The directive of H.E. Kong Vibol (director general of General Department of Tax) to clean up the tax system is going strong, and as promised, GDT will make their system easier for business’s rather than a burden. This can be seen by the number of amendments and new prakas, especially on significant issues brought up by the private sector. VDB Loi is a network of leading law and tax advisory firms with offices in Cambodia, Indonesia, Laos, Myanmar and Vietnam.

Updates to existing laws

Expansion of Fringe Benefit Tax (FBT)

From October 2016, the GDT can potentially exempt the following under application to the MoEF
• Transportation allowance for staff to travel between housing and work place
• Provision of meal allowances
• National social security or welfare fund contributions

Tax service agent

On 18th October 2016, GDT issued a notification on the implementation of the use of licensed tax service agents. From January 1 2017, tax filings must either be done by the company’s in-house accountant or through a licensed tax service agent. Taxpayers obtaining services from unlicensed agents will be subject to a fine of KHR 5 million.

VAT invoices

Part of cleaning up the tax system, tax officers are reviewing documents in detail to ensure that VAT invoices are issued out correctly. Failure to comply will result in rejected VAT invoices which is becoming increasingly common.

Level of Compliance

As discussed in the first Tax Forum 2016, MoEF will be auditing all business’s in the coming years. After evaluation, taxpayers will be rated on their level of compliance and will be rated as follows

1. High Compliance
2. Compliance
3. Low Compliance
4. Non-compliance

Taxpayers that that more compliant will receive additional benefits such as less audits from GDT and quicker turnaround response time from GDT

Corporate and Labor Registration

In 2016, the MoC has significantly improved their online infrastructure to create to an easier workflow for business’s to manage their communication and payments with them. All new corporates are purely done online now.

For business’s hiring foreigners, Cambodia has a preferential threshold of 90% staff to be local Cambodian and 10% foreigners. Exemption can be made with applications to the Ministry of Labor and Vocation Training (MLVT). The quota approval for using foreigners and their work permit can be also done through the online system.

Double Tax Agreement (DTA)

In 2016, Cambodia has signed two DTA’s, one with Singapore and more recently with China. The DTA is a bilateral agreement between two countries to clarify which country can apply certain tax’s and at which rate. The primary mechanism to determine the eligibility of DTA is the location of the Permanent Establishment (PE) of the business.

Well structured DTA’s provide opportunities for business’s to minimize their tax obligations. As a quick example, WHT for remittance outside Cambodia is 14%, in Singapore the WHT is 10%, the DTA states that only the lowest rates can be applied, a potential 4% tax saving.

Heading into 2017

As expected, continual adjustments such as expanding the income band for personal tax will be made. The positive sign for GDT and the country is that they are tackling more sophisticated and complex topics such as

• Taxation on “Cut, Make & Trim” (CMT) manufacturer’s: As the garment industry is one of the top 3 sources of income for Cambodia, GDT is addressing the tax issues of companies which import raw products, manufacture in Cambodia then export out of the country.
• Transfer Pricing (TP): The number one international tax issue is how Multi-National Enterprises (MNE) declare their income and expenses over the countries they operate in. Google, Apple, Starbucks are examples of companies which have taken advantage of Transfer Pricing mechanisms to significantly reduce their tax obligations. Cambodia is in the process of drafting its TP regulations.

Conclusion

From the seminar, it is clear that GDT is hiring a talented pool of tax agents and providing intense training, even to the extent of setting special teams to tackle specific topics such as Transfer Pricing. It is promising to see that the GDT is not simply talking about actions, but promptly committing through. Lessening the tax burden and compliance, especially for smaller businesses and employees, will surely promote growth and confidence in the system.
Thanks to VDB-Loi for hosting a well-run informative day with over 100 attendees from various industries. We look forward to an exciting 2017!