2018 16 July

Cambodia Tax Update: Principal and Agency – Important Update


Prakas 597 titled “The Recognition and Tax Obligation regarding the supply of Goods and Services made by an Agent on behalf of a Principal” was issued on 27 June, 2018 (“Prakas 597”) and provides some important clarifications and requirements for a number of taxpayers currently operating in Cambodia.

This update is extremely important to those taxpayers in Cambodia who sell goods or services on behalf of a Cambodian Principal. Industries that may be directly affected by this update include – travel, telecommunication, FMCG, local manufacturers and in general any industry which involves the receipt of a commission that is related to selling goods or services on behalf of a Principal.

One of the key requirements brought about by Prakas 597 is that those taxpayers in Cambodia looking to operate as an Agent must apply formally in writing to the General Department of Taxation (“GDT”) in Cambodia to obtain a recognition letter.

In addition the Principal, to whom the Agent acts on behalf, must be a Cambodian resident taxpayer who performs business in Cambodia in order for a letter of recognition to be issued. By default this rules out Agents in Cambodia operating on behalf of overseas Principals.

We outline in more detail the salient points of Prakas 597 below.

Principal – Agent

Value Added Tax (VAT)

Article 52 of the VAT Sub-Decree sets out the conditions with respect to the supply of goods or services by an Agent and these conditions have been restated and expanded upon in Prakas 597. In order to qualify as an Agent the following conditions must be met:

  • An Agent who supplies goods or services on behalf of a Principal must be either a Medium or Large Taxpayer;
  • The contract between the Principal and Agent must reflect a Principal/Agent relationship and be supported by other documentation i.e. invoices;
  • The Principal must be the party that determines the sale price of the goods or services and the commission rate that is paid to the Agent;
  • The Principal must retain ownership of the goods until the point of sale;
  • When the goods or services are supplied to a customer the Agent must clearly show the Principals details on the accompanying invoice or alternatively issue the Principal’s original invoice – both parties have to decide which method they wish to invoice the customers. If the Agent issues invoices on behalf of the Principal the Agent must issue the invoices on a serial number basis;
  • The Agent must issue a VAT invoice for their commission charge, in relation to the supply of goods or services, to the Principal. The Principal can claim VAT input credit relating to the VAT on the commission paid to the Agent;
  • The Agent is required to submit a detailed list of the supply of goods and services to the GDT every month and report the stock movement to the GDT every quarter.

Recognition as an Agent

A taxpayer in Cambodia who wishes to operate as an Agent must submit an application to the GDT with the following documents attached:

  • The Agency contract which substantiates the Agent – Principal relationship;
  • The tax registration documents of the Agent which evidence that they are either a Medium or Large Taxpayer;
  • A sample of the invoice to be issued by the Agent on behalf of the Principal.

If the GDT accepts the application they will issue a recognition letter recognizing the status of the Agent which is valid for two (2) years. The Agent can look to renew the recognition letter within thirty (30) days of its expiry. The fee for the application is KHR 400,000 (approximately USD100) and the fee for renewal of the recognition letter is KHR 200,000 (approximately USD50).

Tax Obligations of the Agent

For the purposes of a supply of goods or services made by an Agent on behalf of its Principal the Agent is obliged to collect all taxes on behalf of the Principal but the Agent is not obliged to declare those taxes to the GDT – that is the responsibility of the Principal.

Examples of taxes that would be collected by the Agent on behalf of its Principal include:

  • Specific Tax
  • Public Lighting Tax
  • VAT

Typically any applicable Specific Tax and Public Lighting Tax would be included in the cost of goods sold and incorporated in the final sale price of the good or service however the implication of this requirement seems to put a onus on the Agent to at the very least ensure that the Principal is registered for tax in Cambodia.

The basis for calculating the monthly 1% Pre-Payment of Tax on Income and VAT output of the Agent will be based on the value of the commission that they charge to the Principal and not the gross invoice value of the underlying good or service.

DFDL – Commentary

Prakas 597 will require a number of existing industries in Cambodia to re-examine their current arrangements with third party Agents and distributors as often the contractual arrangement between the parties can be blurred.

Typically an Agent operating in Cambodia would look to limit their tax exposure to the commission charge as in practice the 1% Minimum Tax would exceed any Tax on Income liability if it were to be calculated on a gross invoice basis (on the value of the underlying good or service) as opposed to the commission value.

A distributor would be expected to earn a higher margin on a resale of a good then a commission agent as the inherent risks such as liability for unsold goods are higher. In that case the 1% Minimum Tax issue outlined above could be made redundant if the annual Tax on Income amount at the end of the tax year is higher than the Minimum Tax payable.

Prakas 597 does not allow for an Agent to operate in Cambodia on behalf of an overseas Principal on a commission basis which means that current business arrangements may need to be re-structured as either a sub-contract or on a distribution model.

With respect to clarifying the relationship that you currently have with your Agent or Principal or to apply for the Agent letter of recognition from the GDT please contact your usual DFDL adviser.

DFDL Contact

Clint O’Connell

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.

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