(Jan. 25, 2016) The assignment of a tax regime to each taxpaying business in Cambodia is based on the Law on Taxation, which originally stated that tax on profit will be assessed “according to [either] the real regime, simplified regime, or estimated regime system of taxation” and that “[t]he rules and procedures for the assignment of taxpayers to one of the three regimes … will be determined by sub-decree … based on the form of the business, the type of business activity, and the level of turnover.” (Law on Taxation (Jan. 2004), art. 4, Council for the Development of Cambodia, et. al. website.) However, under a December 2015 amendment of the Law, the estimated and simplified regimes were eliminated and the “real” (also called the self-assessed) regime was restructured to comprise small, medium, and large corporate taxpayers. (Clint O’Connell, Cambodia Tax Updates – January 2016, DFDL.) The amendment is included as article 10 of the Law on Financial Management 2016 of December 17, 2015 (Royal Kram No. NS/RK/1215/016). (Id.)
Formerly, real regime taxpayers comprised “most large or incorporated taxpayers,” with a majority of foreign investors falling under that regime. (CAMBODIA POCKET TAX BOOK 2010, PRICEWATERHOUSECOOPERS.) Real regime system taxpayers file corporate income tax and tax on profit returns based on self-assessment. (CAMBODIA TAX PROFILE 2 (2013), KPMG website.)
Details of the change in the tax system, defining each of the three types of business taxpayers under the now sole real regime, are set forth in Proclamation No. 1819 of December 25, 2015, issued by Cambodia’s Ministry of Economy and Finance. (Prakas Number 1819 on the Classification of Taxpayers in the Self-Assessed Regime (Dec. 25, 2015), Council for the Development of Cambodia, et. al., website; Notification on the Prakas by the Ministry of Economy and Finance, EUROCHAM CAMBODIA (Jan. 5, 2016).)
Under the new regime, small taxpayers are “sole proprietors, joint ventures or partnerships with turnover from KHR 250 million (USD 62,500) to KHR 700 million (USD 175,000) …”; medium taxpayers are “enterprises with turnover from KHR 700 million (USD 175,000) to KHR 2 billion (USD 500,000) or registered legal entities”; and large taxpayers are “enterprises with turnover over KHR 2 billion (USD 500,000), subsidiaries of foreign companies, government institutions or qualified investment project (QIP) enterprises.” (Janice Loke, Cambodia: Change of Tax Regime, TAX NEWS SERVICE (Jan. 14, 2016), International Bureau of Fiscal Documentation online subscription database; O’Connell, supra.)
According to one commentator, the effective replacement of the previous estimated regime system with the small taxpayer category under the remodeled real regime
… in itself represents a very significant development as those sole proprietors whose annual turnover exceeds approximately USD5k per month, on average, will now be required to charge VAT, file monthly and annual tax returns, collect and pay certain withholding taxes and be subjected to tax audits whereas previously they would probably have negotiated their taxes upfront with the tax officer (under the estimated tax regime). (O’Connell, supra.)
All three sizes of taxpayers will generally need to: “file and pay monthly and annual tax returns and payments including [e.g.] tax on salary and tax on fringe benefit [and] value added tax”; undergo tax audits; and “[c]omply with taxpayer obligations as set out in the tax regulations including maintenance of according records and associated documentation.” (Id.) Small taxpayers can use a simplified accounting system, according to another new proclamation issued in December 2015. (Id., with reference to Method and Procedure on Implementation of Simple Accounting Record for Small Real Regime Taxpayers, Prakas No. 1820 MEF.Prk (Dec. 25, 2015).)
Another major difference between the three types of business taxpayers under the real regime relates to the amount of patent tax payable with respect to their business activities, and the patent tax fee rules were also amended in December 2015. (O’Connell, supra.) All corporate taxpayers that operate in Cambodia must “register and pay Patent Tax by 31 March each year for each business activity that they carry out.” (Id.) Under a proclamation on the rules and procedures for managing patent tax collection, issued in connection with article 12 of the Law on Financial Management 2016, the three categories of taxpayers must pay the following fees.
- small taxpayers: KHR400,000 (about US$100);
- medium taxpayers: KHR1,200,000 (about US$300);
- large taxpayers:
- with turnover from KHR2 billion to KHR10 billion, KHR3,000,000 (about US$750);
- with turnover over KHR 10 billion, KHR5 million (about US$1,250); and
- with branches, warehouses, factories and workshops located in a different capital, an additional KHR3 million.
(Janice Loke, Patent Tax Fee – Revised, TAX NEWS SERVICE (Jan. 14, 2016), International Bureau of Fiscal Documentation online subscription database; Prakas Number 1821 on the Procedure for Management of Patent Tax Collection (Dec. 25, 2015), Council for the Development of Cambodia, et. al., website.)
Formerly, no matter what the level of turnover, the patent tax fee was KH1.14 million (about US$285). (Loke, supra.)