Legal Situation in Cambodia
Cambodia’s legal system is a hybrid of Civil Law (inherited from the French colonial era) and Common Law (introduced by international development partners as part of their assistance on legal and judicial reform).
For foreign businesses and investors, it is unavoidable that legal contracts on investments, projects and partnerships here must adhere to the jurisdictional law of the host country, and this may understandably be an issue of anxiety and concern. However, that need not be the case if the right local partner and some commonsense due diligence are undertaken before entering into any formal agreement.
After all, legal protection as enshrined in contractual agreements is supposed to be just that – a contingency, a safeguard, a safety net and for some, the dreaded last resort of choice to ensure an agreeable outcome for all signatory parties. But this requires some familiarity of the local operating context, access to a network of diverse contacts and a conduit that elicits trust, integrity and reasonableness in the conduct of business transactions.
It will be worthwhile to devote more time, attention and resources to ensure these fundamental prerequisites are in place rather than be overly hasty in a business deal on account of the personal referral of persons or entities claiming to have the right “political connection”. A simple anecdote that may be all too familiar to those who had previous business/investment experience in any emerging economy is when someone claims to be well connected to a general (or a few); the reality is that there are more police and military generals per capita in Cambodia than countries that boast much larger security and armed forces.
Nevertheless, foreign business and investors should peruse the Business Directory in this platform at no charge to shortlist legal firms to consult for not only its contractual needs but on a variety of other operational and administrative compliances, including taxation. It would be prudent to pay more attention to clauses on disputes settlement in contractual agreements beyond the usual standard refrains; Aquarii strongly advocates the inclusion of stipulations on amenable resolution, mediation and arbitration.
Feel free to enquire with the Aquarii team should you need further advice.
Taxation in Cambodia
In Cambodia, both companies and individuals are subject to certain tax obligations under the host country’s self-assessment system, regardless of the type of business activity or the level of annual revenue. The tax registration can be concurrently filed with the General Department of Taxation (GDT) when the application for company registration is submitted to the Ministry of Commerce (MOC).
Some of the more common taxes that foreign businesses and investors would have to file declaration and comply with are listed below but note that they are not exhaustive and other taxes and duties may be applicable:
1. Taxes on Employment
An individual is considered a tax resident if they have been in Cambodia for more than 182 days in any 12-month period ending in the current year of tax assessment;
Tax resident employees must pay tax on salaries from both Cambodian and foreign sources – employer pays to withholding tax on the gross monthly salary of employee according to a progressive scale/rate;
The monthly salary of non-resident employees for salary derived from Cambodian sources are subject to a flat withholding tax rate of 20%;
Employers must withhold the tax due on an employee’s salary (and 20% of the total value of fringe benefits) and pay the withholding tax to GDT on or before the 25th day of the month following the salary payment;
2. Tax on Company vehicle
3. Patent Tax, the quantum of which is dependent on the annual revenue viz small, medium or large taxpayers.
4. Stamp tax (exempt for newly established companies) but applicable for mergers, dissolution, transfer of shares and immovable properties and assets.
5. Tax on Income depending on the industry (Note: There is also Prepayment Tax on Profit calculated at the base rate of 1% of the company’s annual turnover which is to be paid by or before the 20th of each month. The cumulative amount shall be deducted against the tax on profit at the annual declaration).
6. Minimum Tax is at the rate of 1% of the annual turnover (inclusive of all taxes except VAT) and is payable along with the tax on profit.
7. Withholding Tax is the tax that a resident taxpayer business withholds when it makes payment in cash or in-kind to a resident or non-resident taxpayer, including bank interest, royalties, rental, dividends, etc.
8. VAT – Value-Added Tax at 10% of the value of the goods or services to be supplied must be charged/added.
9. Capital Gains Tax of 20% was promulgated on 1 April 2020 to be effective from 1 July of the same year, but the implementation was subsequently deferred to 2023 due to economic pressures from the Covid pandemic.
Note: Qualified Investment Projects (QIPs) are exempted from selected taxes and duties
Double Tax Agreements of Cambodia (DTA)
Cambodia has signed Double Taxation Agreements (DTA) with nine countries to avoid the international double taxation of income and properties.
We advocate seeking the professional advice and services of a qualified and reliable accountancy firm to ensure that your tax filing is done correctly and in compliance with GDT requirements from the onset.
Feel free to enquire with the Aquarii team should you need further advice.
If you are looking for a more nuanced insight or advice in terms of other indicators/observations not commonly found in publications for a better understanding of how a business or investor can navigate the local environment or seek out collaboration opportunities and trustworthy partners, get in touch with our team at Aquarii. Ask to speak to our CEO if you wish to know why he has decided to make Cambodia his 2nd home, perhaps the strongest testament of his conviction in the potential and opportunities in the Kingdom.
