Cambodia: Tax on income, updated guidance and rules

Cambodia: Tax on income, updated guidance and rules

The Ministry of Economy and Finance issued Prakas No. 098 MEF.Prk (29 January 2020) concerning the tax on income. This guidance compiles, amends, and updates various provisions related to the tax on income as well as providing implementation rules and procedures.


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The effective date of the guidance is 29 January 2020. Furthermore, the General Department of Taxation affirmed that this guidance contained in Prakas 098 is applicable for the 2020 tax on income return.

In general, the guidance reflects many amendments concerning the tax treatment in relation to taxable income and deductible expenses—that in turn will affect the tax on income return preparation for 2020 for all taxpayers registered under the self-assessment regime. In particular, there are provisions concerning:

  • The rules for prepayment of 1% of the tax on income that applies for both principal business activity and “subsidiary income” (such as rental income from immovable property).
  • Withholding tax exemptions extended to software payments to a VAT-registered company for shrink-wrap software, site licenses, downloadable software, and software bundled with computer hardware, provided that a valid VAT invoice is obtained from the VAT registered company; for service payments of a value of less than KHR50,000 (about U.S. $12.50); and rental payments to a VAT-registered company, provided that a valid VAT invoice is obtained from the VAT registered company.
  • Non-resident withholding tax rules—among listed items now classified as Cambodian-source income, “gain from financial or investment assets or capital gains from sale of direct shares in a Cambodian enterprise” and the terms “management service” and “technical service” with regard to Cambodian-source income have also been further defined to refer to all services that are technical in nature, requiring technical skill or knowledge in the development or creation of inputs in the business such as services in science, physics, medicine, dentistry, pharmacology, legal, hydraulics, physiology, art, education, engineering, architecture, research study, accounting, economy, welfare, nuclear power including consultation services, etc. The term “consultation service” refers to consultations by skilled or professional persons relating to the technical services.

KPMG observation

This guidance provides one of the first major updates to the main tax provisions on tax on income since 2003. Of note, the inclusion of “subsidiary income” to be subject to the 1% prepayment rules (and to minimum tax also) may increase the taxable income of certain taxpayers; but these taxpayers may not experience any material increase because this 1% prepayment could be offset by the annual tax on income or minimum tax at year’s end.

Also, the exemptions of rental income and certain software sales for registered taxpayers from withholding tax may be beneficial for registered taxpayers.

Finally, the definitions of terms “management” and “technical service” now provide taxpayers with clarity regarding if a particular payment of services to non-residents would be subject to the 14% withholding tax. Inclusion of the term “gain from financial or investment assets or capital gains from sale of direct shares in a Cambodia enterprise” as Cambodian-source income could require non-resident investors may be required to pay the 14% withholding tax on the gains. However, there does not appear to be any clear mechanism or procedure on how these non-residents would remit the tax, if applicable.

Read a February 2020 report [PDF 123 KB] prepared by the KPMG member firm in Cambodia

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