Update on NGO Registration & Tax Compliance (Dec 2022)

I. Introduction

Cambodia has a significant population of non-governmental organizations (NGOs) with more than 5,000 operating in 2021. NGOs have a role to fill in providing needs such as disaster prevention, public health, environmental protection, education, and other public interest needs that the government may not be fully addressing.

Notwithstanding these public interest contributions, tax compliance and various regulatory requirements are demanded from non-profit organizations through a range of laws passed over the years. Parts of this legal framework are sometimes overlooked, particularly by those using counsel from outside of Cambodia, and this newsletter will update readers on the current registration and taxation regime for non-profits in Cambodia.

II. Registration of NGOs

Any non-profit organization that wishes to operate in Cambodia must officially register with the relevant authorities. Non-profit organizations (referring to associations and NGOs) in Cambodia are further distinguished into “domestic” and “foreign” categories. The Law on Associations and NGOs of 2015 defines a “domestic association” as “a membership organization established under the laws of Cambodia by natural persons or legal entities aiming at representing and protecting the interests of their members without generating and sharing profits.” A “domestic NGO” is defined as “a non-membership organization, including foundations, established under the laws of Cambodia by natural persons and/or legal entities aiming at providing funds and services in one of several sectors for the public interest without generating profits.” In essence, NGOs are independent organizations which do not rely upon members. The foreign counterparts to the domestic NGOs are distinguished by being established outside of Cambodia but seeking to conduct public interest and non-profit activities in Cambodia.

2.1. Registration of Domestic NGOs

Establishing a local NGO requires at least three (3) founding members of at least eighteen (18) years of age, and the organization needs to register with the Ministry of Interior (“MOI”) by including, but not limited to, the documents as follows:

• 2 application forms;
• 1 certificate of residence of the headquarters of the NGO from the Chief of Commune or Sangkat;
• 2 CVs of each founding member, attached with recent photographs;
• 2 statutes signed by the Chairperson of the NGO.

The statutes of the local NGO shall be in compliance with the laws of Cambodia and shall indicate some important points as follows:

• Objectives;
• Measures for selecting, terminating, dismissing, transferring and removing the position of president or executive director;
• Measures for changing the organization’s name and logo, and for amendment of statutes;
• Sources of resources or properties;
• Rules for managing resources and properties;
• Measures for dissolving and disposing of resources and properties upon dissolution of the organization.

A registration takes up to forty-five (45) working days to get a decision from the MOI. In the event that some criteria are not completely fulfilled, the MoI will inform the applicant in writing to make corrections within forty-five (45) working days, and the MoI shall render a decision about the registration within fifteen (15) working days at the latest from the date it receives the corrected documents. Should the MoI fail to decide within this period, the organization shall be considered registered under the law, and thus become a legal entity, following which the MoI must prepare documents to legalize the registration.

Domestic NGOs shall submit all Cambodian bank account information to the MOI and MEF within thirty (30) days from the date of registration. In the case of amendment of its statutes, the organization shall submit all required documents to the MOI within fifteen (15) days at the latest from the date the change is made.

2.2 Registration of Foreign NGOs

Instead of going directly to the Ministry of Interior, foreign NGOs need to register at the Ministry of Foreign Affairs and International Cooperation (“MFAIC”) to conduct any activity in Cambodia by signing a Memorandum of Understanding (“MOU”). Required documents include:

• A letter from the president of the foreign NGO requesting to appoint its representative with one attached copy of a brief biography of the person requested to be appointed, and one copy of the request to open a representative office;
• A letter confirming the address of the representative office in the Kingdom of Cambodia issued by the Commune or Sangkat Chief;
• A letter issued by a competent authority of the country of origin, authorizing the foreign NGO to operate;
• A supporting letter of the projects of the foreign NGO issued by the public authorities of the Kingdom of Cambodia;
• A letter certifying the budget for implementing the projects of the foreign NGO for at least six months, issued by its permanent office in the foreign country; and
• A pledging letter to provide all accounts of the foreign NGO in the banks in the Kingdom of Cambodia.

The MFAIC shall decide upon the application within forty-five (45) working days of receiving the documentation.

A foreign NGO shall submit its Cambodian bank details to the MFAIC and MOEF within thirty (30) days from the date on which registration is approved. In case of amendment of its statute, the organization shall submit all required documents to the MFAIC and MOEF within fifteen (15) days at the latest from the date the change is made.

III. Tax Obligations of Non-Profit Organizations

3.1. Registration for Tax Identification Number (“TIN”) with the General Department of Taxation (“GDT”)

According to “Prakas on Instruction in Tax Compliance of Associations and NGOs No. 464” issued by MoEF dated 12 April 2018, NGOs have an obligation to pay withholding tax, salary tax and other taxes (such as value added tax, prepayment tax, etc.) and duties based upon existing tax laws and regulations.

The TIN is a unique identifying number used for tax purposes assigned to taxable entities after registering with the tax administration.

Article 101 of Law on Taxation of 2003 provides that after 15 days from registering with the respective ministry, the taxable entity must register with the tax administration. Article 102 goes on to detail that upon registration, the tax administration issues the confirmation letter with a TIN. TIN should be used for documents related with the tax administration and financial matters. For every contract with a government institution, the taxable entity shall present its TIN on the contract.

The NGO is a legal entity named as a taxable entity. It is required that NGOs register with the tax administration fifteen (15) days after registering with the respective ministry (i.e., MOI or MFAIC).

