The 2016 and 2017 Laws on Financial Management brought with them a raft of unprecedented changes to the tax regime in Cambodia. This month the 2018 Law on Financial Management (2018 LFM) was promulgated and includes several significant tax updates for practitioners and business.
Updates of note in the 2018 LFM include revisions to the lower two bands of the monthly Tax on Salary rates, a new Chapter 6 in the Law on Taxation dealing with the taxation of petroleum and mining operations in Cambodia, the revocation of the tax on slaughterhouses and the creation of a reserve for 2018 VAT refund requests.
DFDL will be issuing a comprehensive analysis on the new Law on Taxation chapter relating to the taxation of petroleum and mining operations in a separate update as it is quite a detailed subject matter. Meanwhile, we discuss the remaining salient tax changes contained in the 2018 LFM in more detail below.
Implementation of Tax on Salary changes
As most readers are aware salary income that is received by an employee working for a tax registered employer in Cambodia is assessed on a monthly basis for Tax on salary. For tax resident taxpayers, tax on salary is applied at progressive rates from 0% to 20%, which are applied by tranche of monthly taxable salary. The current monthly tax on salary rates for tax resident employees in Cambodia is set out below. (Assume: 1 USD = 4,000 riels)
|2017 MONTHLY TAX ON SALARY BANDS|
|Khmer Riel (KHR)||USD||Tax Bands|
|From 0 riels to 1,000,000 riels||0-250||0%|
|From 1,000,001 riels to 1,500,000 riels||250 – 375||5%|
|From 1,500,001 riels to 8,500,000 riels||375 – 2,125||10%|
|From 8,500,001 riels to 12,500,000 riels||2,125 – 3,125||15%|
|Over 12,500,000 riels||Over 3,125||20%|
As per the 2018 LFM from 1 January 2018 the monthly tax on salary rates will change to those expressed in the table below. Readers will note that the thresholds for the first two bands have been changed as highlighted.
Monthly tax on salary rates from 1 January 2018
|2018 MONTHLY TAX ON SALARY BANDS||Tax on Salary Calculation|
|Khmer Riel (KHR)||USD||Tax Bands||KHR|
|From 0 riels to 1,200,000 riels||0-300||0%||0|
|From 1,200,001 riels to 2,000,000 riels||300 – 500||5%||(Tax Base x 5%) – 60,000|
|From 2,000,001 riels to 8,500,000 riels||500 – 2,125||10%||(Tax Base x 10%) – 160,000|
|From 8,500,001 riels to 12,500,000 riels||2,125 – 3,125||15%||(Tax Base x 15%) – 585,000|
|Over 12,500,000 riels||Over 3,125||20%||(Tax Base x 20%) – 1,210,000|
1. Prior to 1 January 2018, an employee receiving a monthly gross salary of KHR2,000,000. (Approximately USD500) would be taxed as follows.
- In the case of a single employee with no dependents:
– Taxable Salary= KHR2,000,000 TOS rate is 10%
– Deduction = KHR 125,000
– TOS= (KHR2,000,000 @ 10%)- KHR125,000= KHR75,000
From 1 January 2018 the same employee on the same gross salary of KHR2,000,000 would be taxed as follows:
– Taxable Salary= KHR2,000,000 > TOS rate is 5%
– Deduction = KHR 60,000
– TOS= (KHR2,000,000 @5%) –KHR60,000= KHR40,000
From 1 January 2018, the employee in the example above will receive an additional KHR35,000 (approximately USD8.75) in the hand in salary.
As per Article 42 (new) of the Law on Taxation, the term “salary” includes remunerations, wages, bonuses, and overtime, compensations and fringe benefits which are paid to an employee, or which are paid for the direct or indirect advantage of the employee for the fulfilment of employment activities.
Law on Slaughter Tax 1991
The Slaughter Tax was a tax levied on taxpayers who carried out the business activity of slaughtering killing cows, buffaloes and pigs, and trading their meat. The tax was levied one time at the abattoir or slaughterhouse. The tax rate of 3% was charged on the value of each animal head as determined by the Ministry of Economy and Finance. For pigs, the tax due was KHR1,500, for cows, KHR3,000 and for buffalo, KHR3,000.
The 2018 LFM has now repealed the Law on Slaughter Tax with immediate effect.
In compliance with the provisions of Article 61 of the law on the public financial system, which was promulgated by the Royal Kram No. NS/RKM/0508/016 dated May 13, 2008, it has been approved in principle that additional financing on top of the general budget of the state for the 2017 financial management in the amount of 371,397,000,000 Riels (Three Hundred and Seventy-One Billion, Three Hundred and Ninety-Seven Million Riels), which is to be broken down as follows:
- Given to the Rural Development Bank for the construction of warehouses and drying facilities in the amount of 120,780,000,000 Riels (One Hundred and Twenty Billion, Seven Hundred and Eighty Million Riels);
- Given to the Rural Development Bank for stabilizing rice prices and promoting domestic rice purchases in the amount of 93,771,000,000 Riels (Ninety-Three Billion, Seven Hundred and Seventy-One Million Riels);
- To be settled against VAT payments of companies, embassies, international organizations and technical cooperation agencies of various governments in the amount of 150,000,000,000 Riels (One Hundred and Fifty Billion Riels).
With respect to the last point, practically that means that approximately USD37.5 million has been put in reserve to pay out VAT refunds in 2018 to taxpayers.
To recap – typically a taxpayer in Cambodia may be eligible to request a VAT refund if they have excessive VAT input credits for three or more successive months. There are special rules that apply to Gold Taxpayers, exporters, investment entities and diplomatic missions and international originations.
Once the tax authorities have vetted the supporting documentation that makes up the VAT refund request the taxpayer can then claim a VAT refund from the Ministry of Economy and Finance. It is fair to say that in the past it has not been an easy task to obtain a VAT refund from the Ministry but with a dedicated reserve put aside to deal with refund requests we hope the VAT refund process can become more efficient.
Tax services required to be undertaken by a licensed tax agent in Cambodia are provided by Mekong Tax Services Co., Ltd, a member of DFDL and licensed as a Cambodian tax agent under license number – TA201701018.
The information provided in this article is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.