2017 03 January

Cambodia Tax Update: Tax Compliance 2017

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Welcome to the first DFDL tax update for the year – we wish all our clients and readers a healthy and prosperous 2017.

Whilst this festive season has not seen the large amount of tax reform that was witnessed in 2015/2016 there are still a number of important updates that we would like to bring to your attention below. We covered the salient changes brought about by the 2017 Law on Financial Management in our earlier update which you can find on our website. In addition to these changes December 2016 saw the introduction of the following:

Extension of due date for monthly tax returns 

On the 23 December 2016, the Ministry of Economy and Finance issued Prakas No. 1539 MEF.PrK (“Prakas 1539”) concerning the amendment of the due date for filing monthly tax returns and making the associated tax payments.
Prior to Prakas 1539 all monthly tax returns, aside from VAT, were required to be filed with the General Department of Taxation (“GDT”) by no later than 15th day of the following month after the applicable transaction(s) took place. Under Prakas 1539 the due date for monthly returns and payments has been changed to the 20th day of the following month.

  1. Prepayment of profit tax;
  2. Tax on salary;
  3. Withholding tax;
  4. Value Added Tax;
  5. Specific tax on certain merchandise and service;
  6. Accommodation tax; and
  7. Public lighting tax.

In practice Prakas 1539 gives all taxpayers under the self-assessment regime an additional five (5) days to declare their monthly tax returns and make their tax payments.

Implementation of Tax on Salary changes

With reference to our tax update on 11 November 2016 the 2017 Law on Financial Management introduced changes to the monthly Tax on Salary bands and the dependents rebate that employees may be eligible for. Instruction No. 017 MEF.GDT dated 27 December 2016 (“Instruction 017”) provided a summary and working examples of how these changes will be implemented.

As from 1 January 2017 all resident enterprises including government institutions, organizations, and other enterprises have an obligation to withhold and pay the Tax on Salary (“TOS”) for resident employees as below:

MONTHLY TAX ON SALARY BANDS DEDUCTION
Khmer Riel (KHR) USD Tax Bands KHR USD
From 0 riels to 1,000,000 riels 0-250 0% 0 riels 0
From 1,000,001 riels to 1,500,000 riels 250 – 375 5% 50,000 riels 12.50
From 1,500,001 riels to 8,500,000 riels 375 – 2,125 10% 125,000 riels 31.25
From 8,500,001 riels to 12,500,000 riels 2,125 – 3,125 15% 550,000 riels 137.50
Over 12,500,000 riels Over 3,125 20% 1,175,000 riels 293.75

This implementation is effectively from the salary for January 2017 which the Tax on Salary (TOS) payment and return submission is due by 20th February 2017 (see Prakas 1539 above).

Tax Rebate:
The rebate for dependent children and housewife is changed from 75,000 Khmer Riel (approximately USD19) to 150,000 Khmer Riel (approximately USD38). This is to reduce the poverty for employees, factory workers, teachers, and government officers.

Working example:

1. An employee receives a monthly salary of KHR2,000,000.

  1. In the case of a single employee with no dependents:
    • Taxable Salary= KHR 2,000,000 ⇒ TOS rate is 10%
    • Deduction = KHR 125,000
    • TOS = (KHR 2,000,000 @ 10%) – KHR 125,000= KHR 75,000
  2. In the case of an employee who is married to a housewife and has 3 dependent children
    • Rebate = KHR 150,000 @4 = KHR 600,000
    • Taxable Salary = KHR 2,000,000- KHR 600,000 = KHR 1,400,000 TOS rate is 5%
    • TOS = (KHR 1,400,000 @ 5%) – KHR 50,000= KHR 20,000
  3. In the case of an employee who is married to a housewife and has 6 dependent children
    • Rebate = KHR 150,000 @ 7= KHR 1,050,000
    • Taxable Salary = KHR 2,000,000- KHR 1,050,000= KHR 950,000 TOS rate is 0%
    • No TOS payable

