The General Department of Taxation (GDT) has issued Instruction No. 19116 on June 20, 2025, providing guidelines on tax treatment for board members and company directors in Cambodia. The instruction clarifies that such payments are subject to tax on salary or withholding tax, depending on whether the activities qualify as employment. Even occasional services, like attending board meetings, are considered work benefiting the Cambodian entity, and parent companies should charge subsidiaries for these services to avoid tax issues.
- Employment Activities – Tax on Salary
If a board member or director’s activities qualify as employment, they are subject to tax on salary:
- Residents: 0-20% progressive rates on worldwide income
- Non-residents: 20% flat rate on Cambodian income
An individual is classified as an employee if they meet at least two of four conditions: no risk of non-payment, limited autonomy, no expense obligations, and exclusive service to one employer.
Exemptions: Tax on salary does not apply if directors are not involved in management, receive no Cambodian remuneration, or only attend occasional meetings. In such cases, fees may be charged by the parent company.
- Non-Employment Activities – Withholding Tax (WHT) and Transfer Pricing
If a board member or director’s activities are treated as service provision rather than employment, the remuneration is considered as service fees:
- Residents: 15% WHT for service providers (e.g., advisory fees, board meeting attendance fees)
- Non-residents: 14% WHT on Cambodian-sourced income
- If a Double Tax Agreement (DTA) applies, the WHT rate is reduced to 10%
- Transfer pricing rules apply to ensure they are fair and properly taxed
Key Considerations
Instruction No. 19116 GDT focuses on classifying director services for tax on salary or withholding tax, but does not cover all tax implications. Companies should also consider reverse-charge VAT for cross-border services and permanent establishment (PE) risks if non-resident employees have a physical presence in Cambodia.
Compliance Takeaways
Companies must:
- Assess employment status carefully using the four-condition test
- Consider VAT implications for cross-border services
- Evaluate permanent establishment risks
- Maintain detailed documentation of director activities
- Ensure arm’s length pricing for cross-border management fees
Professional Advice Recommended
Tax obligations for non-resident directors can be complex and highly dependent on specific circumstances. We strongly recommend consulting with qualified tax professionals to ensure compliance with both Cambodian tax law and any applicable double taxation agreements.
For more detailed information on the original instruction: Instruction No. 19116 GDT.
Courtesy of tax update and insights from Davies SM Attorneys-at-Law.