On 11 February, the General Department of Taxation (“GDT”) released Circular 346, which provides the deemed market rates for determining the caps on interest rate deductions under Circular 151.Under Circular 346, the GDT set the deemed market rate to 12% per annum for tax year 2013. This rate was gathered by the GDT through the averaging of the interest rates of eight (8) Cambodian banks. The banks were not identified by the circular.

As you may be aware, Circular 151 (and previously Circular 1707) set a limit to the interest deductions that a taxpayer may apply for each loan that it contracts. Please click on this link to access our alert on Circular 151.

We note that the literal translation of the Khmer language mentions that the above rate will apply to “money borrowed in 2013.” There is some ambiguity in the use of this Khmer term as it is not certain whether the rate cap will apply only to (i) interest on loan agreements that were executed in 2013 or to (ii) interest on loan agreements executed before 2013 but with drawdowns that occurred in 2013 (such as facility agreements). It would appear from the straightforward application of Circular 346 that the 2013 drawdowns on facility agreements executed before 2013 should still be considered as “money borrowed in 2013.”

We will continue consultations with officers of the GDT and will send an alert on any helpful information that we gather.

Jude Ocampo
Tax Director, DFDL Cambodia