On 17 March 2025, the Ministry of Economy and Finance issued Prakas No. 198 MEF.PrK, introducing temporary withholding tax (“WHT”) relief for domestic airline companies for a period of 4 years, from the date of issuance until 31 December 2028. The Prakas aims to reduce tax-related expenses for domestic airlines, enhance their competitiveness in regional and international markets, and support the development of the tourism and aviation sectors.
It provides a reduced WHT rate of 2% on payments to non-resident taxpayers for specific services, including aircraft rental, maintenance and overhaul, overseas technical assistance, overseas airport charges, IT shared service costs, brand licensing fees, online ticket booking system fees, training by overseas vendors, centralized system shared costs, and system license fees. A WHT rate of 10% applies to management service fees and other general services.
It is important to note that to be eligible for this relief, domestic airline companies are required to file monthly and annual tax returns through the e-Filing system and maintain proper accounting records in accordance with Cambodian tax laws and regulations.
Background
The aviation sector plays an increasingly strategic role in Cambodia’s international connectivity. The country’s three international airports, namely Phnom Penh, Siem Reap, and Sihanoukville, are currently connected to 12 countries and the Special Administrative Regions of China, including Hong Kong and Taiwan, covering a total of 34 international destinations. This growing network is supported by five national airlines and 26 international carriers, highlighting the importance of maintaining a competitive operating environment for domestic airlines.
To support the development and resilience of the aviation industry, the Royal Government of Cambodia has implemented several targeted tax incentives in recent years, as follows:
- A reduction of the WHT rate from 14% to 10% on aircraft leasing payments to non-resident entities, applicable from 1 June 2024 to 31 May 2027.
- A reduction of the special tax rate from 10% to 5% on air passenger transport services from 1 June 2024 to 31 May 2027.
- A minimum tax exemption granted from March 2020 to June 2022, relieving airlines from the obligation to pay minimum tax without requiring redemption.
- Preferential tax treatment for Air Cambodia Co., Ltd. (formerly Cambodia Angkor Air), established by Sub-Decree, under which the government assumed all tax obligations, excluding income tax and WHT, until the airline recovered its investment capital. Following 8 years of operation, the airline qualifies for a reduced WHT rate of 2% and an income tax rate of 9%.
The General Department of Taxation has also been working with private stakeholders to improve the regulatory and compliance framework for aviation-related tax matters by drafting a Prakas on Taxation of Airline Companies, which is yet to be released.
Our Perspectives
While Prakas No. 198 MEF.PrK introduces reduced withholding tax rates to support domestic airline companies; its implementation should be assessed in accordance with the Law on Taxation 2023. Under Article 33, most of the payment types covered by the Prakas, such as aircraft rental, maintenance and overhaul, overseas technical assistance, and licensing fees, are considered Cambodian-sourced income and are therefore subject to withholding tax obligations under Article 26 when paid to non-resident taxpayers.
However, certain payments, including overseas airport charges, and online ticket booking system commissions, are not explicitly identified in Article 33, and are not even, in our opinion, in line with the object and purpose of Article 33. These payments involve non-technical services performed outside of Cambodia or rented space situated outside the Kingdom of Cambodia and may not clearly meet the definition of Cambodian-sourced income under current tax provisions. Furthermore, while a Prakas is meant to clarify the scope of Article 33 of the LOT, paragraph 2(b) of Article 1 stated “other services”, which entails further ambiguities.
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