SIGNIFICANT DEVELOPMENTS
In August 2000, the long-awaited Prakas on Tax on Profit was issued by the Ministry of Economy and Finance. Incorporated into the Prakas are articles dealing with:
· Permanent establishments
· Recognition of income and expenditure
· Depreciation
· Withholding tax
· Administrative procedures
Following the enactment of the Law on Banking in 1999, numerous supporting Prakas have been issued during the year.
The National Bank of Cambodia has completed relicensing procedures, resulting in the closure of numerous institutions.
Minimum Tax (which is imposed at 1% of turnover inclusive of all taxes regardless of tax position) has been abolished for “investment enterprises” effective from January 1, 2001.
The 2001 Financial Law indicates that Specific Tax rates will be amended.
However, the amended rates are yet to be issued.
Changes to the Investment Law are being considered by the government. The proposed changes include the elimination of the grandfathered 9% Tax on Profit, the reduction of the maximum tax holiday period from eight years to three years, and the elimination of customs duty exemptions.
A Product Liability Law and Insurance Law have been issued. Draft
laws on commercial enterprises, bankruptcy, and mining are still being discussed.
TAXES ON CORPORATE INCOME
Corporate tax/Corporate income is taxed according to a taxpayer’s “regime.”
Most activities associated with foreign investment will fall into the “real” regime. Unless otherwise noted, the following comments are restricted to real-regime taxpayers.
Cambodia’s tax on profit seeks to tax business profits and “designated passive income.” Business profits can include capital gains. Passive income includes interest, royalty, and rental income.
The standard rate of tax on profit for companies and permanent establishments is 20%. A preferential rate of 9% may be granted pursuant to investment incentives given by the Council for the Development of Cambodia.
Oil and gas and certain mineral exploitation activities are subject to tax at the rate of 30%. Insurance activities are taxable at the rate of 5% of the gross premium income.
Advance tax on dividends/The dividend-paying company is required to make an advance payment of tax on profit at the time of dividend distribution. This advance payment is levied at the prevailing rate applicable to the dividend-paying company and on the gross dividend value. It is creditable
(except for insurance companies) to the dividend-paying company (not the shareholder) against future liability to the tax on profit. A 20% shareholder is entitled to establish a special “dividend account,” from which the relevant dividend may be distributed without further obligation. Dividends on which the advance tax on profit has been paid are exempt from tax on
profit in the hands of the shareholder.
CORPORATE RESIDENCE
A company is resident in Cambodia if it is “organized and managed” or has its “principal place of business” in Cambodia. There is an internationally recognizable permanent establishment (PE) definition. The Prakas on Tax on Profit provides an extensive elaboration of the criteria for determination of a PE.
OTHER TAXES
In addition to the tax on profit, the following taxes may affect certain investors.
Minimum tax/Real-regime taxpayers are subject to a separate minimum tax, unless the taxpayer has been granted the status of an “investment enterprise.” The minimum tax is an annual tax with a liability equal to 1% of the turnover of the taxpayer for the year in question. The tax is due irrespective of the taxpayer’s profit or loss position.
Value-added tax/VAT is applicable to real-regime entities and is charged at 10% on the price of the supply of most goods and services. Most exports of goods and most services rendered outside Cambodia are zero rated. Some supplies are exempt, the main categories being public postal service, medical and dental services, transportation of passengers by wholly state-owned public transportation systems, insurance services, and primary
financial services. Exporters and certain in
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