1. INTRODUCTION
On 16 May 2023 the Royal Kram promulgated the New Law on Taxation No. NS/RKM/0523/004. The New Law on Taxation is not a complete overhaul of the previous law, however it is designed with the purpose of improving, facilitating, filling gaps and improving the consistency of the previous law by compiling a set of laws related to tax, international tax and tax practices.
The old Law on Taxation, promulgated by Royal Kram No. NS/RK/0297/03, dated 24 February 1997, had 6 Chapters and 155 Articles only, whilst the New Law on Taxation includes 20 Chapters and 255 Articles.
We note some of the key features of the New Law on Taxation below:
2. NEW CHAPTERS
Whilst some of the new chapters were previously contained in the Law on Taxation, the chapters have been separated to provide clarity and consistency for the ease of understanding for taxpayers of their obligations. The new chapters include provisions for the following:
| Chapter 1: Provisions for the tax on profit | Chapter 1: General provisions |
|---|---|
| Chapter 1: Provisions for the tax on profit | Chapter 1: General provisions |
| Chapter 2: Provisions for the tax on salary | Chapter 2: Income tax |
| Chapter 3: Provisions for the tax on value added | Chapter 3: Salary tax |
| Chapter 4: Value added tax | |
| Chapter 4: Amendments to the finance act of 1994 and to the amendments to the finance act of 1995 | Chapter 5: Specific tax |
| Chapter 6: Public lighting tax | |
| Chapter 7: Accommodation tax | |
| Chapter 5: Provisions on tax rules and procedures | Chapter 8: Patent tax |
| Chapter 9: Advertisement tax | |
| Chapter 6: Closing provisions | Chapter 10: Petroleum and mineral resource operation tax |
| Chapter 11: Immovable property rental tax | |
| Chapter 12: Immovable property tax | |
| Chapter 13: Transfer Tax | |
| Chapter 14: Capital gains tax | |
| Chapter 15: Unused land tax | |
| Chapter 16: Means of transportation tax | |
| Chapter 17: Tax rules and procedures | |
| Chapter 18: Penalties | |
| Chapter 19: Transitory provisions | |
| Chapter 20: Closing provisions |
According to Sub-Decree 286 dated September 20, 2023 set out the Public Lighting Tax at a rate of five (5) percent for alcohol and tobacco products in Cambodia. The rule and procedure of collection shall be determined by Prakas by Ministry of Economic and Finance.
3. UPDATED DEFINITIONS
- Permanent Establishment (“PE”): A person has and regularly exercises the rights to sign on behalf of non-residents or performs the main duties in facilitating the process toward the signing of any contracts may considered as a PE in Cambodia.
- Related Party: Any enterprises which directly or indirectly controls or is controlled by, is considered as having common control with the taxpayer.The term “Control” means ownership equal to or more than 20% of the value or voting right of the equity interests in the enterprise.
- Cambodia Sourced Income: Gains from movable or immovable properties sold, including intangible assets located in Cambodia; or
Gains from the transfer of any interest in movable or immovable properties including intangible assets situated in Cambodia. - Taxable Person: A non-resident person who supplies digital goods or services to the Cambodia shall be considered as taxable person (E-commerce).
- Taxable Supply: The supplies of digital goods or services in the Cambodia as stated in Art. 58 of New Law on Taxation (E-commerce).
- Public Lighting Tax: Based on the New Law on Taxation, the Public Lighting Tax shall be paid at the first (1st) time of supply only. However, the GDT will issue additional instructions to further clarify this.
- Stamp Duty: According to Art. 157(8), the term ‘property companies’ refers to all companies that occupy properties directly or indirectly with a direct or indirect property value of more than 50% of the total asset value of the company. However, Art. 158(1) states that the stamp duty relative to transfer the ownership or the right to occupy properties as constructions /land, placement of shares as properties, transfer shares, or similar interests of property companies is 4% of the total property value share/transfer.
