Introduction

In today’s world economy, one can have many sources of income and worldwide. Difficulties can arise when two or more states, depending on their respective local laws, apply the same income tax. This situation is known as double taxation, in which two or more countries tax the same income, assets, or other financial transactions.

Double taxation occurs because of overlapping tax laws; that is when two or more countries assume jurisdiction over the same assets, income, or transaction. For example, if one state claims a tax on the basis of a “source of income” and another state claims a tax on the same funds on the basis of “residence”. The two states can also both claim taxes on the basis of “residence” by having different legal criteria to qualify a fiscal residence (e.g. length of stay vs. center of vital interests).

To encourage investment and help taxpayers avoid this unfair practice, states are strongly advised to become a party to the Double Taxation Agreement (“DTA”), which allows states to agree on rates and tax jurisdictions for specific types of income.

Double Taxation Agreement: Objec-tives and Content

Double Taxation Agreements pursue a “win-win strategy” of encouraging foreign investment and making the foreign market available for locals. States agree on an acceptable basis to share tax revenues and investors benefi t from increased legal and fi scal certainty.

Many of the existing DTAs follow models provided by the UN and the OECD. States fi rst determine the scope of the Convention and the tax covered. The next step involves determining an appropriate method for eliminating double taxation.

Introduction

Value Added Tax (VAT) is part of business life. The consideration of the implication of VAT over business activities is extremely essential and should be pre-planned accordingly.

In Cambodia, for every day-to-day operation of a business, VAT applies to any supply of goods or services ranging from trading, construction, manufacturing, and service providing. There is a simple standard rate of 10% except for some exempted products or services.

Unlike the sale tax imposed in certain countries, in Cambodia, VAT is a creditable tax. In this respect, VAT can be refundable or claimable from Government through defined procedures and timeframe as specified in Prakas from the General Department of Taxation.

Definition

According to Law on Taxation 2003, VAT is chargeable on taxable supplies made by a taxable person in the course or furtherance of any business carried on by him. Supplies may be of goods or services. A taxable supply is a supply of goods or services made in Cambodia, other than an exempt supply. A taxable supply is either standard-rated or zero-rated. As above mentioned, the standard rate is 10%

Implication

Trading Business in Cambodia is generally required to register for VAT certificate which specifies the location of the business and its purpose. In highly regulated products such as medicine, the trading business also require to apply for import licenses in addition to VAT certifi cate for eligible for importation.

Certain supplies, which fall within the classification of standard rate supplies, are charged at a rate of 10%, and Zero-rated supplies are taxable at 0%. A taxable supplier whose outputs are zero-rated but whose inputs are standard-rated will obtain repayments of the VAT paid on purchases or importation as specified in Prakas from the Ministry of Economy and Finance (MoEF).

An exempted supply is not chargeable to VAT. A person making exempted supplies is unable to recover VAT on inputs. The exempted supplier thus has to shoulder the burden of VAT. Of course, the company may increase its product prices to pass on the charge, but they cannot issue a VAT invoice which would enable a taxable customer to obtain a credit for VAT, since no VAT is chargeable on their supplies.

1. Introduction

Most individuals living and working in Cambodia are aware that they have to pay tax on their salaries. As the obligation to declare this tax rests with the employer, most individuals do not give it much further thought.

2. Definition of Salary Tax

Tax on Salary is a monthly tax imposed on the salary that has been received within the framework of fulfilling employment activities (Article 41, Law on Taxation). Whether a person is an employee or an individual earning profit depends on “the degree of subordination to the employer” (Section 1.2 of Prakas 1173 on Tax on Salary). The governing Prakas outlines four criteria to assist in determining this. If two of these four criteria are met, an employment relationship exists: The person will be paid as long as he appears at a designated place to perform tasks outlined in a general (written or oral) agreement;

After more than five decades, foreign banks will again be able to open up branch offices in Myanmar as part of the government’s financial reforms aimed at developing the country’s banking sector. At present, there are 43 foreign banks with representative offices in Myanmar (See graph below).

But they are restricted from conducting any type of financial activities in the country. Their activities are limited to such things as collecting data, studying the local financial scene, and marketing. This will change, however, as Myanmar now plans to issue up to ten foreign bank branch licenses later this month.

