2017 31 October

Cambodia Tax Alert: Taxpayer Incentives Clarified

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In December last year the Ministry of Economy and Finance issued Prakas 1536 which provided a table of weighted criteria,  to determine whether a taxpayer could be classified as Gold, Silver or Bronze based on the points they reach out of a total score of 20. The Prakas went on to indicate that the Cambodian tax authorities would provide a tax compliance certificate, valid for two years, for each class of taxpayer i.e. Gold, Silver or Bronze.
 
At the time Prakas 1536 was issued, it was not clear what benefits would be conferred for each colour coded taxpayer classifications – this lack of clarity was finally resolved by Circular 007, officially passed earlier this year, which outlined the following:

  •  Gold Taxpayers (16-20 points)

Those taxpayers who attain Gold Status will receive a certificate of tax compliance, valid for two years. Gold taxpayers will be able to request a VAT refund below the threshold of KHR 500 million (approx. USD 125,000) without having to undergo a VAT audit. In addition they will only be subject to one Comprehensive Tax Audit every two years and will not have to undergo a Limited or Desk Audit during the same period.

  •  Silver Taxpayers (11-15 points) 

Taxpayers who obtain Silver Status will receive a certificate of tax compliance also valid for two years. Silver taxpayers may request a VAT refund below KHR 200 million (approx. USD 50,000) without having to undergo a VAT audit. They will only be subject to one Comprehensive Tax Audit every two years, a Limited Tax Audit every year, and no Desk Audit during the same period.

  •  Bronze (1-10 points) 

Bronze level taxpayers will receive a certificate of tax compliance valid for two years.

Commentary:

We take the view that tax authorities are moving in the right direction by incentivizing and rewarding those taxpayers in Cambodia who makes an effort to comply with the tax regulations. The main benefit for a Gold taxpayer is avoiding a Desk and Limited Tax Audit for the two year period and only being subject to one Comprehensive Tax Audit during the same time.
 
Theoretically, the VAT benefit is also quite significant, especially in light of how time-consuming a VAT audit can be. As a reminder – before a taxpayer applies to the Ministry of Economy and Finance for a VAT refund on its monthly VAT declaration, he or she must undergo an audit where the tax officers will scrutinize whether the VAT input credits claimed are accurate i.e. supporting VAT invoices are supplied that meet all the relevant criteria, and the credits are claimed in the same month.
 
It is our sincere hope that the Ministry of Economy and Finance now also use this opportunity to review their policy and current processes on the issuing of VAT refunds. In most developed countries, the process of obtaining VAT refunds is streamlined, efficient, and occurs within a fixed timeframe. This has the effect of fostering greater confidence and trust between taxpayers and the tax collecting authority. From the point of view of a Cambodian taxpayer, it can often appear that the tax authorities seem quick to demand tax payment, yet are conversely reluctant to authorize VAT refunds upon receiving legitimate requests.
 
The Circular also fails to provide any guidance as to how taxpayers should go about applying for Gold, Silver or Bronze status, or whether this will automatically be decided by the tax authorities. To date, we are aware of a number of taxpayers that have been automatically awarded Gold status by the GDT, and it can be assumed that over time this process will be gradually rolled out to all taxpayers.

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

Upcoming Event: Transfer Pricing in Cambodia | 15 November 2017 | Phnom Penh

As with most issues surrounding taxation – a balance often needs to be struck between achieving cost effective compliance and the imperative of preparing a robust defense in anticipation of future tax audits.

In collaboration with Duff & Phelps, join us in our upcoming seminar where our tax professionals aims  to offer those less familiar with the subject a clear and concise overview of the new transfer pricing regime, and how it will apply in practice to you and your business.

For more information and registration, click here.

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 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.

In collaboration with, 
DFDL Contact


Clint O’Connell
Senior Tax Director & Head of Cambodia Tax Practice
clint.oconnell@dfdl.com

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 in this article 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.