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.