Withholding tax is an essential part of Cambodia’s tax system, designed to ensure that taxes on certain types of income are collected at the source. It applies to payments made by resident taxpayers to both Cambodian residents and non-residents. Understanding who must withhold tax, which payments are subject to withholding, and the applicable rates is crucial for staying compliant with local tax regulations.
This article provides a comprehensive overview of withholding tax in Cambodia, including definitions of resident taxpayers, the types of payments affected, exemptions, applicable rates and procedures for claiming tax treaty benefits.
Key takeaways
- Withholding tax is mandatory for resident taxpayers making certain payments, such as interest, royalties, rent and service fees, to both Cambodian residents and non-residents.
- Exemptions are available for low-value transactions and payments between registered taxpayers under specific conditions outlined by Prakas No. 578 MEF.Prk.GDT (2024).
- Withholding tax rates vary by transaction type and residency status, with a standard 14% rate on payments to non-residents, subject to reduction under double tax agreements.
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.
Who 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
Withholding tax exemption
Under Prakas No. 578 MEF.Prk.GDT (2024), the following payments are exempted:
· Payments for any service supplies less than KHR 50,000 (USD 12.50)
· Payments among registered taxpayers for supplies such as shrink-wrap software, site license, downloadable software, and software bundled with computer hardware
· Payments among registered taxpayers for rental of movable or immovable property supported by proper tax invoices
Note: Exemptions and thresholds may be updated periodically. Always consult the latest GDT guidance.
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 performing services, such as management, consulting and other similar services | 15% |
| Royalties for intangible assets and interest in minerals, oil or natural gas | 15% |
| Interest paid by a resident business (other than domestic banks or saving institutions) to another resident taxpayer | 15% |
| Income from the rent of movable and immovable property | 10% |
| Interest paid by a domestic bank or savings institution to a resident taxpayer on a fixed-term deposit account | 6% |
| Interest paid by a domestic bank or savings institution to a resident taxpayer on a non-fixed term savings account | 4% |
Withholding tax on payments to non-residents
Any resident taxpayer, including a permanent establishment of a non-resident, must withhold 14% tax on any Cambodian-sourced income paid to a non-resident.
What is Cambodian-sourced income?
Cambodian sourced income on which withholding tax is deductible to non-residents include:
- Dividends distributed by a resident company
- 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 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
- Income from movable or immovable property if the property is located in Cambodia
- Income from services conducted in Cambodia
- Interest paid by a resident company, resident pass-through or a governmental institution of Cambodia
- Management or technical services
- Premiums from the insurance or reinsurance of risks 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
Withholding tax on the transfer of shares
The transfer of shares or distribution of dividends (i.e. 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.
Tax rates under the tax treaty
As of 2024, Cambodia has ratified Double Taxation Agreements (DTAs) with 11 countries. These include:
- Singapore
- Thailand
- China (Mainland)
- China’s Hong Kong SAR
- Brunei
- Vietnam
- Indonesia
- Malaysia
- South Korea
- Turkey
- China’s Macau SAR
Furthermore, the Cambodian government is in ongoing negotiations to establish similar tax treaties with several other countries, including France, Japan, the United Arab Emirates and Morocco.
The key benefit of a DTA for a foreign investor is often the reduction of withholding tax rates. Under the terms of its DTAs, Cambodia typically agrees to lower the withholding tax rate on payments of dividends, interest and royalties to residents of the partner country.
While the standard withholding tax rate is 14%, under most of Cambodia’s DTAs, this rate is reduced to 10% for payments of dividends, interest, royalties and technical or management service fees. This reduction can result in significant tax savings for foreign businesses and investors.
How to apply for a tax reduction under tax treaties?
Resident taxpayers in Cambodia seeking tax relief under a DTA must obtain pre-approval from the Department of Legal Affairs, Taxation Policy and International Tax Cooperation of the General Department of Taxation (GDT).
The required documents are:
For individuals:
- Passport
- Certificate of residence issued by the tax authority of the contracting state
- Contract or supporting document related to the income payment
- Authorisation letter
For legal entities:
- Certificate of residence issued by the tax authority of the contracting state
- Certificate of incorporation
- Company statute
- Contract or supporting document related to the income payment
- Authorisation letter
Withholding tax returns
The withholding tax return must be filed and paid by the 20th of the following month the payment subject to withholding tax was made.
Conclusion
Withholding tax in Cambodia is a mechanism that ensures tax is collected at the source on specific types of payments made by resident taxpayers to both residents and non-residents. The system applies to payments such as interest, royalties, rent and service fees, with rates varying depending on the nature of the transaction and the recipient’s residency status. Certain exemptions apply, particularly for low-value transactions and those between registered taxpayers. Payments to non-residents are generally subject to a 14% withholding tax rate, although this may be reduced under Cambodia’s double tax agreements (DTAs), provided pre-approval is obtained.
Managing these obligations can be complex, particularly when dealing with cross-border transactions or applying for treaty benefits. It is recommended to engage with a professional service provider to manage tax responsibilities and ensure compliance with latest regulations.
How Acclime can help with withholding tax payments
Acclime can help businesses in Cambodia navigate withholding tax obligations with confidence. From identifying which payments are subject to withholding tax to calculating the correct rates, preparing returns and ensuring timely submission, Acclime provides end-to-end support. For companies dealing with cross-border transactions, Acclime can also assist in applying for tax treaty relief to reduce withholding tax exposure.
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Acclime helps businesses, from funded startups to multinational corporations, start and operate in Cambodia and beyond, navigating local regulatory complexities to maximise opportunities while ensuring compliance. As a trusted partner, we provide premier advisory and corporate services across Cambodia and the Asia-Pacific region.
