Taxation in Cambodia Py Borapyn Associate Director, Cambodia Tax Practice American Chamber of Commerce in Thailand 15 March 2018 BANGLADESH CAMBODIA INDONESIA LAO PDR MYANMAR SINGAPORE THAILAND VIETNAM 1
Part 1 Overview of taxes in Cambodia 2
Snapshot of taxes in Cambodia Taxes Cambodia Profit Tax/Minimum Tax 20%/1% Value Added Tax ( VAT ) 10% Withholding Tax Dividends (non-residents) 14% Withholding Tax Interest (non-residents) 14% Withholding tax Royalties (non-residents) 14% Withholding tax Services (non-residents) 14% Personal Income tax (Employment) 0-20%/20% Non-resident Capital Gains Tax on Sale of Shares 0% Tax Treaty Network Limited Transfer pricing rules Yes 3
Overview of applicable tax rates Profit Tax WHT dividends WHT interest WHT royalty Capital gains Cambodia 20% 14% 14% 14% 0% /20% Myanmar 25% 0% 15% 20% 10% Laos 24% 10% 10% 5% 10%
Part 2 Value Added Tax in Cambodia 5
Cambodia VAT Law Rates of Value-Added Tax: 1. A 10% rate is applied to imported and domestically consumed goods and services; 2. A zero (0%) rate is applied to goods and certain services for export. 3. No VAT reverse charge for cross border services.
Cambodia VAT Law Standard VAT Rate = 10% Applies to goods and services Non-Taxable Supplies Includes Electricity, water, educational institutes VAT at Zero Rate VAT is charged but at a zero rate Exported goods limited exported services Refunds of VAT difficult in practice to obtain.
Part 3 Tax Structuring: Cambodia - Thailand 8
Cambodia Profit Extraction THAILAND CAMBODIA Thailand Hold Co Dividend 100%* Cambodia Co., Ltd. (Manufacturer) Dividend payment Worst case scenario Dividend payments to non-resident shareholders are subject to 14% WHT no DTA to reduce or limit this rate Dividends paid out of profit already subjected to 20% TOI, therefore effective tax rate is 31.2%, as illustrated by the following example (US$) Profit before tax 1,000 TOI @ 20% 200 Profit available for dividend distribution 800 WHT on dividend distribution to non-resident @ 14% 112 Total tax paid 312 Net dividend received 688 Effective tax rate (312/1,000) 31.2%
Profit Repatriation Alternatives to Dividends: Debt (negative gearing) principal no tax WHT on interest Cambodia does not have any thin capitalisation rules i.e. Debt/equity Intercompany agreements i.e. a) Management agreement, b) Licence agreement, c) Consultancy agreements WHT @14 versus 31.2% Cambodia now has transfer pricing regulations! Effect of DTA 1 January 2018 10
DTA Withholding Taxes Before DTA Royalties 14% 10% Dividends 14% 10% Interest 14% 10% Technical Fees 14% 10% In effect from 1 Jan 2018 - Singapore and Thailand Signed but not yet in force China, Brunei Under negotiation Hong Kong and Vietnam 11
DTA Withholding Taxes Before DTA Royalties 14% 10% Dividends 14% 10% Interest 14% 10% Technical Fees 14% 10% 12
DTA Withholding Taxes Without Deduction of Service Fee and DTA With Deduction of Service Fee (no DTA) Profit before service deduction 100.00 100.00 100.00 Service fees - 80.00 80.00 Taxable profit 100.00 20.00 20.00 Profit tax @ 20% 20.00 4.00 4.00 Profit after tax 80.00 16.00 16.00 Effect of DTA & Service Fee Profit tax payable 20.00 4.00 4.00 WHT on dividend @14% 11.20 2.24 WHT on dividend @10% 1.60 WHT on service fee @ 14% - 11.20 WHT on service fee @10% 8.00 Total tax payable 31.20 17.44 13.60 Tax saving - 13.76 17.60 13
Part 4 Tax Planning Tips for Cambodia 14
Tax Planning Tips for 2018 Transfer pricing rules now apply in Cambodia. All cross-border transactions with related parties must have transfer pricing documentation to support. To utilize the reduced WHT rate under the Cambodia-Thailand DTA a pre-approval must first be obtained from the tax authority in Cambodia. Cambodia has signed tax treaties with Thailand, China, Singapore, and Brunei. The tax treaties with Thailand and Singapore are in force from 1 January 2018. It is worth checking if you can use these treaties in your tax planning. 15
Tax Planning Tips for 2018 Be mindful that the tax holiday under the Cambodia investment regulations does not permanently exempt a QIP from the 20% corporate tax it merely suspends the imposition of the corporate tax until a dividend is issued. Tax losses can be carried forward for up to five years only. Additional incentives for all taxpayers may be obtained if taxpayers maintain proper accounting records and are classified as a Gold, Silver or Bronze taxpayer. 16
Thank you Py Borapyn Associate Director; Cambodia Tax Practice Group Borapyn.py@dfdl.com 17
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