MOCK EXAM PAPER QUESTIONS

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questions are compulsory and MUST be attempted.

1 MOCK EXAM PAPER QUESTIONS Time allowed Reading and planning: 15 minutes Writing: 3 hours All FIVE questions are compulsory and MUST be attempted. Tax rates and rebates are listed on page 2. CAMBODIAN TAXATION Page 1 of 11

2 SUPPLEMENTARY INSTRUCTIONS 1. Calculations and answers need only be made to the nearest USD or Riel. 2. All apportionments should be made to the nearest month. 3. All workings should be shown. 4. All computations should indicate by the use of 0 any item of income or expense that is tax exempt, not taxable or does not require adjustment, as appropriate, so that marks can be given accordingly. TAX RATES AND REBATES The following tax rates and rebates are to be used in answering the questions. Value Added Tax (VAT) Standard rate: 10% Export: 0% Exempt supplies: Nil (Input taxed supplies) Tax on Profit (ToP) Standard rate: 20% Tax holiday: 0% Withholding Tax (WHT) Interest income from fixed term deposit with a local bank: 6% Interest income from non-fixed term saving deposit with a local bank: 4% Tax on Salary (ToS) Rebate for dependent children and non-working spouse: Riel 75,000 per person per month. ToS rates for residents Monthly taxable salary (Riel) for amounts from: Cumulative tax at top of band Rate 0 500, % 500,001 1,250,000 37,500 5% 1,250,001 8,500, ,500 10% 8,500,001 12,500,000 1,362,500 15% 12,500,001 and up 20% ToS rate for non-residents Flat rate: 20% Tax on Fringe Benefits (ToFB) Flat rate: 20% Page 2 of 11

3 ALL FIVE questions are compulsory and MUST be attempted Question 1 Angkor Luxury Hotel (ALH) is a five-star hotel located in Siem Reap province of the Kingdom of Cambodia. It is 100% owned by an international hotel based in Singapore known as the Grand Luxury Hotel (GLH). ALH registered with the Council for the Development of Cambodia (CDC), the Ministry of Commerce (MoC), the General Department of Taxation (GDT) and other relevant Ministries in ALH has been granted incentives as a Qualified Investment Project (QIP) by the CDC since its incorporation and is entitled to a five-year tax holiday. ALH has been in a profitable tax position since its first year, with the exception of 2009 when the global economic crisis affected ALH s operations, whereby the tax loss was utilised in ALH s fiscal year is from 1 January to 31 December. For the year ended 31 December 2011, ALH had total revenue of USD 1,270,000 from all revenue streams excluding VAT and a net profit after income tax of USD 260,000, after taking into account the following: i. On 1 January 2011, ALH had disposed of the staff canteen at the back of the hotel with an accounting net book value of USD 5,740. ALH received proceeds of USD 1,500 from the disposal of certain assets attached to that building. The staff canteen was registered as a fixed asset under ALH s books and used from 1 October 2007 with a historical cost of USD 32,350 and tax depreciation has been calculated since then. Additional information below is also available in respect of the asset additions during the year ended 31 December In July 2011, ALH purchased two new vans costing USD 12,000 each. A month later, a number of desktop computers, and new office chairs and tables amounting to USD 1,600 and USD 2,500 respectively were also purchased in response to the increase in the number of employees. ii. iii. ALH has deposited its funds into a fixed term deposit account in a local bank, generating interest income at the rate of 4% per annum. The bank pays the gross interest income of USD 15,200 semi-annually. As required by the Cambodian tax regulations, the bank has withheld a certain amount of Withholding Tax (WHT) from the above amount before making the payments to ALH. For accounting purposes, ALH has debited the cash at bank and the WHT credit withheld by the bank, and credited the gross amount of interest income respectively. [Note: ignore Article 27 (WHT is a final tax) for the purposes of this question]. ALH received cash dividend income of USD 36,000 from an associate in Laos in which it has invested. The dividend income is exempt from tax in Laos. ALH has not yet recorded this income in its accounting books. In September 2011, ALH Page 3 of 11

