Withholding tax in Cambodia.

Withholding tax in Cambodia

This guide provides a brief overview of withholding tax in Cambodia.

It is important that you know your withholding tax obligations as a taxpayer in Cambodia and withhold tax on the right payments and rates.

Let’s find out more key topics on withholding tax.

What is withholding tax?

Withholding tax is the tax withheld by a resident taxpayer on certain payments made to Cambodian resident taxpayers and to non-residents of Cambodia. All companies are required to collect withholding tax.

What is a resident taxpayer in Cambodia?

Individual resident taxpayers are persons who are Cambodian nationals or have stayed in Cambodia for more than 182 days in a calendar year.

A company considered as a resident taxpayer is a company that is established or controlled in Cambodia or have a place of business in Cambodia. Permanent establishments are only deemed as resident legal entities for Cambodian source income.

Resident taxpayers are required to withhold tax from payments of Cambodian sourced income to a resident company.

The payments include:

  • Certain payments of interest
  • Royalties
  • Rental
  • Payments for services

What is considered as Cambodian-source income?

According to article 33 of the Law on Taxation, Cambodian-source income includes the following:

  • Interest paid by a resident company or resident pass-through, or a governmental institution of Cambodia
  • Dividends distributed by a resident enterprise of Cambodia
  • Income from services conducted in Cambodia
  • Income from the rental of movable or immovable property for the use in Cambodia
  • Royalties from the use, or right to use intangible property in Cambodia
  • Gains from the sale of immovable property located in Cambodia or from the transfer of any interest in immovable property situated in Cambodia
  • Gains from the sale of movable property, other than inventory, where the seller is a resident of Cambodia
  • Premiums from the insurance or reinsurance of risks in Cambodia

Withholding tax exemption

The Ministry of Finance issued a new Prakas No.098 addressing withholding tax exemptions. However, this Prakas only applies to self-declared taxpayers, except for small taxpayers.

The following types of payment are exempted from withholding tax:

  • Payment in cash of any service supplies less than KHR 50,000 (USD 12.50)
  • Payment among registered taxpayers on the income from supplies such as shrink-wrap software, site license, downloadable software and software bundled with computer hardware (though the government has established a working group to review whether this exemption should remain)
  • Payment among registered taxpayers of the income from the rental of movable or immovable property supported by proper tax invoices

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Withholding tax rates of residents in Cambodia

The withholding tax rates on payments to residents are as follows:

Payment Rate
Income received by a physical person, from services including management, consulting and other similar services15%
Payment of royalties for intangible assets and interest in minerals, oil or natural gas15%
Interest paid to a physical person or a company, except for interest paid to a Cambodian bank or savings institution15%
Income from the rent of movable and immovable property10%
Interest paid on a fixed deposit made by a Cambodian bank or savings institution to a resident taxpayer6%
Interest paid on a savings account made by a Cambodian bank or savings institution to a resident taxpayer4%

Withholding tax on the transfer of shares

The transfer of shares or distribution of dividends (ie capital reduction or liquidation) to a non-resident shareholder is subject to a withholding tax rate of 14% to the extent of any retained earnings in the company whose shares are being transferred.

Withholding tax on payments to non-residents

A resident payer who makes a payment of certain Cambodian source income to a non-resident person must withhold tax at a rate of 14%. This withholding tax does not apply to property or risk reinsurance premiums in Cambodia.

Cambodian sourced income on which withholding tax is deductible to non-residents include:

  • Interest paid by a resident company, resident pass-through or a governmental institution of Cambodia
  • Income from movable or immovable property if the property is located in Cambodia
  • Management or technical services
  • Dividends distributed by a resident company
  • Income from services conducted in Cambodia
  • Royalties from the use, or right to use, intangible property paid by a resident person or paid by a non-resident person through a permanent resident in Cambodia
  • Gains from the sale of immovable property located in Cambodia or from the transfer of any interest in immovable property situated in Cambodia
  • Premiums from the insurance or reinsurance of risks in Cambodia
  • Gains from the sale of movable property that is part of a permanent establishment’s business property maintained by a non-resident taxpayer in Cambodia
  • Income from business activities conducted by a non-resident through a permanent establishment in Cambodia

Tax rates under the tax treaty

The 14% rate applies to dividends, interest, royalties and technical services paid to a non-resident. Cambodia’s tax treaties provide a reduction of this rate to 10%.

How to apply for a tax reduction under tax treaties?

The taxpayer must submit an application and the required documents to the General Department of Taxation for approval before the resident payer withholds tax. Documents include a Certificate of Residence of the recipient of the payment to prove the tax residency of the recipient

Obligations of withholding agents in Cambodia

The withholding tax agent in Cambodia must submit a tax declaration and pay the withheld tax to the tax administration by the 20th of each month in which the withholding is made.

Temporary withholding tax reductions on interest

In response to the Covid-19 pandemic, the government issued Prakas no. 525 MEF.Prk dated 19 June 2020 to reduce withholding tax rates for both domestic and foreign interest payments:

  1. For existing loans, withholding tax on interest payments is reduced to 10% from April to December 2020
  2. For new loans, withholding tax on interest payments will be 5% to 31 December 2020 and 10% to 31 December 2021. The rates will then revert to normal.

Conclusion

Withholding tax in Cambodia is another important tax that you should know about when doing business in Cambodia.

If you need help with the tax obligations, we suggest engaging with Acclime. We have a professional tax team that will help you comply with any tax requirements obligations.

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