Tax Incentives for Investment in Cambodia by Vann Puthipol Director Department of Large Taxpayers General Department of Taxation IMF Tax Policy Seminar for Asian and Pacific Countries on Tax Incentives Tokyo, June 9, 2009 Financed by JSA

Contents Major Taxes in Cambodia Major Taxes in Cambodia Tax Incentives: Tax Incentives: Law on Investment 1993 Law on Investment 1993 Finance Act 2001 Finance Act 2001 Prakas No 303.MEF.TD 2001 Prakas No 303.MEF.TD 2001 Amended Law on Investment 2004 & Prakas No 302 MEF.TD 2005 Amended Law on Investment 2004 & Prakas No 302 MEF.TD 2005 Prakas No 298 MEF.TD 2005 Prakas No 298 MEF.TD 2005 Prakas No 305 MEF.TD 2008 Prakas No 305 MEF.TD 2008 Tax Incentives in exchange with Labors’ Wages and Conclusion Tax Incentives in exchange with Labors’ Wages and Conclusion

The Taxes Major Taxes : ( Finance Act for and LOT ) -Tax on Profit ( 30%, 20%, 9%,0%); -Minimum Tax (1% of annual turnover); -Tax on Salary (0%, 5%, !0%, 15%, 20%); -Value Added Tax (10%); Turnover Tax (2%) -Specific Tax on Certain Merchandise and Services (multiple rates); -Tax for Public Lighting (3%); -Tax on Accommodation (2%); -And other type of taxes such as Patent Tax, Stamp and Registration Tax, Unused Land Tax etc…

1993- Law on Investment Investment Enterprises Recognized by Council for Development of Cambodia (CDC) after applying for investment status. Recognized by Council for Development of Cambodia (CDC) after applying for investment status. Customs Duty free for importing machineries, equipments, and raw materials Customs Duty free for importing machineries, equipments, and raw materials 9% Profit Tax rate, or 9% Profit Tax rate, or Profit Tax exemption for a period up to 8 years Profit Tax exemption for a period up to 8 years

2001- Finance Acts of 2001 Released Investment Enterprises from Minimum Tax while others are subject to Released Investment Enterprises from Minimum Tax while others are subject to The relief covers around 40 Billion Riels per year. The relief covers around 40 Billion Riels per year.

2001- Prakas No 303 MEF.TD The VAT exemption on import and supply of: The VAT exemption on import and supply of: Fertilizer for use in the agriculture; Fertilizer for use in the agriculture; Plant seeds; Plant seeds; Parts of cut branches of tree for growing; Parts of cut branches of tree for growing; Animal medicines, foods and food grinding machines; Animal medicines, foods and food grinding machines; Animal breeding stock including wild animal; Animal breeding stock including wild animal; Small tractors and their spare parts for family use; Small tractors and their spare parts for family use; Equipment for growing seeds and hatching eggs; Equipment for growing seeds and hatching eggs; Pump of the pumping machine. Pump of the pumping machine. The above exemption covers around 30 Billion Riels for both import and domestic supply. The above exemption covers around 30 Billion Riels for both import and domestic supply.

Amended Law on Investment Prakas No 302 MEF.TD Qualified Investment Project (QIP) New Tax Exemption Period : New Tax Exemption Period : Trigger period Trigger period Three years period Three years period Priority period Priority period 9% Profit Tax rate for a transitional period of 5 years after the promulgation of the ALI 9% Profit Tax rate for a transitional period of 5 years after the promulgation of the ALI Decentralized to local authority for QIP of less than 2 million USD capital Decentralized to local authority for QIP of less than 2 million USD capital 2 years tax holiday extension for old investment enterprises 2 years tax holiday extension for old investment enterprises

2005- Prakas No 298 MEF.TD Zero Rate VAT for local supply of goods and services to Garment Export Oriented Companies Zero Rate VAT for local supply of goods and services to Garment Export Oriented Companies Solving the cash flow problems Solving the cash flow problems Encourage local production industry Encourage local production industry The above solution covers around 150 Billion Riels cash flow for government’s current expenditure. The above solution covers around 150 Billion Riels cash flow for government’s current expenditure.

2008- Prakas No 305 MEF.TD Suspension of Monthly Prepayment of Profit Tax for Export Oriented Companies Suspension of Monthly Prepayment of Profit Tax for Export Oriented Companies Solving monthly cash flow problems for workers’ salary Solving monthly cash flow problems for workers’ salary Encourage local production industry Encourage local production industry The above solution covers around 70 Billion Riels cash flow for government’s current expenditure. The above solution covers around 70 Billion Riels cash flow for government’s current expenditure.

Tax Incentives in exchange with Labors’ Wages and Conclusion Total number of labor : 300,000 Total number of labor : 300,000 Salary : 300,000 x 50 x 12 x 4,000 = 720 Billion Salary : 300,000 x 50 x 12 x 4,000 = 720 Billion Total Tax on Profit Exemption = 210 Billion/Y Total Tax on Profit Exemption = 210 Billion/Y Tax incentives is a vital measure for Cambodian economy. Tax incentives is a vital measure for Cambodian economy. If no tax incentives, perhaps no business, no employment, and no tax as well If no tax incentives, perhaps no business, no employment, and no tax as well

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