4 paid out an interim dividend of USD 21,000 from its current year s profit to its shareholders and paid Additional Tax on Profit on Dividend Distribution (ATDD). iv. Personnel expenses: - The total salary costs for all staff incurred during the year ended 31 December 2011 was USD 297,500. This amount also includes the thirteenth month bonus expenses of USD 35,000 which were accrued as at 31 December According to ALH s policy, 60% of the above bonus will be paid out by the end of February 2012 and the rest will be paid out in April Three employees were made redundant at the end of Consequently, the termination benefit calculated in accordance with the Cambodian Labour Law of USD 2,330 was also accrued as at 31 December 2011 and is expected to be paid to them in January v. ALH has been funded by both equity and debt instruments. There was an intercompany shareholder loan of USD 2,000,000 borrowed on 1 January This loan was still outstanding as at 31 December GLH charges interest at 0.5% per month which is due for payment in August of the year following that in which the interest expense is incurred. For the year ended 31 December 2011, ALH has accrued the interest expense including WHT liability. In addition, ALH also incurred interest expenses payable to a resident bank of USD 2,000 which ALH will pay in September ALH can withhold the WHT from the gross interest amount. vi. ALH made donations of USD 2,500 in the 2011 financial year, of which USD 1,500 was paid to the Bayon Foundation to help victims in the Preah Vihear area and the rest was paid directly to army families. Acknowledgement certificates/letters have been provided to ALH. vii. As at 31 December 2010, there was provision for doubtful debt of USD 67,390. This amount had been reduced by USD 11,390 as at 31 December viii. ix. Foreign exchange gain, which comprised: - Realised exchange gain from payment of taxes of USD2,230 - Realised exchange loss of USD 1,550 from purchasing new inventory in foreign currency - Unrealised exchange gain of USD 680 due to foreign currency translation at the closing date ALH s accountant has calculated accounting depreciation of USD 145,360 for the 2011 financial year. Fixed assets subject to tax depreciation are categorised by class as follows: - Class 1: Historical costs brought forward from 2010 of USD 1,375,600 - Class 2: Un-depreciated value brought forward from 2010 of USD 96,300 Page 4 of 11

5 - Class 3: Un-depreciated value brought forward from 2010 of USD 84,960 - Class 4: Un-depreciated value brought forward from 2010 of USD 102,380 x. ALH s accountant has estimated the ToP liability for the year ended 31 December 2011 and debited it to the Income tax expense account accordingly. In late 2011, ALH received a Notice of Tax Reassessment (NoTR) for the year 2010 from the GDT in which ALH was reassessed in relation to the underpayment of WHT on car rental. The total amount of the underpaid WHT plus penalty and interest is USD 5,300. This expense was also recorded under the Income tax expense account. The total amount of the Income tax expense account debited to the Income Statement was USD 70,300. No Prepayment of ToP was paid during the year Required: (a) Compute the ToP liability or ToP credit carried forward, including the calculation of the tax depreciation and all other workings, in USD of Angkor Luxury Hotel for the fiscal year ended 31 December (20 points) (b) Explain the possible reasons for ALH not paying Prepayment of ToP in the year 2011 and explain the Cambodian tax implications applicable to ALH in respect of Minimum Tax and Prepayment of ToP. (3 points) (c) Explain the order (priority) of dividend distributions from ALH s profits as at 31 December (3 points) (b) Explain FOUR kinds of different incentives available for a company that has obtained QIP status such as ALH. (4 points) Page 5 of 11

6 Question 2 Violet Production Company Limited (VPC) is a Cambodian company registered with the Ministry of Commerce, having obtained a Tax Identification Number from the General Department of Taxation (GDT) in VPC specialises in the manufacturing of electronic parts for motor vehicles. VPC has employed an expatriate member of staff, Mr. Kuma Jaha, an Indian national as a permanent employee in the role of Information Technology Manager (IT Manager) since Due to recent technological advances, VPC has engaged another expatriate from Australia, Mr. John Smith, to provide consultation. Below is the information available regarding these two expatriate. Kuma Jaha i. Kuma receives a gross salary of USD 30,000 per annum, paid by VPC on a monthly basis on the last day of each month. ii. iii. iv. A Khmer New Year bonus of USD 675 was paid on 27 March to each employee including Kuma. On top of that, overtime compensation of USD 1,200 for the additional work performed in March 2012 was also paid to Kuma on 1 April According to the company s policy, every member of staff (including Kuma) regardless of their grade is entitled to a maximum medical claim of USD 300 each per year subject to the presentation of the actual invoices. On 29 March 2012, Kuma claimed medical reimbursement of USD 250 from VPC and the payment was made on the same day. VPC provides accommodation benefits to Kuma including covering the utilities expenses each month. VPC pays the gross monthly apartment rental fee of USD 700 to Kuma on the same day as the salary payment. The utilities expense is due ten days after the liability arises. VPC paid Kuma USD 215 and USD 230 for utilities in March and April 2012, respectively. v. In March 2012, VPC sold a laptop computer to Kuma at the price of USD 270 (after a 60% discount) exclusive of VAT. VPC paid VAT on the full market price. vi. vii. Kuma has two children who attend a private school in Phnom Penh Capital City. VPC pays 50% of the school fees each month to Kuma on the salary payment date. The total cost for both of them is USD 500 per month. From a Cambodian tax perspective, they are regarded as dependent minors. Kuma has a wife working as an accountant in another Company. Page 6 of 11

