The General Department of Taxation (GDT) has recently issued Instruction No. 19116.GDT dated 20 June 2025 to address ambiguities in the existing tax law concerning the tax treatment of Board of Directors (BOD) members. Previously, the law was silent on the tax obligations of BOD members who did not receive payments from Cambodia for their directorial duties.

Addressing inconsistent tax audit practices

Historically, tax auditors frequently made adjustments related to BOD members, particularly when no payments were recorded for directors, or when payments were deemed below market rates. For instance, in cases where a company had three BOD members but no recorded payments or expenses for them, tax auditors might have imputed a salary (e.g., US$3,000 per month) to each director and imposed Tax on Salary (TOS) along with penalties for non-payment.

However, this practice has been inconsistently applied. Different tax auditors have varied in their approaches, with some deeming “director fees” or “consultant fees” subject to 14% withholding tax (WHT) (or 15% for resident persons), plus penalties. This new instruction aims to standardise these interpretations.

Key clarifications from GDT Instruction No. 19116

The GDT Instruction No. 19116 brings crucial clarifications to the tax treatment of directors. Here’s a summary of the key points:

1. Directors as employees of the Cambodian entity

If directors are considered employees of a Cambodian entity and are resident persons (e.g., residing in Cambodia for more than 182 days in the current tax year), their salaries from both Cambodian and foreign sources are subject to TOS in Cambodia. This aligns with existing tax provisions.

Commentary on foreign-sourced income and tax credits: Resident persons receiving foreign-sourced salaries who have paid tax in their home country can claim a tax credit in Cambodia to offset their Cambodian TOS liability. The tax credit, however, cannot exceed the tax paid overseas. This widely recognised tax credit rule helps avoid double taxation on salary income, suggesting that expatriate employees in Cambodia can leverage this allowance either in Cambodia or their home country, if their income is also taxable there.

2. Directors providing consulting services (non-employees)

For directors who are not employees of the Cambodian entity but provide consulting services, the following applies:

• Non-resident persons: Any payment for consulting services is subject to 14% WHT.
• Resident persons: Any payment for consulting services is subject to 15% WHT.

Crucially, if no payment is made for such services, the GDT will implement transfer pricing procedures to allocate revenue and expenses between related parties. These deemed service fees will then be subject to 14% WHT for non-residents and 15% WHT for residents, respectively.

3. Criteria for TOS exemption for BOD members

BOD members who meet the following criteria are explicitly exempt from TOS:

• Directors are registered in the Company’s Memorandum and Articles of Association or Patent Certificate, but do not manage the daily activities of the company.
• The Directors occasionally attend BOD and shareholder meetings only.
• The Directors receive no salary from the Cambodian entity.

Implications for withholding tax exemption

While the GDT Instruction does not explicitly address WHT exemptions, it is our view that in the circumstances outlined for TOS exemption, there would also be an exemption from WHT.

This stance is based on the fact that the GDT’s implementation of revenue and expense allocations (transfer pricing) for directors’ services only applies when consulting services are rendered, but no payment is received. Therefore, there are strong grounds to argue that if directors merely have their names registered in legal documents (such as a Patent Certificate) and do not provide actual consulting services, there should be no requirement to allocate expenses or impose WHT related to their position as a director.

If you require further clarification or wish to discuss these matters in more detail, please do not hesitate to contact us.