A. Revised Tax Regimes
The Law on Financial Management 2016 was promulgated on the 17th of December 2015 (Royal Kram No. NS/RK/1215/016). One of the significant changes to come out of the Law was the abolishment of the Estimated Regime of Taxation and a restructure of the Self-Assessed Regime (Real Regime). The Real Regime of Taxation is now comprised of Small, Medium and Large taxpayers.
The Ministry of Economy and Finance issued a Prakas on the 25 of December with respect to the Classification of Taxpayers in the Self-Assessed Regime (MoEF No. 1819 MEF.P.) to clarify the changes. We outline the main changes below:
The Law on Financial Management amended Article 4 of the Law on Taxation and in doing so abolished the Simplified and Estimated tax regimes in Cambodia. The only remaining tax regime in Cambodia is the Real Regime.
Taxpayers under the Real Regime are classified into three categories:
- Small taxpayers are Sole Proprietorships or Partnerships that:
- Have annual taxable turnover from Khmer Riel (“KHR”) 250 million (USD62.5k) to KHR700 million (USD175k);
- Have taxable turnover, in any period of three consecutive calendar months (within this tax year), exceeding 60 million KHR (USD15k);
- Expected taxable turnover of 60 million KHR (USD15k) or more in the next three consecutive months;
- Participate in any bidding, quotation or survey for the supply of goods and services including duties.
- Medium taxpayers include:
- Enterprises that have annual turnover from KHR700 million (USD175k) to KHR2,000 million (USD500k);
- Enterprises that have been incorporated as legal entities;
- Sub-national government institutions, associations, and non-governmental organizations.
- Large taxpayers include:
- Enterprises that have annual turnover over KH2,000 million (USD500k);
- Branch of a foreign companies;
- Enterprises registered as a Qualified Investment Project (“QIP”) as approved by the Council for the Development of Cambodia;
- Government Institutions, foreign diplomatic and consular missions, international organizations and agencies.
Practically speaking what the revision to Article 4 of the Law on Taxation has done is effectively replaced the previous Estimated Regime of Taxation with the Small Taxpayer category under the revamped Real Regime of Taxation.
This 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).
It would appear that those sole proprietors whose turnover does not exceed on average USD5k per month will not be required to pay any tax – be it corporate or patent tax. If a sole proprietor or partnerships annual turnover exceeds USD175k per year then it will be classified as a medium taxpayer.
All registered companies and other legal entities will need to register as medium taxpayers even if their annual turnover is less than USD175k per year. If the legal entity is a Branch, has obtained QIP status or has annual turnover over USD500k then it will be classified as a large taxpayer.
The main similarities and differences in tax treatment between a small, medium and large taxpayer under the new self-assessed tax regime would appear to be as follows:
All three classes of taxpayers fall under the self-assessed regime of taxation so prima facie all three classes of taxpayer will need to:
- File and pay monthly and annual tax returns and payments including:
- Tax on salary and tax on fringe benefit;
- Value added tax;
- Withholding taxes;
- Prepayment of Tax on Profit;
- Annual Tax on profit returns.
- Be subjected to tax audits – desk, limited and comprehensive,
- Comply with taxpayer obligations as set out in the tax regulations including maintenance of according records and associated documentation.
Small taxpayers are able to follow a simplified accounting system as outlined in Prakas no. 1820 MEF.Prk dated 25 December 2015 “Method and Procedure on Implementation of Simple Accounting Record for Small Real Regime Taxpayers”. This Prakas provides some interesting twists with respect to issues such as VAT input credits, tax losses carried forward, application of the 1% turnover tax, and depreciation. It also appears that sole proprietorships will be able to avail themselves to the progressive tax tranches which apply with respect to Tax on Profit as per Article 20 of the Law on Taxation.
We will discuss Prakas 1820 in more detail in a later update.
The other main point of differentiation between the three classes of self-assessed regime taxpayers is with regard to the amount of patent tax payable with respect to the business activities that they carry out. More information regarding changes to the patent tax fees can be found in following (Section B).