7 John Smith VPC signed a five-month contract with John who works as an independent service provider, providing consultation in respect of technological updates. According to the contract, John started his work at VPC on 1 March VPC will pay John the gross remuneration of USD 2,300 at the end of each month via his bank account in Cambodia. John has never been to Cambodia before. ASSUMPTION Under the tax regulations, the term Tax on Salary refers to both Tax on Salary and Tax on Fringe Benefits. For the purposes of this exam, the use of the term Tax on Salary refers to Tax on Salary alone. Tax on Fringe Benefits should be written as Tax on Fringe Benefits. Required: (a) Provide a brief definition of Withholding Tax (WHT), ToS and ToFB, their applicable rates and the due dates for remittance to the tax authorities under the Cambodian tax regulations. (6 points) (b) Compute the total remuneration that is subject to ToS and ToFB for Kuma for March 2012 in USD. Explain why each type of remunerations is taxable or not taxable. (9 points) (c) Assuming the exchange rate is USD 1 = Riel 4,000, calculate the ToS and ToFB liabilities of Kuma for March (2 points) (d) For the purpose of the ToS calculation, briefly define the term resident and non-resident in respect of an individual and their sources of income which are subject to ToS in Cambodia. (4 points) (e) Calculate the applicable tax for John for March 2012 and explain the reasons for your answers. (4 points) Page 7 of 11

8 Question 3 (a) Honey Beverage Co., Ltd (HBL) is a company registered with the GDT as a VATregistered taxpayer. HBL produces various kinds of soft drink and sells them to local and overseas distributors and retail customers. HBL had the following transactions in the month of March USD Sales to distributors based in Malaysia 37,750 Sales to local wholesalers, inclusive of VAT 25,800 Sales to various retailer customers, exclusive of VAT 19,980 Office and warehouse rental expense, inclusive of VAT 15,000 Importation of cans from Vietnam, inclusive of VAT 2,350 Purchases of raw materials 3,785 ( * ) Purchase of gas for power generation 27,000 Payment of consulting fees to a consulting firm based in Hong Kong 7,890 ( * ) Local audit fee, inclusive of VAT 4,000 Mobile phone expenses, inclusive of VAT 1,500 Fixed phone bills 800 Purchase of gasoline 2,360 Payment of local transportation expense 3,770 ( * ) Payment of interest expenses to a local individual 5,980 ( * ) Payment of interest expenses to an overseas bank 6,000 ( * ) During the same month, a main distributor claimed that HBL had overcharged the fees for their last order. After checking its accounting records, HBL issued a credit note of USD 1,500 to the distributor. Also, HBL has issued two additional invoices to its wholesalers for USD 750 and USD 400, excluding VAT. All amounts are exclusive of VAT unless otherwise stated. ( * ) Represent payments made to non-vat registered taxpayers. Other than these, all payments were made to VAT-registered taxpayers and supported by VAT invoices. Required: (a) Under the VAT regulations, briefly explain when the credit note can be issued and the difference between a VAT invoice and commercial invoice. (4 points) (b) Compute the amount of Withholding Tax (WHT) payable for the month of March 2012, assuming that HBL is able to withhold the tax before making all payments. (5 points) (c) Compute the amount of VAT payable or receivable for HBL for March 2012 including all respective workings. (8 points) Page 8 of 11

9 (d) Assuming HBL has VAT credit in the month of March 2012, briefly explain the conditions and the time within which HBL can request a refund for that VAT credit. (8 points) Page 9 of 11

10 Question 4 (a) Speed Technology Co., Ltd (STC) was established in Cambodia in March It is a VAT-registered company and operates under the real regime system. Prior to its incorporation, STC incurred various preliminary and formation expenses paid to VAT and non-vat registered taxpayers in January and February 2011 amounting to USD 2,300. Without taking into account the above expenses, STC s accountant has calculated and accrued the 2011 ToP liability of USD 1,750. STC is subject to ToP at the rate of 20%. Required: For the purpose of calculating the 2011 ToP liability, explain the possible methods for claiming a tax deduction in respect of the above preliminary and formation expenses and re-calculate the 2011 ToP after taking into account the expenses based on each method. (8 points) (b) Under the Prakas on ToP, describe the TWO criteria for determining whether an asset can be capitalised for tax depreciation purposes. (2 points) Page 10 of 11

11 Question 5 (a) State THREE conditions for the carry forward of tax losses for deduction. (3 points) (b) Describe circumstances that taxpayer or withholding agent would be considered to have committed negligence and serious negligence. (5 points) (c) Explain the nature of the Accommodation Tax, the tax rate and the due date. (4 points) (d) Explain the nature of the Tax on Immovable Property (property tax) including its effective date of implementation, the tax rate, the due date and the persons who are liable for paying the Tax on Immovable Property. (4 points) Page 11 of 11

EXAM PAPER (QUESTIONS) FOR JUNE Time allowed

EXAM PAPER (QUESTIONS) FOR JUNE 2018 Time allowed Reading and planning: Writing: 15 minutes 3 hours All FIVE questions are compulsory and MUST be attempted. Tax rates and rebates are printed on page 1.