1 RksYgesdækic © nighirBaØvtßú Ministry of Economy and Finance naykdæan Bn§dar Tax Department RBHraCaNac Rkkm<úCa Kingdom of Cambodia Cati sasna RBHmhakSRt Nation Religion King   TAX SYSTEM OF CAMBODIA 17 September, 2007 Imperial Garden Hotel Phnom Penh, Cambodia Tax Department, MEF

2 Outline Organizational Structure of Tax Department Potential of Tax Revenue Collection Tax Regimes The Major Taxes Qualify Investment Project (QIP) Double Taxation Agreement (DTA)

3 Organizational Structure of Tax Department Tax Department is headed by one Director and Several Deputy Directors. There are 12 offices and 24 Municipal- Provincial branches. There are 142 District Tax Offices. All offices and branches are divided into two levels: –Central Level; –Operational Level.

4 Tax Department Personnel and Training Bu. Admin and Finance Bu. Policy and Legislation Bu. Taxpayers Service Bu. Enforce Collection Bu. Audit Program Mgt. Bu. Acc, Statistic, Planning Bu. Appeals Bureau IT Bureau Inquiry & Cross Check Bu. Enterprise Tax Audit Bu. Large and Medium Taxpayers Bureau Large Taxpayers Unit Medium Taxpayers Unit Taxpayers Services Section Tax Return Section Audit Section Tax Collection Section Taxpayers Services Section Tax Return Section Audit Section Tax Collection Section Provincial-Municipal Tax Branch Personnel, Admin, Fin. Section Medium Taxpayers Section Registration Section Appeals Section District Tax Offices Principal Accounting Section Ministry of Economy and Finance ORGANIZATIONAL CHART OF TAX DEPARTMENT 3

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7 Tax Regimes Two Regimes: –Real Regime (Self Assessment System); –Estimated Regime (Official Assessment System). Criteria for Self Assessment System: –All types of Corporations, Investment Companies; –Other enterprises that have annual taxable turnover exceeds: 500 million Riel for the supplies of goods; 250 million Riel for the supplies of services; and 125 million Riel for Government’s contract value. –Others voluntary registrant;

8 The major types of taxes Tax on Profit (TOP); Tax on Salary (TOS); Value Added Tax (VAT); Turnover Tax; Specific Tax on Certain Merchandises and Services; Other taxes : Patent Tax, Stamp and Registration Tax, Unused Land Tax, Public Lighting Tax; Accommodation Tax, Tax on Means of Transportation (Vehicles tax); Tax on Property rental, and Slaughter tax.

9 Tax on Profit Nature of Tax –An annual tax on the profits of businesses, including capital gains from the sale of assets, income from financial of investments, interest, rental, and royalties’ income. Tax Rate –For corporations 20%: Legal Persons; 30%: Oil or natural gas; 5% of the gross premiums : Insurance and Reinsurance. – For non-corporations: Progressive rate (0% - 20%) for Physical Persons and member of pass-through;

10 Tax on Profit Tax Exemptions The income derives from : – Government institutions; – Organizations for religious, charitable, scientific, literary, or education purposes; – Labor organizations, any chamber of commerce, industry, or agriculture. Deductions allowed –Any business expenses including interest expenses, depreciation of tangible and intangible property, natural resources, and charitable contributions. Five years losses carry forward.

11 Withholding Tax For residents: –15% for income from service, royalties; interest rate for carrying on business; –10% for income from rental of movable and immovable property; –6% for fixed term deposit account interest (domestic banks and saving institutions); –4% for non-fixed term deposit account interest (domestic banks and saving institutions); For non-residents: –14% for interest, royalties, rent, income from the use of property, dividends, compensation for management, or technical services.

12 Additional Profit Tax on Dividend Distribution -20% of retained earning, if an enterprise is distributing profits that were subject to 0% profit rate. -11/91 of retained earnings, if an enterprise is distributing profits that were subject to 9% profit rate. -0% of retained earning, if an enterprise is distributing profits that were subject to 20% profit rate.

13 Prepayment of Profit Tax On a monthly basis, the enterprise must file a monthly tax return and pay the prepayment for the tax on profit at the rate of 1% of the turnover (inclusive of all taxes except for VAT) realized in the month by the 15th of the following month. This prepayment is deductible against the tax on profit at the annual liquidation of the tax.

14 Profit Tax Returns The enterprise must file the Tax on Profit annual return no later than 3 months after the end of the tax year which must coincide with the calendar year.

15 Minimum Tax The minimum tax is payable by the taxpayers subject to the real regime system of taxation except the qualified investment projects. The minimum tax is imposed at the rate of 1% of the annual turnover inclusive of all taxes, except Value Added Tax, and is payable at the time of the annual liquidation of the tax on profit. The minimum tax may be reduced by the annual tax on profit.

16 Tax on Salary -A physical person resident in Cambodia is liable to the tax on salary for Cambodian source salary and foreign source salary. -A non-resident physical person is liable to the tax on salary for Cambodian source salary. -A monthly tax on fringe benefits withheld at source on fair market value. -Salary Tax is monthly withheld by the employer and payable by the 15 th of the month following the month that the salary is paid.