In 2011, the Central Bank of Myanmar (“CBM”) began liberalizing and allowing private banks to do foreign exchange currency transactions. Th en, in 2012, the CBM floated the nation’s currency, the kyat, which better facilitated international trade, especially agricultural exports. As of 2013, however, the nation’s 24 banks still had combined assets of only $ 23 billion dollars.

The Myanmar government has long recognized the need for the involvement of foreign banks and foreign investment to help modernize the nation’s financial system. As a growing economy, Myanmar desperately needs access to capital.

Young entrepreneurs and agriculturalists need access to long-term credit in order to open new businesses and farms. Foreign banks would be the logical place to look for a supply of much-needed capital. Local banks, however, have pushed back hard against the CBM’s suggested reforms in the foreign bank licensing law. Indeed, a strong parliamentary committee has been formed to oppose foreign banks operating in Myanmar altogether. And while the effort to forbid foreign banks from operating in Myanmar under any circumstances has failed, the strong lobby efforts have resulted in a very restrictive bank licensing law.

1. Introduction

Labor Unions that are legally established have a number of rights under Cambodian law. One of the important rights is the right to strike which has been increasingly exercised by Labor Unions. The strike has become an instrument for workers to demand from employers and the government the improvement of working conditions in general and an increased minimum wage in particular. The recent strikes conducted by workers at the end of 2013 and early 2014 against the decision of the Labor Advisory Committee to increase the minimum wage by 100 dollars instead of 160 dollars as demanded by the workers have drawn attention to the right to strike in Cambodia from the international community and investors.

2.What are the legal conditions for the formation of labor union?

An union can be established by employees. The founders of the Union must submit a request, the statute, and lists of names of those responsible for management and administration to the Ministry of Labor and Vocational Training for registration. In the case that the Ministry of Labor and Vocational Training does not reply within two months after receiving the application form, the union is considered legally registered. A copy of the submitted documents shall be sent to the Department of Labor Inspection, the Office of the Council of Ministers, the Ministry of Justice, and to the Ministry of Interior.

Following increased strikes and the clashes with the police and the protests which caused deaths and injuries, the government suspended the creation of labor unions until a new trade union law is adopted and implemented¹ expected by the end of 2014. The suspension of the freedom of association by the government until the new law on trade unions may be a sign of tighter regulation of unions under the new law on trade unions.

The opponents to the current draft of the law on Trade Unions argue that it imposes strict conditions for the creation of Unions and the suspension and de-registration of unions by the government² if their activities are deemed illegal.

In contrast, the proponents of the current draft law claim that the new law will comply with the ILO’s Convention 87 on the Freedom of Association and improve the current industrial relation³.

The new law on Trade Union will set out conditions, procedures for the formation of labor unions, and rights and obligations of labor unions4.⁴.

This law may be an instrument to adjust the existing power relationship between employer and employees through tighter control of labor unions by the government.

1. Introduction

The process of dissolving a company in Cambodia is important and requires just as much preparation as opening a company and, for legal and tax reasons, this process must be completed with care. Indeed, those who fail to properly dissolve a company expose themselves to lawsuits and liability for back taxes, fines and other penalties. This report explains the proper procedures for dissolving a corporation in Cambodia.

2. Liquidating a Company

Liquidation (also referred to as dissolution) is the process whereby a company is brought to an end and the property and assets are redistributed. There are various reasons why the corporations’ shareholders might want to dissolve a company including, for instance, financial difficulties¹. With shareholder approval, a company may request dissolution in accordance with the Ministry of Commerce’s dissolution and tax liquidation procedures.

3. Tax-related Matters

In the case of a voluntary dissolution, before notifying the Tax Office, a company needs to liquidate assets and liabilities that are subject to the Value Added Tax (VAT). A company also needs to write off or recover receivable balances and pay offsecured and unsecured creditors. Companies also need to file final salary and fringe benefit taxes for employees, VAT, withholding taxes, prepayment of profit taxes, and annual taxes on profi ts (including capital gains). Finally, companies must write offany expenses and recover the VAT input balance if any input credit is to be carried forward².