2. An employee who receives monthly salary of KHR12,600,000.

  1. In the case of a single employee with no dependents:
    • Taxable Salary = KHR 12,600,000 TOS rate is 20%
    • Deduction = KHR 1,175,000
    • Hence, TOS = (KHR 12,600,000 @ 20%) – KHR 1,175,000 = KHR 1,345,000
  1. In case of an employee married to a housewife with 3 dependent children;
    • Rebate = KHR 150,000 @4 = KHR 600,000
    • Taxable Salary = KHR 12,600,000 – KHR 600,000 = KHR 12,000,000 ⇒ TOS rate is 15%
    • Deduction = KHR 550,000
    • Hence, TOS = (KHR 12,000,000 @15%)- KHR 550,000= KHR 1,250,000

Instruction 017 also makes the following observations;

As per Article 42 (new) of the Law on Taxation, the term “salary” includes remunerations, wages, bonuses, and overtime, compensations and fringe benefits which are paid to an employee, or which are paid for the direct or indirect advantage of the employee for the fulfillment of employment activities.

Allowances that are provided to the employees of factories, enterprises within the fulfillment of employment activities under Circular No.001 MEF dated 6 October 2016 on the Implementation of Obligation to Withhold Tax on Fringe Benefits “TOFB”, are allowed to be excluded from an employee’s taxable salary and are also not subject to TOFB. Please find further information on Circular 011 here.

Claiming VAT Input Credit

On the 20th of December 2016 the GDT issued Notification 21406 which provided instructions as to how a taxpayer can claim VAT input credits in their VAT monthly tax return. For clarification VAT input refers to VAT that is paid by a tax in the self-assessment regime to a supplier that is registered for VAT also and issues a VAT invoice.

In all cases where a taxpayer wishes to claim VAT input in their monthly VAT return, they   must attach a valid invoice which has been issued by a seller (supplier) in accordance with the format and instructions No. 1127 GDT dated 26 January 2016 on the issuance of invoices for the taxpayers who are registered as a self-assessment regime – for further information on Instruction 1127 please refer to our client alert on 28 January 2016 here.

In addition, for enterprises that have not yet completed the tax update requirement, the GDT will temporary suspend the ability to claim VAT input and/or a VAT refund until those enterprises complete the tax update requirement. After the completion of, the GDT will allow those affected enterprises to claim the VAT input and VAT refund again.

In case there is no invoice issued or an incorrect invoice provided, it will be considered as obstruction on the implementation of the Law on Taxation and penalized in accordance with Article 133 and 136 of the Law on Taxation including suspension of operations that determines by the law, reassessment of tax, or a fine of KHR 10,000,000 (USD 2,500), or possible imprisonment for one year or both.

Numbering of Invoices

Notification 21606 issued by the GDT on the 26th of December 2016 provided instructions to enterprises in the self-assessment regime on how to properly issue invoices for a supply of a good or service in accordance with the invoice templates annexed in Instruction No.1127.

  • Taxpayers shall issue invoices in a chronological order throughout the year, and shall maintain and keep these document for taxation purposes for a period of 10 years for Large and Medium taxpayers, and 3 years for small taxpayers;
  • Taxpayers can use characters in front of the invoice serial number to identify the location of the Head Office or its Branch recognized by the GDT where the invoice is issued. The invoice shall be in the same format chronological order (for example, PPCI -0001, PPCI-0002, PPCI-0003 …. and PPTI – 0001, PPTI – 0002, PPTI – 0003, … or SRICI -0001, SRICI -0002, SRICI -0003, … and SRTI-0001, SRTI-0002, SRTI-0003) – PPCI standing for Phnom Penh Commercial Invoice/ PPTI standing for Phnom Penh Tax Invoice/SR standing for Siem Reap etc…..
  • The invoices shall be issued separately from the Head Office for each branch for taxpayers who has branches, and they should be in two sets both in chronological order, one set for Tax Invoices and one set for Commercial Invoices – as per the example above;
  • Using any characters in front of the same invoice serial number with the purpose to distinguish the invoice between its client, product, location (except for a Branch), activity and type is not allowed;
  • For the chronological order of invoices issued by a point of sale (POS) machine or computer billing system, the invoices can be issued for each machine as long as they can reflect the machine’s Identification Number on those invoices. Taxpayers are required to properly notify to the GDT on the number of (POS) machine they have by the end of January 2017. The GDT must be notified if there is any change of the (POS) machine.

For any further information regarding this update please contact your usual DFDL advisor or contact.

DFDL contact:
Clint O’Connell
Senior Director, Head of Cambodia Tax Practice
clint.oconnell@dfdl.com

The information provided in this email 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.