As tax audits targeting Qualified Investment Projects (“QIPs”) are becoming increasingly common, DFDL wishes to remind taxpayers of the importance of compliance with Instruction No. 35495 GDT dated 17 November 2025 (“Instruction 35495”), issued by the General Department of Taxation (“GDT”). The Instruction clarifies the treatment and classification of income earned by QIPs during their Tax on Income (“TOI”) exemption period. Proper compliance with the Instruction is essential to minimize tax exposure and potential penalties during an audit.
The Instruction addresses: (i) commencement of the tax holiday period; (ii) types of income eligible for the TOI exemption; (iii) tax treatment of ancillary income (including rental and financial income); and (iv) circumstances requiring separate taxation or tax registration. The Instruction has been effective since 17 November 2025 and QIPs should already be applying the guidance.
The tables below summarize the key clarifications under Instruction 35495, together with DFDL’s practical comments and recommendations.
1. Income of QIPs Entitled to TOI Exemption
| Types of Income | GDT Clarification | Remark |
|---|---|---|
| Commence of Tax Holiday Period | The TOI exemption period commences when the QIP first earns income generated from its approved business activities. | Subsidiary income earned prior to the commencement of commercial operations will NOT trigger the tax holiday period. |
| Subsidiary Incomes | Certain subsidiary incomes connected to the QIP’s business activity may qualify as tax-exempt income during the tax holiday period. However, rental income and royalties are excluded unless they fall within the threshold discussed below. | QIPs can continue to enjoy tax incentives without prematurely triggering the commencement of the incentive period. |
| Other Income | Certain other incomes arising from QIP activities may qualify for tax exemption. However, gains from the sale or transfer of immovable properties, securities, shares, dividends, and financial income are excluded. | Taxpayers should separately monitor these income streams. |
| Income Threshold | Rental income, royalties, gains from the sale of immovable property, securities, shares, dividends, and financial income may still qualify as exempt income provided the aggregate amount does not exceed KHR 250 million (approx. USD 62,500) per year. | Small amounts of incidental investment or rental income can continue to benefit from QIP incentives. |
| Income Exceeding KHR 250 Million (Approx. USD 62,500) | Income exceeding the KHR 250 million (approx. USD 62,500) annual threshold is subject to TOI and must be reported separately from exempt QIP income. Separate tax registration is not required. | Additional tax computations and disclosures are required in the annual TOI return. |
| Unrelated Business Activities | Any business activity distinct from the approved QIP activity must be separately registered and subject to tax. | QIPs expanding into new business lines should assess their registration and compliance obligations. |
2. Income of QIPs Subject to TOI
| Income Type | GDT Guidance |
|---|---|
| Scrap Sales Before Production Starts | The sale of production scrap prior to the commencement of commercial operations is classified as subsidiary income and does not trigger the start of the QIP tax holiday period. |
| Insurance Compensation | Insurance proceeds received in respect of damage to factory assets or inventory prior to the commencement of operations are classified as other income and do not trigger the start of the tax holiday period. |
| Rental Income Below KHR 250 Million (Approx. USD 62,500) | QIP-connected rental income that does not exceed KHR 250 million per year may be included within tax-exempt income and does not require separate tax registration. |
| Rental Income Above KHR 250 Million (Approx. USD 62,500) | Rental income exceeding KHR 250 million per year remains subject to TOI. Separate tax registration is not required; however, separate tax calculations and declarations must be filed. |
| Separate Activity Registration | Activities unrelated to the approved QIP business (e.g., a hotel operating a travel agency) require separate tax registration and are subject to tax at the normal rate. |
DFDL Comments
With the GDT increasing its audit scrutiny of QIPs, it is essential that taxpayers ensure full compliance with the income classification and reporting requirements set out in Instruction 35495. In particular, the Instruction confirms that subsidiary and other incomes earned during the construction or pre-operational phase will generally not trigger the commencement of the incentive period. Taxpayers should review current practices against the Instruction to confirm alignment.
Proper income classification is a key audit focus area. QIPs should clearly distinguish between: (i) income derived from their approved investment activities (exempt); (ii) qualifying subsidiary or ancillary income (potentially exempt subject to conditions); and (iii) income that falls outside the QIP incentive framework (taxable). Failure to properly classify income may result in reassessment, penalties, and potential loss of incentive status.
QIPs generating rental, royalty, dividend, investment, or other financial income must monitor the KHR 250 million (approx. USD 62,500) annual threshold. Once exceeded, separate TOI calculations and declarations are required. Taxpayers should implement internal tracking mechanisms to monitor these income streams on an ongoing basis.
QIPs expanding into new business activities must assess whether such activities fall within the approved investment project scope. Activities outside the approved QIP require separate tax registration and compliance. The GDT has shown increasing scrutiny of QIPs operating beyond their approved scope, and non-compliance may result in administrative penalties and reassessment of prior filings.
Key Action Items
- Review income classification. Ensure each income source is classified as: (i) income from the QIP’s approved activities; (ii) qualifying subsidiary or other income; or (iii) income from a separate business activity. Classification determines incentive eligibility and separate tax obligations.
- Multi-project enterprise compliance. Enterprises operating multiple QIPs, or both QIP and non-QIP activities, must comply with Prakas 1127 dated 11 October 2016, which requires separate tax filings and accounting for each project where different TOI exemption periods or rates apply.
- Monitor income thresholds. Establish internal procedures to track rental, royalty, dividend, investment, and financial income against the KHR 250 million (approx. USD 62,500) annual threshold. Exceeding the threshold triggers separate TOI treatment.
- Maintain supporting documentation. Retain contracts, invoices, board resolutions, and financial records demonstrating the connection between ancillary income and the approved QIP activity. This documentation is critical during a GDT audit.
- Assess new business activities. Where a QIP undertakes new or expanded activities, assess whether separate tax registration applies. Early assessment avoids retroactive exposure.
- Seek professional advice. Given the GDT’s increased audit focus, QIPs generating significant rental, investment, financial, or subsidiary income during the tax holiday period should seek professional tax advice to confirm compliance and address potential exposure before an audit commences.
For further information, please contact your usual DFDL tax advisor.
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.
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