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Cambodia: Draft Financial Management Law Considered

(Nov. 18, 2016) It was reported on November 15, 2016, that a draft Law on Financial Management 2017 is being discussed in the Cambodian National Assembly, with the expectation that legislators will pass the draft document in December and that it will enter into force in January 2017.   (Janice Loke, Cambodia: Draft 2017 Law on Financial Management Passed, TAX NEWS SERVICE (Nov. 15, 2016), International Bureau of Fiscal Documentation online subscription database.)

The newly proposed law would affect a number of aspects of taxation. In regard to corporate tax, taxable profits generated from the Cambodian branch of a business and remitted to the head office overseas would be subject to tax on profit of 0-30%, depending on the level of profit, and a 14% withholding tax.  The branch’s remitted profit would not be subject to an additional tax on dividend distribution if the tax on profit has been paid.  (Loke, supra.)  The basis and rates of tax on profit for insurance companies, depending on the type of insurance, would be changed to:  “5% of the gross premiums for the insurance or reinsurance of property and other associated risks” and “20% of taxable profit for life insurance.”  (Id.)  The law would also exempt qualified corporate taxpayers “who maintain proper accounting records and are externally audited by a licensed audit firm … from paying a minimum tax of 1% of the annual business turnover.”  (Id.)  Profit made by sole proprietorships and general partnerships would be taxed at progressive tax rates, as follows:

  • profit of up to KHR12 million (about US$3,016), at a 0% rate;
  • KHR 12,000,0001 to KHR18 million, at 5%;
  • KHR18,000,001 to KHR102,000,000, at 10%;
  • KHR 102,000,001 to KHR150,000,000, at 15%, and
  • more than KHR150 million, at 20%. (Id.)

For resident individuals, the income tax rates would be revised to the following rates: a taxable monthly income of up to KHR1 million would be subject to a 0% rate; KHR 1,000,001–1.5 million, to a 5% rate; KHR1,500,001–8.5 million, to a 10% rate; KHR8,500,001–12.5 million, to a 15% rate, and more than KHR12.5 million to a 20% rate. (Id.)  At present, the 0% rate applies to a monthly income of up to KHR800,000, the 5% rate to KHR800,001-1.25 million, and the 10% rate to KHR1,250,001 – 8.5 million; the 15% and 20% rates are the same.  (Tax on Salary, General Department of Taxation of Ministry of Economy and Finance website (last visited Nov. 16, 2016).) For each minor dependent child and for a spouse who is a homemaker, the monthly tax deduction would be increased from KHR75,000 to KHR150,000, respectively.  (Loke, supra.)

With respect to value-added tax, non-taxable items would be expanded to include: educational services, electric power and clean water; unprocessed agricultural products; and services for collection and/or removal of solid and liquid waste. (Id.)

The draft law also provides that the tax administration has the right, by issuing a notification letter to the respective party, “to receive information from the taxpayer or any third person (such as a bank or other financial institution) for the purpose of determining tax payable, collecting taxes or fulfilling the requirements of any international agreements (i.e. Foreign Account Tax Compliance Act (FATCA)) … .” (Id.)

Prime Minister Hun Sen reportedly remarked in a Cabinet meeting held on October 21 that “the government’s improved ability to collect taxes would cover the costs of the new national budget.” (Government Salaries to Rise, KHMER TIMES (Oct. 24, 2016).) He stated, “[t]he government has the ability to collect revenue to support the operations of the government.  Now we have money we can raise salaries for civil servants,” and so, with the approval of the draft Law on Financial Management 2017, the Prime Minister and “ministers, secretaries of state and 2,500 other civil servants and political figures will receive substantial pay rises.” (Id.) According to Hun Sen, his monthly salary would almost treble, to KHR10 million (about US$2,500) from the current KHR3.6 million (about US$900), while ministers would receive KHR4.5 million (about US$1,115), secretaries of state KHR3.5 million (about US$850), undersecretaries of state KHR2.8 million (about US$700), and some assistants and advisers an extra KHR80,000 (about US$20) a month. (Id.)

The Law on Financial Management 2016, promulgated on December 17, 2015 (Royal Kram No. NS/RK/1215/016), had abolished the country’s Simplified and Estimated Regimes of Taxation and instituted a restructuring of the Self-Assessed Regime (Real Regime) to comprise small, medium and large taxpayers, among other changes. (Clint O’Connell, Cambodia Tax Updates – January 2016, DFDL (Jan. 11, 2016).)