Tax Clearance and the Dissolution of a Company (Dec 2021)

1. INTRODUCTION

COVID-19 has dealt a major blow to the Cambodian economy. The pandemic has badly affected the country’s main GDP growth drivers, such as the garment, tourism, and construction industries. Around 400 garment factories in Cambodia have suspended their operations, while around 170 companies in the tourism sector have closed.1 During the COVID-19 period, many companies have encountered serious financial difficulties and, in order to avoid increasing debt, have declared bankruptcy or chosen to dissolve their entities. If the taxpayer walks away and leaves behind a “ghost company,” he or she can be sued, even if no assets remain. Furthermore, directors and shareholders are running the risk of being held personally liable for unpaid taxes, fines, and other penalties.

2. HOW TO DISSOLVE A COMPANY

If a company opts to file dissolution, the process begins with the General Department of Taxation (“GDT”) before liquidation with the Ministry of Commerce (“MOC”). The company would have to liquidate its assets and settle its obligations, subject to the Value Added Tax (“VAT”), write-off or recover debit balances, and repay secured and unsecured creditors before notifying the tax administration about the dissolution of the company. Furthermore, the company should file the final month’s tax liabilities, including VAT, prepayment of profit tax, withholding tax, tax on salary, and fringe benefit tax, as well as the last annual income tax. Finally, the company should write off any expenses and recover the VAT input balance if any input credit is to be carried forward pursuant to Article 255 of the Law on Commercial Enterprises of 2005.

Next, the company must arrange and submit the required documents to deregister the company within fifteen (15) days of the cessation of business. The required documents include:

After the documents have been filed, the taxpayer will receive a notice letter for an audit. The taxpayer must prepare all documents relating to the business for the tax auditors, including monthly tax declarations, annual tax returns, income tax, lease agreements, and other documents if required pursuant to Prakas on Tax Audit No. 270 MoEF.BrK. After the audit has been completed, the taxpayer will receive a reassessment notification letter issued by the tax administration, providing the conclusions of the audit.

There are two possible outcomes of the audit to consider:

1) The taxpayer is not liable for any taxes and will receive a Tax Clearance Certificate for further processing with the MOC.

2) The administration has reassessed the fiscal situation of the taxpayer, and the taxpayer can either:

a) accept and pay the tax amount that is due as per the tax reassessment notification letter; or
b) send a dispute letter to challenge, either in whole or in part, the tax reassessment.

The dispute letter must be submitted within thirty (30) days of the date of the receipt of the notification letter from the tax administration and must include an explanation of the reasons for the dispute, along with supporting evidence and documentation (Article 118 of the Law on Taxation (“LoT”) and the Amendment). The tax auditor will review the dispute letter and issue the reason again if they do not agree with the supporting documents.

According to Article 120 of the LoT, the taxpayer can file a complaint with the Director General of the GDT if they are not satisfied with the tax reassessment or any other decision made by the tax administration. The complaint must be submitted to the tax administration within thirty (30) days of the receipt of the letter of notification for tax collection. The tax administration must communicate its decision to the taxpayer within sixty (60) days of the receipt of the complaint letter, to confirm the accuracy or inaccuracy of the tax reassessment or any other decision made by the Tax Administration that the taxpayer has contested.

If the taxpayer does not accept the new decision from the tax administration, they can file a complaint with the Committee of Tax Arbitration (“CTA”) within thirty (30) days of the receipt of the new decision. The CTA is responsible for reviewing, resolving, and issuing decisions on disputes regarding customs, excise, and tax arising from final decisions or rulings by the General Department of Customs and Excise (“GDCE”) and/or the GDT.

The CTA is comprised of:

• The Minister of Economy and Finance as Chairman;
• The Secretary General of the Ministry of Economy and Finance (“MEF”) as Vice-Chairman; and
• A Representative of the National Accounting Council, the General Director of the General Department of Policy for the Economy and Public Finance, and the General Director of the General Department of Internal Audit.

The CTA’s members will conduct meetings, invited by the Chairman (or Vice Chairman), with relevant officials of ministries, representatives of institutions and the private sector, auditors, and, in certain cases, the General Director of the GDT or the GDCE, as is necessary, to provide explanations or comments. Additionally, the CTA will consist of one secretariat, as the Chief of Staff, who will assist with the overall administration of the CTA and who will issue the CTA’s decision within 60 days after the meeting. The organization and functioning of the CTA are determined by Prakas 1470 MEF.Prk (6 November 2016), which details the rules and procedures for resolving tax protest letters. Also, the Royal Government of Cambodia (RGC) has issued a Sub-Decree (6 January 2016) on the organization and functioning of the CTA.

3. BNG COMMENTS

• The company must pay the correct amount of taxes on time to avoid additional taxes and penalties.
• The taxpayer must close the accounting book and clear all taxes before filing documents to deregister the company.
• The taxpayer must explain his or her reasons for contesting the tax reassessment in the dispute letter, and include supporting evidence and documentation.
• Dispute letters and tax payments must be submitted and paid on time.