4. DELIVERY OF INFORMATION TO THE TAXPAYER
A written letter/notification letter/electronic notification (includes faxes, emails, etc.) that the tax administration provides to the taxpayer shall impose an obligation on the taxpayer to the tax administration only when that letter/notification is made in written form and is delivered to the taxpayer.
The letter/notification shall be considered properly delivered if sent to the last address registered (includes email, address, faxes, etc.) with the tax administration.
5. SHARE TRANSFER, BUSINESS TRANSFER AND MERGER OF ENTERPRISES
Should there occur a business transfer or a transfer of shares, the new owner shall be responsible for all tax debts of the businesses/enterprises.
Should there occur a merger of two or more enterprises, the enterprise that continues or arises from the merger of two or more enterprises shall be responsible for all tax debts.
6. INCREASED PENALTIES
The New Law on Taxation increased the penalties and imprisonment term per table below:
| Type of Obstruction | Penalty-KHR | |
|---|---|---|
| 1 | Failure to register with the tax administration in accordance with this law and other legal instrument in force; | 5,000,000 KHR ~ US$ 1,250 |
| 2 | Failure to inform the tax administration of any change in the information of the registration; | |
| 3 | Failure to file a tax return. | |
| 4 | Failure to use the recording system as determined by the tax administration; | 10,000,000 KHR
~ US$ 2,500 |
| 5 | Failure to issue an invoice; | |
| 6 | Failure to provide information or submit reports as per the request; | |
| 7 | Not permitting the tax administration to check accounting records or any documents; | |
| 8 | Failure to keep accounting records and other documents. | |
| 9 | Attempt to obstruct the tax assessment and collection; | Sentence in prison from 1 month to 1 year; and Fine 50,000,000 KHR (~US$ 12,500) to 100,000,000 KHR (~US$ 25,000) |
| 10 | Producing or providing fake records, documents, reports, or information; | |
| 11 | Concealment or intentional destruction of accounting records, records, documents, reports, or any information; | |
| 12 | Issuance of fake invoices; | |
| 13 | Not permitting the tax administration to enter their business premises to assess and collect taxes. | |
Four (4) new crimes have been introduced in the New Law on Taxation:
| Type of Crime | Penalty Amount – KHR | |
|---|---|---|
| 1 | Practicing as a tax agent without a license | Sentence in prison from 1 month to 1 year; and Fine 10,000,000 KHR (~US$ 2,500) to 20,000,000 KHR (~US$ 5,000) |
| 2 | Failing to pay collected taxes | Sentence in prison from 1 year to 3 years; and Fine 50,000,000 KHR (~US$ 12,500) to 100,000,000 KHR (~US$ 25,000) |
| 3 | Collecting taxes without permission | Sentence in prison from 1 year to 3 years; and Fine 50,000,000 KHR (~US$ 12,500) to 100,000,000 KHR (~US$ 25,000) |
| 4 | Criminal liability for legal entities | Sentence in prison from 1 month to 5 years; and Fine 10,000,000 KHR (~US$ 2,500) to 200,000,000 KHR (~US$ 50,000) |
7. GENERAL ANTI-AVOIDANCE RULE (“GAAR”)
The GAAR provides the GDT with the power to act against schemes that are designed for tax avoidance.
The additional powers of the tax administration, compared with the old LoT, provide the tax administration with the power to reject and/or redetermine the real substance of any transactions if they have found that the taxpayer has organized or carried out any transactions that show false or unrealistic intent in order to reduce or eliminate the tax payable which is contrary to the spirit of the tax provisions.
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations. For more details or any question related to the Update on the Law on Taxation, please contact our professionals via [email protected].
TABLE OF CONTENTS
| 1. | Introduction |
| 2. | New Chapters |
| 3. | Updated Definitions |
| 4. | Delivery of Information |
| 5. | Share Transfer, Business Transfer & Mergers |
| 6. | Increased Penalties |
| 7. | General Anti-Avoidance Rule |
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