Tax Update: Instruction No. 19116 GDT on Tax Obligations of Board Members or Company Directors

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On 20 June 2025, the General Department of Taxation (GDT) issued Instruction No. 19116 GDT to clarify the tax treatment of payments made to board members or company directors, particularly in distinguishing whether such payments are subject to tax on salary or withholding tax on services (WHT). The tax implications will ultimately depend on whether the activities performed by the board member or director are classified as employment activities under Cambodian law.

Background:

The issuance of Instruction No. 19116 GDT is a response to recurring issues encountered during tax audits, where the tax auditors reassessed tax on salary obligations involving non-resident directors. In several cases, tax auditors deemed that such individuals had received taxable salary in Cambodia, despite the taxpayer’s position that the individuals did not meet any of the legally defined criteria for classification as employees under Cambodian tax law (and labour law). As a result, the tax on salary should not apply.

However, from the GDT’s standpoint, even if the services are performed only on an occasional basis (e.g., attending board meetings), such services still constitute actual work performed for the benefit of the Cambodian entity. As such, expenses are considered to have been incurred, and from a transfer pricing perspective, the foreign parent company that appoints the directors should charge the Cambodian subsidiary for those services. Failure to do so may lead to a deemed service arrangement subject to withholding tax from a transfer pricing standpoint.

Following extensive discussions between the tax administration and the private sector, a consensus was reached to clarify the treatment of such arrangements. Therefore, there will be either a tax on salary or WHT on services, depending on the existence of an employment relationship. The instruction also provides specific scenarios where tax on salary does not apply.

1. Employment Activities – Tax on Salary 

If the activities performed by a board member or director are classified as employment activities, board members or company directors will be subject to tax on salary as follows:

• • Resident employees are taxed on a worldwide income basis, meaning all income, regardless of where it is paid, is taxable in Cambodia. The tax is applied progressively at rates ranging from 0% to 20%. Therefore, even if an individual is seconded from a foreign parent company to Cambodia, and the salary is paid outside Cambodia, the entire salary remains taxable in Cambodia.
  • Non-resident employees are taxed only on Cambodian-sourced salary, and a flat rate of 20% applies.

The classification of an individual as an employee is based on meeting at least two of the following four conditions:

• • No risk of non-payment if work is performed as agreed.
  • No autonomy to determine when or where the work is performed.
  • No requirement to incur expenses to purchase equipment.
  • Exclusive service provided to one employer.

The instruction also outlines specific scenarios where tax on salary does not apply, particularly in cases where board members or directors are not involved in management activities, do not receive remuneration from the company in Cambodia, or participate only in occasional board or shareholder meetings. In these scenarios, service fees may be charged from the parent company as outlined below.

 

2. Non-Employment Activities – Withholding Tax and Transfer Pricing 

If the activities are not classified as employment, and the board members or company directors perform services in Cambodia (e.g., as a non-resident board member),  service fees must be charged from the resident entity and are subject to:

 

• • 14% WHT for non-residents on Cambodian-sourced income, or
  • 15% WHT for Cambodian-resident service providers (e.g., advisory fees, board meeting attendance fees). 

Where services are provided by a non-resident (such as a foreign director appointed by a parent company abroad), payments made by the Cambodian company (or charged via management fee from the foreign parent) will also trigger transfer pricing rules. Therefore, some tests may need to be performed for the purposes of comparability analysis, such as the benefit test, duplication test, and shareholder activities test, among others.

 

3. Scope of Instruction – Limitations and Other Tax Implications 

It is important to note that Instruction No. 19116 GDT focuses solely on the classification of services performed by directors or board members for the purpose of applying either tax on salary or withholding tax on services. However, it does not fully address other related tax implications, such as:

• • Reverse-charge VAT: In cases where cross-border services are rendered, reverse-charge VAT may be applicable, particularly when the service provider (i.e., board members or company directors) does not physically provide the services in Cambodia.
  • Permanent Establishment (PE): The physical presence of an employee(s) in Cambodia of a non-resident company may potentially lead to a fixed place of business in Cambodia if the activities actually performed exceed the simple duties of board members or company directors. As a result, whether the activities of employees of a non-resident company constitute a PE may be assessed on a case-by-case basis in accordance with the general rules under the Law on Taxation and relevant double tax treaties.
    

Conclusion

Instruction No. 19116 GDT provides a proper legal framework for distinguishing between employment and service-based arrangements involving board members and company directors. However, companies should conduct a comprehensive analysis not only of the employment status but also of potential VAT, and PE risks, particularly in cross-border structures or when dealing with foreign parent companies.

 

For proper tax compliance, companies are advised to maintain detailed documentation, assess actual functions performed, and ensure arm’s length pricing when management fees are charged across borders.