MAJOR DEVELOPMENTS
The Cambodian tax system continues to be in a largely undeveloped state.
However, 1997 has seen the passage of the 1997 Finance Law, which includes significant changes to the taxation of business profits (effective April 1, 1997), new provisions on the taxation of remuneration (effective July 1, 1997), and the phased-in introduction of a value-added tax (commencing January 1, 1998). Cambodia expected entry into the ASEAN group should also lead to continuing reforms to import/export duty regulations.
The political position in Cambodia continues to undermine the implementation and administration of most commercial activities, including the tax environment. Up-to-date information is strongly advised when considering investments in Cambodia.
INCOME TAXES ON CORPORATIONS
1. Rates
Large Enterprises. Large enterprises are defined as enterprises having:
q Annual turnover from sales of over 100 million riel
(approximately US$40,000); or
q Annual turnover of over 50 million riel and having more than half their total operations in the service sector.Profit tax is levied on actual profits?of large enterprises as stated in the annual accounts submitted to the Department of Taxation.
Profit tax also is levied on actual profits if, irrespective of the level of annual turnover, an enterprise falls into one of the following categories:
q Enterprises that have the form of a society de personnes aux capitaux ayant une personnalite juridique;
q Import/export companies;
q Enterprises that, having competed in a competitive bidding process, have signed a contract with the state or with a public entity;
q Enterprises that come under the Investment Law of Cambodia;
q Enterprises that are liable to turnover tax at the rate of 10%.
Small Enterprises. Enterprises not meeting the above conditions are required to pay profit tax on estimated profits.?Estimated profits are calculated as a percentage of turnover according to rates specified in Ministerial Order No. 19 of February 28, 1994, tax on Profits of Small Enterprises.
Profit Tax Rates.
q Tax Rates for Legal Persons (Companies). Under a pronouncement from the Ministry of Economy and Finance dated May 1, 1994, profit tax was revised to a flat rate of 20% of all profits earned. A concessionary rate of 9% may be available to favored investors.
q Tax Rates for Individual Enterprises (Sole Proprietors and Partnerships). Under the 1997 Finance Law, tax rates are as follows:
Annual Earnings in Riel
Over Not Over Tax Rate
6,000,000 15,000,000 (approx. US$5,500) 5%
15,000,000 102,000,000 (US$37,000) 10
102,000,000 150,000,000 (US$55,000) 15
150,000,000 20
2. Local Income Taxes
None.
3. Capital Gains Taxes
See item 26.
4. Branch Profits Taxes
The 1997 Law introduces the concept of a permanent establishment (PE).
PEs are treated as resident taxpayers to the extent of their Cambodian-source income.
5. Foreign Tax Reliefs
The 1997 Law explicitly provides for the provision of tax credits on foreign-source income earned by Cambodian residents. A foreign tax credit appears to be available for the lesser of the actual tax paid or the amount payable on the income in Cambodia. Foreign tax credits also appear to be quarantined according to the country of source. Excess credits can be carried forward for five years.
6. Classification of Corporations
See selection of Business Entity by Nonresidents.
Payment of Taxes
Businesses liable to pay profit taxes on actual profits are required to submit to the tax authorities a statement of their business turnover month
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