Phnom Penh is the capital and largest city of Cambodia, and a fast-growing and dynamic place that offers many opportunities for entrepreneurs and investors. However, before you start or expand your business in Phnom Penh, you need to be aware of the tax implications and obligations that apply to your business activities. In this article, we will provide an overview of the main taxes that affect businesses and employees in Phnom Penh.
Corporate income tax
Corporate income tax (CIT) is a tax levied on the profits or income of a business entity. The CIT rate in Cambodia is 20% for most businesses, except for the following:
- Oil and gas companies and companies engaged in mineral exploitation are subject to a 30% CIT rate.
- Insurance companies are subject to a 5% CIT rate on gross premiums received.
- Qualified investment projects (QIPs) that have been approved by the Council for Development of Cambodia (CDC) are entitled to various tax incentives, such as tax holidays, special depreciation rates, and exemption from minimum tax.
CIT is calculated on the taxable profit of the business, which is the difference between the total income and the allowable deductions. The allowable deductions include expenses that are related to the business activities, such as salaries, rent, interest, depreciation, etc. However, some expenses are not deductible or are subject to limitations, such as entertainment expenses, donations, fines and penalties, etc.
CIT returns and payments are due within three months after the end of the fiscal year. The fiscal year in Cambodia is generally the calendar year, unless otherwise approved by the General Department of Taxation (GDT). Businesses are also required to make monthly prepayments of CIT at 1% of their monthly turnover (inclusive of all taxes except VAT).
Minimum tax
Minimum tax is a separate tax that applies to businesses that are registered under the real regime system (i.e. businesses with annual turnover above KHR 250 million or USD 62,500). Minimum tax is calculated at 1% of the annual turnover (inclusive of all taxes except VAT) or at 0.5% for QIPs during their tax holiday period. Minimum tax is payable only if it is higher than the CIT liability of the business.
Minimum tax returns and payments are due within three months after the end of the fiscal year.
Withholding tax
Withholding tax (WHT) is a tax withheld at source by a payer who makes certain payments to a recipient. The WHT rates vary depending on the type and source of payment and the status and residence of the recipient. The main WHT rates in Cambodia are:
- 15% on interest payments to residents and non-residents (except for interest paid to domestic banks or savings institutions).
- 14% on dividends paid to residents and non-residents.
- 10% on royalties, rent, and other income from movable property paid to residents and non-residents.
- 4% on payments for services rendered in Cambodia by residents.
- 14% on payments for services rendered in Cambodia by non-residents.
WHT returns and payments are due within 15 days after the month in which the payment is made.
Value-added tax
Value-added tax (VAT) is a tax levied on the supply of goods and services in Cambodia. The standard VAT rate in Cambodia is 10%. However, some supplies are subject to a zero rate (such as exports) or an exemption (such as public postal services, medical services, education services, etc.).
VAT is calculated on the value of the supply, which is generally the price paid or payable by the customer. VAT registered businesses can claim input VAT credits for the VAT paid on their purchases or imports that are related to their taxable supplies.
VAT returns and payments are due within 20 days after the end of each month.
Other taxes
There are other taxes that may apply to businesses or employees in Phnom Penh, such as:
- Property tax: A tax levied on immovable properties (such as land and buildings) that have an assessed value above KHR 100 million (USD 25,000). The property tax rate is 0.1% per year.
- Tax on unused land: A tax levied on land located in urban areas that has not been used or developed according to its purpose. The tax rate ranges from 2% to 10% per year depending on the size and location of the land.
- Registration tax: A tax levied on certain transactions involving immovable properties or vehicles. The registration tax rate varies from 0.1% to 4% depending on the type and value of the property or vehicle.
- Stamp duty: A tax levied on certain legal documents or instruments that have legal effects in Cambodia. The stamp duty rate varies from KHR 1,000 (USD 0.25) to 5% depending on the type and value of the document or instrument.
- Specific tax: A tax levied on the import or domestic production of certain goods (such as gasoline, cigarettes, alcohol, etc.) or the provision of certain services (such as hotel, telecommunication, air transportation, etc.). The specific tax rate varies from 2% to 65% depending on the type and value of the good or service.
- Public lighting tax: A tax levied on the distribution of alcoholic and tobacco products in Cambodia. The public lighting tax rate is 3% of the invoice price inclusive of all taxes except VAT and public lighting tax.
- Accommodation tax: A tax levied on the accommodation fee charged by hotels or guesthouses in Cambodia. The accommodation tax rate is 2% of the accommodation fee inclusive of all taxes except VAT and accommodation tax.
- Import and export duties: Duties levied on the import or export of goods in Cambodia. The import duty rates vary from 0% to 35% depending on the type and origin of the goods. The export duty rates vary from 0% to 50% depending on the type and destination of the goods.
Conclusion
Doing business in Phnom Penh can be rewarding and profitable, but it also involves various tax implications and obligations. Therefore, it is important to understand and comply with the tax laws and regulations that apply to your business activities. You should also seek professional advice from a qualified tax consultant or accountant to help you plan and optimize your tax affairs.
List of references:
• [1]: Ministry of Economy and Finance Website
• [2]: General Department of Taxation Website
• [3]: New tax rates announced for businesses and employees by The Phnom Penh Post
• [4]: Guide to taxation in Cambodia – 2020 by Deloitte
• [5]: Cambodia – Corporate – Other taxes by PwC
