2020 29 June

Cambodia Tax Updates – June 2020

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Prakas No. 525 – dated 19 June 2020

Implementation of WHT reduction on interest payments made by Banks and Microfinance Institutions

In our DFDL update of 1 June, click here, we discussed the additional COVID-19 responses of the Royal Government of Cambodia (“RGC”) on the 26th of May 2020 that were issued by a press release. The announcement rolled out another round (round four) of measures aimed at mitigating the impact of COVID-19 on businesses and workers in Cambodia. One of the measures being jointly implemented between the Ministry and Economy and Finance (“MEF”) and the National Bank Cambodia included the relaxing and adjusting of certain conditions applicable to the banking sector in order to increase cash flow within the banking system.

Prakas No. 525 issued by the MEF on the 19th of June 2020 was enacted to help achieve the above goal of increasing cash flow within the banking system by reducing the withholding tax (“WHT“) rate that Cambodian Banks and Microfinance Institutions (“MFI’s“) are required to withhold on interest payments they make to domestic and overseas lenders.

The standard WHT rate that applies to interest payments to resident and non-resident lenders is 15% and 14% respectively. For Banks and MFI’s that enter into new loans with resident and non-resident borrowers the WHT rates will be as follows:

  • 5% WHT on interest payments to resident and non-resident lenders from April 2020 to December 2020 on new loans.
  • 10% WHT on interest payments to resident and non-resident taxpayers for the 2021 tax year with respect to new loans.
  • The standard WHT rates apply on interest payments made to resident and non-resident lenders from the 2022 tax year onward.

For Banks and MFI’s that have existing loans with resident and non-resident lenders the WHT rates will be as follows:

  • 10% WHT on interest payments to resident and non-resident lenders from April 2020 to December 2020.
  • The standard WHT rates apply on interest payments made to resident and non-resident lenders from the 2022 tax year onward.

The WHT that has been reduced as per the above will be borne by the Royal Government of Cambodia so that cash flow is increased within the banking system by Banks and MFI’s.

To obtain the reduction in the WHT rates as outlined above Banks and Micro-Finance Institutions must maintain the following supporting documents which may be requested in future tax audits:

  1. Loan Agreement which is certified by a lawyer; 
  2. Transfer documents relating to the loan; and
  3. Evidence of the loan and interest expenses in the accounting books of the Bank and MFI.

Sub-Decree No. 79 ANKr.BK dated 1 June 2020

Penalties for violations of the Law on Accounting and Auditing

Sub-Decree 79 sets out the penalties that would be applicable for an enterprise that violates the Law on Accounting and Auditing. Sub-Decree 79 applies to:

  • Enterprises or legal entities registered with the Ministry of Commerce and/or General Department of Taxation as a Large or Medium Taxpayer;
  • All non for profit entities registered with specialized ministries and institutions; and
  • All accountants and auditors who are members of the Kampuchea Institute of Certified Public Accountants and Auditors (“KICPAA“) who have received an accounting and/or auditing professional license from the National Accounting Council (“NAC“).
Violation

Large Taxpayer

(Interim Penalty)

Medium Taxpayer

 (Interim Penalty)

Use of a different accounting period from the standard period specified in the accounting and auditing law without approval 2 million Riels (Approx. US$ 500) 1.5 million Riels (Approx. US$ 375)
Failure to use Khmer Language in accounting records and financial reports 2 million Riels (Approx. US$ 500) 1.5 million Riels (Approx. US$ 375)
Use of another currency beside Khmer Riel in accounting records and financial reports without approval 2 million Riels (Approx. US$ 500) 1.5 million Riels (Approx. US$ 375)
Failure to submit or late submission of annual financial reports to the General Secretary of the NAC within the deadline 2 million Riels (Approx. US$ 500) 1.5 million Riels (Approx. US$ 375)
Failure to keep accounting documents as defined by law/ Not holding accounting records/Failure to prepare financial reports in accordance with the accounting standards/failure to submit financial statements to an independent audit/failure to maintain financial reports in accordance with the accounting standards. 10 million Riels (Approx. US$ 2,500) 8 million Riels (Approx. US$ 2,000)

Notification No. 14812 GDT, dated 16 June 2020

Postponement of E Filing

The goal for taxpayers to move to an E Filing system with respect to the submission of their monthly tax returns, as outlined in Instruction No. 003 MEF dated 27 February 2020, has been postponed by three months from June 2020 to August 2020 (grace period). This is due to difficulties being faced by taxpayers when trying to implement the new E Filing system.

Taxpayers can also choose the following options to input transaction data for the submission of their monthly tax returns with the GDT:

  • Follow the existing guidelines as per Instruction No. 003 above and input data directly into the E Filing system;
  • Submit a request to the GDT, for MFI’s, Banks, the Phnom Penh Water Supply Authority, Electricity of Cambodia and other private sector enterprises that wish to connect their own tax declaration system with the GDT’s system directly; or
  • Download the GDT “app” and use it to directly upload excel spreadsheets; (there is an annual subscription fee of US$100 per enterprise for the use of the app).

During the grace period, taxpayers who are not ready can continue to file their monthly tax returns by using the old monthly tax declarations and continue to use the Online-VAT refund and Online-VAT credit (“E-VAT“) system to produce their VAT report for declaration as normal in accordance with Instruction No. 001 MEF dated 9 January 2019.

For taxpayers who have already began to use the E Filing system for their monthly tax return submission, can continue to submit their returns using the E Filing system.

The DFDL tax team as always stand ready to answer any questions that you may have on this and other tax issues of concern.

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.


Contact

Clint O’Connell

Partner, Cambodia Deputy Managing Director & Head of the Cambodia Tax Practice

clint.oconnell@dfdl.com

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