Tax Updates, Tax Audit and DTAs

127 September 2017 | Page
Phnom Penh, 27 September 2017
Tax Updates, Tax Audit and DTAs

VDB Loi offices

Quick overview of our Cambodia practice
Senior Cambodia legal and tax team
VDB Loi is a network of leading law and advisory member firms and affiliates delivering local law, tax and regulatory advice
in Cambodia as well as Indonesia, Laos, Myanmar and Vietnam. Our team passionately pursues a hands on approach. We
deliver practical solutions that commercially fit in the dynamic context of the emerging markets we cover.
Legal office and tax office in
Cambodia
2 Partners
(full-time Cambodian residents)
30+ Fee earners
50+ Staff in total in Cambodia
Core expertise
• Foreign investment
• Corporate M&A
• Real estate law
• Licensing and regulatory
• International trade
• Secured lending
• Taxation
Outstanding experience
• TMT
• Real estate and infrastructure
• Power
• Financial services
• Manufacturing
• Agriculture
• Oil & gas, resources
What commentators write about us:
Phnom Penh Office
Level 6 Phnom Penh Tower
445 Monivong Boulevard, Phnom Penh
+855 23 964 430
Jean Loi
MANAGING PARTNER
Potim Yun
LEGAL PARTNER AND
PRINCIPAL,
PYT & ASSOCIATES
Laysym Sim
PARTNER
Robert Porter
DIRECTOR
Yumi Ishimoto
DIRECTOR, JAPANESE DESK
Sivila Khim
DIRECTOR
Alessandra Laureiro
SENIOR ASSOCIATE
- “advises an impressive range of leading
corporations” (Legal 500)
- "widely known regional firm with
strongholds in some of Southeast Asia’s
most promising emerging market" (IFLR)
- "strong on tax, very creative and innovative"
(Chambers)

Contents
 Tax Updates in 2017
 Tax Audit
 Double Taxation Agreements

Tax Updates in 2017

Tax Updates in 2017
(I) Tax Incentives
With the abolishment of estimated regime, the General Department of
Taxation (GDT) has tried to encourage taxpayers to register as small or
medium taxpayer if they meet the criteria set by the Ministry of Economy
and Finance (MOEF).
One of the encouragement for registration is to provide tax incentives. The
Royal Government of Cambodia (RGC) issued a Sub-decree no. 17 SD.PK on 7
February 2017 on Tax Incentive for Voluntary Registration of Small and
Medium Enterprises (SMEs). The Sub-decree provides the following tax
incentives to the SMEs if they volunteer to register with the GDT in years
2017 and 2018:

Tax Updates in 2017 (cont.)
 Two (2) years of exemption of Tax on Income (TOI) – starting to count
from the year of registration if the enterprise already has revenue or from
the year that the enterprise generates its first revenue
 Exemption on 1% Prepayment of Profit Tax during the TOI exemption
period
 Exemption on 1% Minimum Tax during the TOI exemption period

(II) Education sector
On 27 March 2017, the GDT issued a letter to Cambodian Higher Education
Association regarding tax incentives to the higher education institutions.
The letter stated the RGC had decided that the higher education institutions
should continue paying only Tax on Salary, Withholding Tax (WHT) on
premises rental, Property Tax and Patent tax.
Besides these taxes, other taxes are exempted until the end of year 2019.

(III) Dividend Distribution
On 5 May 2017, the MOEF issued a Prakas 518 MEF.Prk on Implementation
of WHT on Dividend Distribution.
The contents are summarized as below:
 Conversion of retained earnings to capital is not considered as dividend
distribution yet the conversion must be done properly
 When there is a sale of share or capital distribution, the portion of share
or capital originally converted from retained earnings is subject to 14%
WHT.

(IV) Non-taxable Supplies
Prakas 559 MEF.Prk dated 25 May 2017 provides a new list of non-taxable
supplies which includes:
 Public postal service
 Hospital, clinic, medical and dental services
 Transportation service of passengers by a wholly state owned
 Insurance services
 Primary financial services
 Importation of articles for personal use
 Non-profit activities for public interest

 Education services
 Electricity and water
 Unprocessed agricultural products
 Services of solid and liquid waste collection

(V) Proper accounting records & Minimum Tax
From the 2017 Financial Law, Minimum Tax is exempted for enterprises that
maintain proper accounting records only.
Below is the conditions of proper accounting records:
 Enterprises with accounting records which do not meet the requirements
set by the GDT and Accounting Standards of the MOEF
 Enterprises which fail to issue invoices for business transactions as stated
in Articles 77, 79 and 98 of the Law on Taxation (LOT)
 Enterprises which commit serious negligence as stated in Article 126 of
the LOT

 Enterprises which commits tax evasion as stated in Article 127 of the LOT
 Enterprises which do not have an audit report of from independent
auditors in case if the enterprise has an annual turnover is of more than
KHR2,000 million