B. Patent Tax 2016
Royal Kram No. NS/RK/1215/016 dated 17 December 2015 promulgating the Law on Financial Management 2016
Prakas No. 1821 MEF, dated 25 December 25 2015 – Rules & Procedures for Management of Patent Tax Collection
Instruction No. 032 GDT, dated 4 January 2016 – Instruction on filing of Tax Returns and Payment of Patent Tax 2016
All taxpayers operating in Cambodia are required to register and pay Patent Tax by 31 March each year for each business activity that they carry out.
Following the abolishment of the Estimated Tax Regime the remaining Real Regime of Taxation has now been broken into three distinct classes of taxpayer – Small, Medium and Large, as referred in above Section A. The amount of Patent Tax payable in 2016 is dependent on what class a taxpayer is classified as under the Real Regime of Taxation.
In previous years the Government fee that was required to be paid to obtain a Patent Tax Certificate was approximately USD285. The revised Patent Tax fees for 2016 are as follows:
|Real Regime of Taxation||2016 Patent Tax Fee
Khmer Riel (KHR)
|2016 Patent Tax Fe
United States Dollars (US)
|Large Taxpayer||KHR3,000,000 or KHR5,000,000*||USD750 or USD1,250|
*If the annual turnover of the Large Taxpayer exceeds KHR10,000 million (USD2.5 million) then the Patent Tax payable will be USD1,250. If the annual turnover of the Large Taxpayer is less than KHR10,000 million (USD2.5 million) the Patent Tax payable will be USD750.
Key points to note:
- Patent tax is payable at the commencement of business operation and every subsequent year – payable from 1 January to 31 March.
- The requirement to pay patent tax extends to those taxpayers who have still not registered or renewed their tax registration with the General Department of Taxation as per Prakas 1139 issued in 2014.
- Large taxpayers can pay patent tax at the Department of Large Taxpayer (DLT) while medium and small taxpayers can pay at the Khan or Provincial tax branches where they are located or at any branch of Acleda or Canadia Bank.
- Those taxpayers who have already recently registered or renewed their tax registration and
received their tax registration identification card shall not be required to complete the patent tax return. The patent tax 2016 will be printed out and given to taxpayers immediately when they go to make their patent tax payment at the DLT or Provincial/Khan tax branches.
- For those who wish to pay at the bank they can then show their tax payment receipt to the tax office where their business is located to obtain their patent tax certificate.
- Those taxpayers who have not yet completed the tax registration update or have not yet registered for tax are required to complete an application form and then go to update or become tax.
- Taxpayers with multiple business activities shall pay a separate patent tax for each activity.
Example: A taxpayer who carries out import/export, transportation and hotel activities shall pay three patent tax.
- If it can be shown that a different business activity is ancillary to a main business activity then they shall be considered as one for patent tax purposes.
Example: A hotel provides entertainment activities, a restaurant, massage parlor and/or other activities which are ancillary to the main activity of accommodation. Only one patent fee will be levied provided the activities fall under the management of the same taxpayer and are carried out in the same location.
- If a taxpayer has a branch office, warehouse, factory or workshop with the same business objective but in a different location (i.e. city or province) then the taxpayer is required to pay an additional Patent Tax fee of KHR3,000,000 (USD750) to the tax authority where the branch office, warehouse etc. is located.
- A taxpayer which has a branch office, warehouse, factory and workshop with the same business objective in the same location (city-province) is required to pay only one patent tax fee.
- A taxpayer is required to have relevant patent tax certificates if they want to participate in a bid/quote/survey with respect to the supply of goods or services.
- Taxpayers are obliged to display their valid patent tax certificates on their business premises.
- Taxpayers who commence business within the first 6 months of the year shall pay patent tax in full while those that commence business in the last 6 months of the year shall pay half the patent tax fee.
- If a business changes owners and the business activity remains the same and the new owners are family or legal successors, then there is no need to pay additional patent tax with respect to the change.
With an integrated tax practice, DFDL can assist with the preparation and submission of the 2016 Patent Tax and can also assist you with respect to preparing and submitting your 2015 annual Tax on Profit returns, which must be submitted to the GDT by 31 March 2016 in order to avoid penalties.
*The information contained in this update is provided 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.