17 Tax on Salary Tax Rate : Rate 0 Riels - 500,0000% 0 Riels - 500,0000% 500,001- 1,250,0005% 500,001- 1,250,0005% 1,250,001- 8,500,00010% 1,250,001- 8,500,00010% 8,500,001-12,500,00015% 8,500,001-12,500,00015% 12,500,001-upwards20% –20% for non-resident taxpayer. –20 % of the total values of fringe benefits.

18 Tax on Salary Tax Exemptions –Diplomatic and consular, foreign representative, international organizations and agencies of technical cooperation of other governments; –Members of the Parliament and Senate; –Real refunds on professional expenses; –Indemnity for the layoff; –Additional remuneration with social characteristics; –A flat allowance for mission and travel expenses. Deduction –Allow a deduction from the taxable salary the allowance of 75,000 riels for each spouse and child.

19 Value Added Tax (VAT) Nature of Tax –This tax is applicable to Real Regime Taxpayers who are making supplies of goods (other than land and money) and/or services. –It covers both goods and services, extending through all stages of importation, production and distribution. Tax Rate –The VAT is imposed at the rate of 10% on all local supplies and 0% on exports.

20 Value Added Tax (VAT) Exemptions –Public postal service; –Hospitals, clinics, medical, dental services, and the sale of medical and dental goods; –Public transportation services; –Insurance services; –Primary financial services; –The import of goods for personal use; –Nonprofit activities in the public interest; –The import of goods for or by foreign diplomats and consular missions, international organization and agencies of technical cooperation of other governments;

21 Value Added Tax (VAT) Input Tax Credit –All taxable supplies made to that person during the tax period; –All imports of goods by that person during the tax period. –The credit is only allowed if the supply or import is for use for taxable supplies of the taxable person.

22 Value Added Tax (VAT) Not Allowable Input Tax Credit –Purchases or imports of automobiles; –Entertainment, amusement and recreation expenses; –Purchases of petroleum products. –Unless the taxable person is in the business of supplying petroleum products, dealing in, or hiring such automobiles, providing entertainment, amusement and recreation.

23 Value Added Tax (VAT) The taxpayers in the real regime tax system that make the taxable supplies shall have the obligation for VAT registration. The taxable persons must file the VAT return and pay the VAT collected from their customers to the tax administration by the 20 th of the month following the month that the supplies occurred.

24 Specific Tax on Certain Merchandise and Services Nature of Tax –A Tax levied on select products, both locally produced and imported. Tax Base –The tax base for certain merchandise locally produced is 65% of supply value excluded VAT that recorded on invoice to customer.

25 Specific Tax on Certain Merchandise and Services Tax Rate –45% for motor vehicle; –33.33% for gasoline; –25% for spare parts for motor vehicles, cigars, lubricating oil; –20% for beer; –33.33, 20, and 10% for other alcoholic products (spirits and wine) –10% for airline tickets, motorcycles and spare parts, cigarettes, kerosene and lamp kerosene, base oil, carbon, black feedstock oil, hydraulics oil and lubricating grease, air conditioners, cosmetics, telephones, video and camera equipment; –4.35% for diesel; and –3% for telecommunication services.

26 Tax on Unused Land Land in towns and other specified areas, without construction, or with unused construction. The tax is calculated at the rate of 2% of the land value which is evaluated by the Commission for the Evaluation of Unused Land. The owner of the land is required to pay the tax by 30 September each year. No Exemption.

27 Qualify Investment Project (QIP) Qualified Investment Project is an investment project that the Council for the Development of Cambodia (CDC) has recognized as a “qualified investment project”. A QIP is exempted from the tax on profit imposed under the Law on Taxation. The tax exemption period is composed of a Trigger Period + 3 years + Priority Period. Priority Period is determined in the Financial Management Law.

28 QIP Investor can elect to use of 40% of special depreciation for manufacturing and processing. Tax Rate –0% for QIP during the period of tax exemption; –20% for QIP after profit tax exemption period. No Minimum Tax No prepayment of profit tax during exemption period.

29 Tax Exemption Period Case Final Registration Certificate Issued No Sales Sales (profit) Sales (loss) Sales (profit) Sales (loss) Sales (profit) Sales (profit) TRIGGER PERIODTAX HOLIDAY PRIORITY PERIOD Case 2 Final Registration Certificate Issued No Sales Sales (loss) Sales (loss) Sales (profit) Sales (profit) TRIGGER PERIODTAX HOLIDAY PRIORITY PERIOD

30 Double Taxation Agreements Currently, there are no double ‑ taxation agreements with Cambodia. TD Established team to produce Cambodia DTA Model. Several countries propose to sing DTAs with Cambodia: - Thailand- Russia - Malaysia- China - Indonesia- Vietnam - Myanmar- Chez Republic - Democratic people' - Algeria Republic of Korea - Sate of Qatar Republic of Korea - Sate of Qatar

31 Thank You!