According to Notification No.3033 “Registration of Separate Business Activities of Associations or NGOs” dated February 06, 2020 by MOEF, all activities of NGOs to seek income or funds shall be considered “separate business activities” and shall be registered with the tax administration as a taxpayer under the self-assessment regime within 15 days after conducting business activities according to the turnover level and the type of taxpayer as stated in Prakas 009 issued by MOEF, dated January 12, 2021.

3.2. Tax Exemption on Income Tax for NGOs

According to “Prakas on Instruction in Tax Compliance of Associations and NGOs No. 464” by MEF dated 12 April 2018. Income tax is exempted on income of:

• Any NGOs organized and functioning purely for religious, charity, scientific, or educational purposes, and no asset or income of which is used for the private interest;
• Any Associations, provided that no income of which is used for private interest of the shareholders or physical persons.

The exempt income includes legal funds or donations from individuals or entities, resources or assets of the NGOs, contribution of its members, and other sources of income, except the income from activities outside “pure objectives.”

All activities outside “pure objectives” shall be considered “separate business activities” and obliged to register with the tax administration and shall be subject to tax in accordance with applicable tax laws and regulations. The “separate business activities” shall be recorded in a separate accounting book.

3.3. Do Employees Working with NGOs Have to Pay Tax?

Another basis for confusion arises from Article 43 of the Law on Taxation, which provides that “diplomatic and foreign officials” are exempt from paying tax on salary. The law goes on to detail that this is limited to those here representing their governments in official capacities or employees in Cambodia on behalf of official international organizations recognized under the Vienna Convention, such as the United Nations or the Red Cross.

In 2001, the government considered the case for a salary exemption for NGO workers and issued “Notice No. 64 on Tax on Salary of NGO Employees.” The notice clarified the existing law and said that a salary tax exemption would be considered in relation to the following NGOs:

• Those who implement projects on behalf of a foreign government (subject to agreement between both governments);
• NGOs recognized by the United Nations;
• NGOs that are self-sufficient, comply with Cambodian law and implement development and humanitarian projects in Cambodia;
• NGOs that were granted a tax exemption in 1979;
• NGOs with a small scope/budget of less than USD$50,000 a year; and
• Employees who already pay salary tax in their own country.

Once these criteria are met, then the NGO in question must conclude a Memorandum of Understanding with the pertinent ministry.

NGOs must apply with required documents to the Ministry of Foreign Affairs and International Cooperation (MFAIC) or the Ministry of Economics and Finance (MEF), who decide whether to grant the exemption.

It is the obligation for non-exempted NGOs to withhold the amount of tax from salary of its employees and remit to the tax administration every month by latest of 15th day of the month.

3.4. Duty Free Imports

Some duty-free imports are permitted for NGOs upon separate application. For example, NGOs wishing to import duty free materials must submit all necessary documents based on the “Prakas No.2337/79” of the CDC dated August 11, 1997 to the Cambodian Rehabilitation and Development Board (CDC/CRDB) 10 days before the equipment and materials arrive. After approval of the application the NGO shall pay a nominal fee to the CDC/CRDB according to “Prakas No. 1919/01” issued by CDC dated February 21, 2001.

3.5. Other Tax Obligations of NGOs

NGOs shall file monthly and annual tax declarations for both “pure objectives” and “separate business activities” with tax authorities regardless of whether they have an exemption.

The Ministry of Economy and Finance issued Ministerial Order No. 563 dated 10 July 2020, which states that NGOs that have an obligation to submit independent audited financial statements no later than 15 July of the following year via the E-filing system if the NGOs meet two criteria: (1.) the expenses of the year exceed 2,000,000 KHR (est. USD $500,000); and (2.) the average number of employees equals 20 or more individuals.

If the NGO has no obligation to submit an independent audited financial statement, the Accounting and Auditing Regulator issued Instruction No.002 dated 27 January 2022, that states the NGO must submit its financial statement via the E-filing system no later than 15 April of the following year.

According to Prakas No.001 of the Accounting and Auditing Regulator dated 12 January 2022 on public service fees:

• 100,000 KHR (around USD $25) for NGOs that have an obligation to submit audited financial statement; and
• 60,000KHR (around USD $15) for NGOs that do not have any obligation to submit audited financial statement.

Penalties will apply for any failure to comply with the requirements according to Sub-Decree No. 79 ANKr.BK dated 1 June 2020 on provisional fines for violations of the Law on Accounting and Auditing. The penalties depend on the type of violation and the company’s status. Amount of penalty ranges from 1,500,000 KHR (around USD $375) for medium taxpayers and 2,000,000 KHR (around USD $500) for large taxpayers.

IV. Dissolution of NGOs

A domestic non-profit organization may suspend its activities by providing its activity and financial report, and subsequent written notice, to the MOI whereas a foreign NGO shall provide these reports and written notice to the MFAIC.

Having a misunderstanding that NGOs are completely tax-exempted entities can lead to the dilemma of having significant tax liabilities discovered by a government auditor required to settle all outstanding unpaid taxes including penalties and interest prior to dissolution.

V. Conclusion

NGOs do much to assist in the development of Cambodian society. To exist in Cambodia, they do have obligations to register and fulfill their tax obligations. The legal framework for these entities is becoming clearer yet ambiguities remain which are resolved through existing practice. Non-profit organizations can benefit from some tax exemptions and it is advisable to remain updated about how to benefit from these. However, getting an exemption can be a complex and drawn-out procedure. To avoid future issues, it is wise to assume nothing until a decision about tax exemption status has been given in writing by the MoEF.