(VI) Closure of small enterprises
On 15 September 2017, the GDT issued an Instruction no. 16577 GDT on
Procedure of Request for Liquidation of Small Taxpayers. The procedure is
as follows:
 Submit the liquidation applications to the GDT if under Tax Branch in
Phnom Penh
 Submit the liquidation applications to Tax Branch in province if under Tax
Branch in province
 No need to pay stamp duty of KHR1,000,000
 No tax audit
 Enterprise Audit Department is responsible for issuing notice of tax
reassessment

Tax Audit

Tax Audit
Types of tax audits:
 Desk tax audit
 Limited tax audit
 Comprehensive tax audit

Tax Audit (cont.)
Which bureaus within the GDT perform which audits?
 Department of Enterprise Audit: Comprehensive tax audit (final tax audit)
for large, medium and small taxpayers
 Department of Large Taxpayers: Limited tax audit and desk tax audit for
all large taxpayers
 Khan or District Branch: Limited tax audit and desk tax audit for small
and medium taxpayers

Tax Audit (cont.)
 10% - where there is a less than 10% differential between the amount of
tax originally paid and the amount of tax reassessed;
 25% - where the differential between the tax paid and tax reassessed
exceeds 10%, the amount of penalty will be 25% of the unpaid tax; and
 40% - where the taxpayer or withholding agent receives a unilateral tax
assessment.
 In addition, there are penalties imposed for late payment of taxes and late
lodgment of returns, together with interest that is charged at 2% per
month.

Tax Audit (cont.)
 Under Article 116 of the LOT – where a taxpayer does not provide the
necessary information to the tax administration to enable them to
properly determine tax the administration can raise a unilateral tax re-
assessment. Based on;
- information referred to in tax declarations or other submitted
information,
- publicly available information,
- other information received by the tax administration
 Limited/Comprehensive Audit request often gives a 30 day period in
which to provide information
 Unilateral tax reassessments used more frequently by the tax
administration – pushes forward the audit process.

Tax Audit (cont.)
 Tax audit process: before would take more than 6 months or a year before
issuing final tax reassessment (but now depends on taxpayers’
cooperation)
 Respond to the taxpayers’ protest (1st Protest): The protest letter will go
straight to the GDT/Litigation Office. Normally take more 2 months to
respond.
 Respond to the taxpayers’ protest (2nd Protest): If we do not happy with
the first respond and then need to submit 2nd protest to the Arbitration
Committee at the MOEF for intervention. Again normally take more 2
months to respond.
 Appeal to court: We have 30 days to appeal to the court but we never test
in practice.

Tax Audit (cont.)
Timeline in assessment and appeal process (new rules)
(started from 6 November 2015)
3 years or more 3-6 months
30
days
60 days 60 days
Tax
declaration
30
days
Tax
Audit
GDT Tax
Reassessment
Administrative
protest
GDT
response
to protest
Letter
of
Appeal
MEF
response
to letter
of appeal
Arbitration
Committee Appeal
to court
30
days
Letter of
Appeal

Tax Audit (cont.)
Under Article 123 of the LoT – stipulates that the Tax Arbitration Committee
shall be determined by Sub-Decree upon proposition of the MOEF.
Prakas dated 6 Jan 2016:
 Minister of the MOEF (chair person)
 One secretary of state of the MOEF (deputy)
 One representative of Accounting Council (member)
 General Director of General Department of Public Policy for Economic and
Finance (member)
 General Director of General Department of Internal Audit (member)
Note: The actual members will be announced by a separate Prakas.

Double Taxation Agreements

Double Taxation Agreements
 Recently, the GDT has been working actively to discuss and enter into
Double Taxation Agreement (DTA) with various countries.
 The first DTA that Cambodia has entered into with was Singapore on 20
May 2016.
 After that, Cambodia has signed DTAs with China and Brunei and has
finalized DTA negotiation with Thailand and Indonesia.
 However, the above DTAs have yet ratified.
 Now we understand that Cambodia is in the process of negotiation the
DTA with Vietnam, Malaysia, Hong Kong, South Korea and Japan.

Double Taxation Agreements (cont.)
Purpose and benefits of DTA are as follows:
 To eliminate double taxes
 To eliminate tax discrimination
 To provide clear procedure on right to tax between two countries under
the agreement
 To give solution on issues such as tax evasion, tax avoidance and
reduction of tax base
 To provide framework in dealing with tax litigation
 To increase foreign investment by providing precision to foreign investors

What does DTA mean for my business?
 Reduction of Withholding Tax rate for payments to the contracting states
 Salary Tax implication for employee of one contracting state working in
another contracting state
 Tax implications on international transportation i.e. airlines and shipping
companies
 Permanent Establishment rules between the contracting states

Below is the summary of comparison of key items in the DTAs with
Singapore, China and Brunei.
TERM BRUNEI CHINA SINGAPORE
Permanent Establishment
time test:
Building site
Project services
183 days
183 days
9 months
-
6 months
183 days
Dividend withholding tax 10% 10% 10%
Interest withholding tax 10% 10% 10%
Royalty withholding tax 10% 10% 10%
Technical service fees 14% 10% 10%

Questions and Answers

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Tax Updates, Tax Audit and DTAs

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