It is fair to say that one of most consistent complaints we hear from taxpayers regards the issues associated with applying and obtaining a Value Added Tax (VAT) refund in Cambodia. Until now the VAT refund process was a very lengthy process – sometimes taking years – and often subject to uncertainty and delays.
It appears that the General Department of Taxation (GDT) has taken note of these concerns and in response have acted upon them by issuing Prakas 576 “The Refund of Value Added Tax” (Prakas 576) in June 2018 with the stated purpose of “developing a mechanism to effectively and efficiently refund VAT”.
The key takeaway from Prakas 576 is that for most taxpayers who follow the process correctly the timeframe to receive a VAT refund should be approximately 40 working days (this timeframe may be shortened for taxpayers who have a Gold Taxpayer Compliance Certificate). The VAT refund timeframe for Diplomatic Missions/Foreign Councils/INGO’s and Technical Co-operation Agencies of other Governments is approximately 15 working days.
Prakas 576 restates the criteria as to who can request a VAT refund and also outlines the VAT refund process. We examine this in more detail below.
Who can request a VAT refund?
Under the revised taxpayer self-assessment regime it should be noted that only Medium and Large Taxpayers have the ability to request a VAT refund. A Small Taxpayer will only ever have up to 80% of VAT input credit to its VAT output on sales (80:100).
For Medium and Large Taxpayers the following criteria applies:
- Where the monthly VAT input credit is higher than the monthly VAT output for taxpayers who are exporters or who are registered as an investment enterprise i.e. a Qualified Investment Project;
- For other taxpayers they must have excess VAT input credit for three or more consecutive months;
- All taxpayers must have proof of the VAT input, including customs declarations (for imports), original customs receipts showing payment of taxes, or original tax receipts issued by local suppliers;
- Proof of exported goods/services that are subject to VAT zero-rating;
- Reliable VAT accounting book, sales/purchase journal and other supporting records.
For Diplomatic Missions/Foreign Councils/INGO’s and Technical Co-Operation Agencies of other governments the following criteria applies:
- Registration with the GDT is required;
- The submission of the VAT Refund must be on a form prescribed by the GDT;
- Each invoice must have a total pre-tax amount of KHR200,000;
- Each refund request must have a total pre-tax amount of KHR200,000 or more;
- The request must have certification from the mission head to the GDT that the goods are truly purchased for use in the mission’s official process.
Prakas 576 provides a workflow of the VAT refund process which you can view at the bottom of this update. We refer to a few key points to note from the VAT refund process below.
Prakas 576 refers to a taxpayer completing the VAT refund request on the VAT monthly tax return and also completing a form to be determined by the GDT. In practice a taxpayer would tick the VAT refund box in the VAT refund and submit a cover letter to the GDT asking for a refund.
As has always been the case the GDT officers will typically conduct an audit of the underlying supporting documentation of the VAT refund to determine that all the VAT invoices are valid and that the VAT input has been declared in the correct month.
One of the benefits of being a Gold Tax Compliance Taxpayer is that this audit process may be by-passed by the GDT thereby speeding up the VAT refund process.
After receiving a decision from the leadership of the GDT, the Department of Finance and Personnel of the GDT shall prepare a money order and submit it to the National Treasury.
##Important Note – Prakas 577 MEF.Prk dated 19 June 2018 delegates the power to His Excellency Kong Vibol, General Director of the GDT to approve VAT refunds of less than KHR2,000,000,000 (USD500,000) for all enterprises. For VAT refunds that exceed KHR2,000,000,000 (USD500,000) the Minister of the Ministry of Economy and Finance will be the final decision maker.
His Excellency Kong Vibol is also delegated the power to approve VAT refunds with no monetary cap for Gold Taxpayers, Embassies, NGO’s and development agencies.
DFDL – Commentary
The introduction of Prakas 576 is a welcome addition to what has historically been an unclear and time-consuming process for a number of taxpayers. One of the issues which is not addressed in Prakas 576 and which in our experience can create issues for taxpayers applying for a tax refund is the internal check by the GDT of the payment of the input credit by a supplier.
Often a taxpayer can have a valid VAT invoice from a supplier but if for some reason that supplier has not properly paid the VAT to the GDT the refund process is stopped. In our view it is the job of the GDT to recover VAT payments from non-compliant taxpayers and that should not be the role of the taxpayer applying for a VAT refund. We hope that the GDT reconsiders its current practice regarding this issue and not prevent a tax compliant taxpayer obtaining a VAT refund due to the actions of a non-compliant taxpayer.
It should be noted that to ensure a speedy refund the taxpayer should provide the proper accounting books and other documents in a timely manner otherwise the VAT refund process will be suspended until they are produced.
If you have any queries or concerns regarding the above or need assistance with respect to applying or obtaining a VAT refund, please feel free to contact your usual DFDL adviser.
|Process of VAT Refund for companies, diplomatic missions or foreign consuls, international organizations and technical cooperation agencies of other governments|
|1||Company/Diplomatic Mission/Foreign consuls/International Organization/Technical Cooperation Agency||Request the VAT refund.|
|2||GDT – Department of Administration and General Affairs||Input the data in the document tracking system with a tracking barcode.|
|3||GDT – Taxpayer Control Unit||Check the accuracy of the refund request documents and submit the result to the leadership of the GDT for review and decision.|
|4||GDT – Leadership||Reviews and decides whether the request for VAT refund is accepted or dismissed.|
|5||GDT – Department of Finance and Personnel||If the request is accepted, the Department prepares a money order, records and monitors the credit status on the receipt, records expenses and reviews the corresponding documents before passing it to the National Treasury.|
|6||General Department of National Treasury||Transfers the refund of value added tax to the account of the GDT at the National Bank of Cambodia.|
|7||GDT – Department of Finance and Personnel||Sends a notice to the taxpayer upon transfer of the refund to the GDT account at the National Bank of Cambodia.|
Timeline for Companies: The refund process is expected to be completed within 40 working days, but Gold taxpayers may get the refund more quickly.
Timeline for diplomatic missions or foreign consuls, international organizations and technical cooperation agencies of other governments: The refund process is expected to be completed within 15 working days.
Partner, Cambodia Head of Tax
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 here 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.