will be essential for investors seeking to maximize their returns.
Source: PWC
