There has been controversy regarding the VAT position on the disposal of fixed assets (FA) under the existing tax provisions. The GDT used to agree that FA disposal was not subject to 10% VAT if the VAT input (credit) during the purchase of the FA has not been claimed. This position was later changed so that the FA disposal is subject to 10% VAT regardless of whether the 10% VAT input was claimed. However, it is understood that the FA disposal transaction is still subject to further clarification.
Therefore, the GDT has issued Instruction no. 12093 to provide details on VAT implementation on Unused Tangible FA which is the supplement to Instruction no. 15301 dated 22 June 2020 on VAT Implementation on Sale of FA.
The term “Unused Tangible FA” refers to any tangible FA that an Enterprise keeps and does not use in the business to increase productivity which has more than a 1-year period. For your ease of reference and understanding, we have constructed the details of the Instruction no. 12093 in the below table together with our comments:
|No.||Unused FA||Details||VAT Implication||Comments|
|1||Sale||Under any form||Subject to 10% VAT followed law on taxation||If the selling price is less than NBV, will the GDT consider reassessing the new selling price? Technically, this concern should be an issue for a related party transaction but in practice, it may also be the case for a non-related party, which is incorrect.|
If it is within a related party transaction, we would suggest following the arms-length principle. However, it may be difficult to obtain an arms-length rate for some transactions and costly to obtain an official arms-length rate. It is understood that the selling price at NBV per accounting may be acceptable by the GDT.
|2||Written off||NBV per accounting less than KHR200,000 (~USD49) for each fixed asset||Not subject to 10% VAT||–|
|NBV more than KHR200,000 (~USD49) for each fixed asset||Not subject to 10% VAT with the condition to notify to the GDT 10 days before writing off.||As noted in the Instruction, the GDT will assign the tax official to check the FA written off within 10 days after receiving the notification letter. If no response from the GDT within this timeframe, is it considered as “checked” and meet this requirement? It should be YES we would think. However, to avoid risk of disagreement by the GDT, we would suggest to obtain confirmation from the GDT.|
|3||Donation||Fixed asset class 2 with NBV per accounting less than KHR1,000,000 (~USD247) and used more than 3 years||Not subject to 10% VAT||–|
|Fixed asset classes 3 and 4 with NBV per accounting less than KHR2,000,000 (~USD494) and used more than 5 years for each fixed asset|
|4||FA Class 1||Just completed and yet put in use||Not subject to 10% VAT||The FA class 1 (concrete/non-concrete building) is no longer used, it is required to notify to the GDT. Otherwise, it is considered a sale which is subject to 10% VAT.|
We would think that it should be a rare case in practice for such a transaction. It is due to the fact that the amount involved is significant so proper planning should have been considered. In addition, if it is no longer used, it should be disposed of or written off which will be followed procedures in points no. 1 or 2 above.
However, if there is such a case, we would suggest you ensure that it is notified to the GDT as the tax amount involved should be significant we would think.
|Used for one year||Not subject to 10% VAT with the condition to notify the GDT|
Should you require further clarification or wish to discuss the above matters in more detail, please do not hesitate to contact us.
Mr. Seng Pov, Head of tax
M: +855 (0) 12 53 34 32
T: +855 (0) 23 21 59 60