Within 15 days of the cessation of business, companies must submit a request to the Tax Offi ce to dissolve its business. Th e request must take the form of a letter the appropriate Tax Branch Offi ce providing 1) the reason for dissolution, 2) two copies of the business dissolution application form, 3) an original copy of the latest Patent Tax Certifi cate, 4) a copy of the latest monthly tax and annual tax returns, and 5) the original VAT Certifi cate for audit purposes³. Finally, a stamp duty of one million KRW (approximately USD 250) must be included with the request⁴.

Next, the Head of the Tax Office issues a tax audit notification letter specifying the date of the audit, the names of the auditors handling the audit, and identifying for the taxpayer any specific documents that must be prepared for an audit. Documents identified by the Tax Office for the audit generally include monthly and yearly tax returns, lease agreements, and any other tax-related documents. After the audit, the Head of the Tax Office issues a Tax Reassessment Notification Letter, explaining whether or not any taxes are owed.

In case no taxes are owed, the taxpayer must nevertheless submit a letter to the Tax Office formally acknowledging the findings of the Tax Office, after which the Head of the Tax Office will issue a Tax Clearance Certificate for processing at the Ministry of Commerce (MOC).

In case taxes are owed, the taxpayer must also submit a letter to the Tax Office acknowledging and/or rejecting (either in whole or in part) the tax liabilities assessed. The letter must be sent within 30 days of receipt of the Tax Reassessment Notification Letter. If no response is made, the company shall be deemed to have accepted the tax reassessment. When a company accepts the results of the reassessment without challenge, the Tax Department will issue a fi nal tax reassessment notification letter. The taxpayer must then pay the total amount within 15 days. Upon payment, the Head of the Tax Branch will issue a Tax Clearance Certificate for processing at the MOC.

When a company rejects a tax reassessment it must submit a letter to the Tax Offi ce within 30 days of receipt of the reassessment putting forward a clear explanation, accompanied by evidence, of any alleged error. Taxes are due regardless of the merits of the taxpayer’s appeal and will be refunded only after a resolution has been reached between the auditors and the taxpayer or a final decision has been made by a court. At the conclusion of the process, the Head of the Tax Branch will issue a Tax Clearance Certificate for processing at the MOC.

1. Introduction

In the context of current growing international interest in the reforming economy of Myanmar and the continuing revision of its antiquated regulatory structure, international brands looking to enter this market must face the issue of how to best protect their valuable trademarks.

Complicating the matter, however, is the fact that Myanmar is poised to shift its trademark protections from its existing fi rst-to-use system based on colonial British statutes and case law to a brand-new fi rst-to-fi le system draft ed in cooperation with the World Intellectual Property Organization (WIPO). Th e change was initially expected to occur in 2013 but is now set for the summer of 2014.

Th is newsletter will explain in brief what these changes mean for foreign companies and investors and alert clients to what should be done before the shift takes place.

2. Signifi cant benefi ts for registering trademarks now under existing regime

Under the new Trademark Law any trademarks registered under the old regime will automatically continue to receive protection during a three-year transition period, which begins from the date the new Trademark Law comes into force. While trademark holders should re-register their trademarks under the new Trademark Law as soon as possible aft er it goes into eff ect, those trademark holders who have already registered their marks under the old regime will receive priority under the new system.

Under the system currently in place trademark holders have traditionally availed themselves of protection under Section 18(f ) of the Registration Act (Direction 13) by creating a “Declaration of Ownership,” which must be registered with the Offi ce of the Registry of Deeds and Assurances. Once a Declaration of Ownership has been registered it is customary for trademark holders to then publish a “Cautionary Notice” of the mark in a Myanmar newspaper of broad circulation.

Perfecting the above procedure establishes prima facie evidence of ownership of the mark, however, actual use of the mark in trade is still required for protection against infringement. Myanmar’s Constitution grants IP rights and refers explicitly to “[i]ntellectual property such as . . . trademarks,” Myanmar’s Penal Code both defi nes trademark (Section 478 & 479) and provides penalties against infringement (Section 482), while Myanmar case law off ers remedies for civil actions. Indeed, there are several recent cases where Myanmar Courts have provided remedies for major international brands such as Kentucky Fried Chicken (“KFC”), Pizza Hut, HBO, Marriot, and Dr. Scholl’s. Th erefore, while better protection is expected under the new law, the current regime is not without remedies for trademark infringement.