Tax Update: Cambodia’s Ministry of Economy and Finance Issues Prakas No. 648 on Tax Obligations for Air Transport of Passengers and Cargo

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Overview

The Ministry of Economy and Finance has issued Prakas No. 648 on Tax Obligations for Business Activities in Airway Transport of Passengers and Cargo (the “Prakas“), effective from the date of its signature. This significant regulatory development establishes detailed rules and procedures for the application of Tax on Income (“TOI“), Special Tax, and Value-Added Tax (“VAT“) to taxpayers engaged in the air transportation of passengers and/or cargo. The Prakas aligns with the Royal Government’s broader initiatives to bolster the tourism sector and enhance infrastructure, including the upcoming inauguration of a new international airport. This Prakas also reflects extensive consultations between the tax authorities and industry stakeholders, aimed at promoting equitable taxation, transparency, and predictability in the aviation sector.

This update provides a high-level summary of the key provisions. Businesses operating in or with connections to Cambodia’s air transport industry should review their tax compliance frameworks in light of these changes. We recommend consulting with tax professionals to assess specific implications.

Scope of Application

The Prakas governs resident and non-resident taxpayers involved in domestic or international air transport of passengers and/or cargo within, from, or to the Kingdom of Cambodia. For this purpose:

• Domestic Transport: Covers flights between locations within Cambodia.
• International Transport: Encompasses flights originating in or destined for Cambodia, as well as overflights between foreign locations.

Resident enterprises are those established, managed, or with a principal place of business in Cambodia. Non-resident enterprises, managed abroad, are subject to the Prakas if they operate through a permanent establishment (“PE“) in Cambodia, which includes fixed places of business, branches, resident agents, or networks facilitating economic activities. Non-residents must appoint a PE representative for tax registration and compliance.

Gross income under the Prakas includes revenues from core transport activities (e.g., passenger tickets, cargo fees, excess baggage, seat upgrades, commissions, in-flight sales, modification/no-show fees) and non-transport activities (e.g., interest, rentals), excluding civil aviation fees, airport security fees, and passenger service fees.

Tax on Income Obligations

• Resident Enterprises:

Resident enterprises are liable for TOI at a flat rate of 20% on worldwide taxable profits (Cambodian- and foreign-sourced), calculated as gross income less allowable deductions under general tax regulations. Income recognition follows accrual principles: upon invoice issuance for supplies, or at fair market value for self-use, gifts, or below-market transactions.

• Non-Resident Enterprises

Non-residents are subject to TOI at 20% solely on Cambodian-sourced income, with taxable profits deemed to be 15% of gross Cambodian-sourced receipts from relevant activities (effectively resulting in a 3% TOI on gross income). This applies to domestic transport, international departures from Cambodia, and other Cambodian-sourced activities. Income from core transport is recognized at the time of transport, while non-transport income follows general rules.

Non-residents paying TOI under this regime are exempt from the Prepayment of TOI and the Minimum Tax.

Withholding Tax Requirements

• Resident Enterprises: Must withhold and remit taxes in accordance with standard provisions (e.g., 15% on payments for services to non-self-assessed residents, 10% on rentals, etc.).
• Non-Resident Enterprises (via PE): Exempt from most withholding obligations on Cambodian-sourced income, except for withholding on rents for movable/immovable property and salaries paid to resident individuals.

Value-Added Tax

VAT applies as follows:

• Domestic Transport and Related Supplies: Taxed at 10% on the invoiced amount, with the tax base comprising ticket/cargo fees and ancillary charges (excluding VAT, civil aviation/security/passenger fees). Invoices must itemize all components separately.
• International Transport and Related Services: Zero-rated (0% VAT), including navigation, landing, parking, information services, and supplies of fuel, food, or merchandise (deemed for use outside Cambodia).

Input tax credits are available under general VAT rules. Non-transport income supplied in Cambodia must comply with standard VAT regulations.

Special Tax on Passenger Transport

A monthly Special Tax is imposed on passenger flights (excluding cargo-only services) at fixed per-passenger, per-flight rates:

• Domestic Flights:
  • Economy Class: KHR 10,000.
  • Business/First Class: KHR 16,000.
• International Flights Departing Cambodia:
  • Economy Class: KHR 40,000.
  • Business Class: KHR 60,000.
  • First Class: KHR 80,000.

The tax accrues in the month the service is performed. This represents a big shift from the previous special tax regime, as the tax is based on a percentage of the ticket price.

Double Taxation Agreements

Enterprises party to a Double Taxation Agreement (“DTA“) with Cambodia must adhere to its provisions on air transport profits, including mechanisms for avoiding double taxation and preventing evasion. This may result in exemptions from Cambodian TOI on certain profits (e.g., under Article 8 of model DTAs, which often allocates taxing rights exclusively to the enterprise’s residence state for international transport income).

Compliance and Reporting Obligations

• Resident Enterprises: Submit monthly tax returns by the 20th of the following month and annual returns, remitting all applicable taxes in prescribed forms and at designated locations.
• Non-Resident Enterprises (via PE): File monthly returns for TOI and other taxes by the 20th of the following month; submit annual returns without additional TOI payment. The PE is responsible for withholding and remitting taxes on behalf of the non-resident, with joint liability for non-compliance.